Hard Times for California Farmers : B of A Says It Has Foreclosed on 80,000 Acres in State
California farmers are suffering from the most severe financial stress in half a century, Bank of America said Tuesday in its 1985 agriculture outlook. A senior economist at the bank characterized the assessment as “one of the more sober reports to come out of Bank of America in some time.”
The economist, Duane A. Paul, told a briefing at the bank’s Southern California headquarters that the bank has taken over more than 80,000 acres of state farmland--most of it in grazing and pasture operations--and that further foreclosures are inevitable.
The foreclosures have done nothing to brighten Bank of America’s own financial picture, since the bank maintains $2.2 billion in its agricultural loan portfolio. Earnings have tumbled from $114 million in the first quarter to near the break-even point in the second, the bank disclosed separately.
“We try to work with the owners as long as we can,” Paul said of the foreclosures. “In some cases, that just doesn’t work out.” But the bank has been able to resell a few farms to their previous owners, he added.
While Bank of America, the largest private lender to California agriculture, intends to remain active in the field, he said, it will pay closer attention to cash flow and management than to a farm’s asset value.
The value of farmland--the prime asset--continues to deteriorate, he said. Because the land’s value derives in part from artificially high commodity prices, any change toward a more market-responsive pricing system, as is currently being considered by Congress, would tend to erode values further, he said.
Most affected would be cotton, rice, corn and wheat farmers, whose holdings account for a large share of the state’s cultivated land.
The bank forecast that California will maintain its status as the nation’s No. 1 agriculture state with $15 billion in cash receipts, despite stagnant overseas sales of $3 billion, well below the record of $4.2 billion in 1981. Rising costs will hold net farm income about flat at $3.57 billion--the fifth straight year that it has lagged below 1979-80.
“Nearly every sector is suffering from reduced income,” Paul said.
The exception is vegetable producers, who are benefiting from a shift in consumer preference toward fresh produce and are least dependent on export sales. Otherwise:
- Fruit and nut cash receipts are expected to be “somewhat improved,” though many will remain unprofitable--especially grape growers, hurt by low prices and shifting demand.
- Field crops are expected to decline in value.
- Livestock and dairy receipts will remain basically flat.
Underlying the dreary farm scene are changes beyond California and in the world economy, the bank said: “disinflation of the last three years, high real interest rates, an overly robust dollar and the increasing self-sufficiency of foreign nations.” The best that can be said is that 1986 may prove “less hostile” than the last five years, with the dollar halting its upward climb in value and interest rates stabilizing, Paul said.
“The agricultural industry is still suffering from the excesses of the 1970s boom times,” said Bank of America President Samuel H. Armacost in an introduction to the report.
“The current situation is often described as an ‘agricultural credit crunch,’ ” Armacost said. “That description misses the mark. What we are seeing is an agricultural profitability crisis, which in turn has spurred a credit crisis. Restore the profit to farming and the credit crisis will fade away,” he predicted.
Before that can occur, the bank concluded, California agriculture must pass through “an adjustment period” that, for the next few years, at least, will continue to subject many farmers to severe financial stress. CASH VALUE OF CALIFORNIA CROPS AND LIVESTOCK Figures in billions of dollars. Percentage change is from previous year.
1980 1981 1982 Vegetables $2.53 12.5% $2.79 10.6% $2.82 1.0% Fruits and nuts 3.06 2.4 2.95 -3.4 3.06 3.5 Field crops 3.42 28.3 3.24 -5.1 3.12 -3.8 Horticulture specialties 0.91 12.5 0.94 3.7 1.03 9.6 All crops 9.91 13.9 9.93 0.2 10.04 1.0 Livestock and livestock products 4.09 -3.3 4.23 3.5 4.39 3.8
1983 1984 1985 Vegetables $2.98 5.5% $3.20 7.3% $3.40 6.3% Fruits and nuts 2.52 -17.5 2.75 9.0 2.85 3.6 Field crops 2.85 -8.5 3.30 15.5 3.15 -4.5 Horticulture specialties 0.97 -5.5 1.05 7.9 1.10 4.7 All crops 9.33 -7.0 10.30 10.3 10.50 1.9 Livestock and livestock products 4.16 -5.3 4.45 7.0 4.50 1.0