Oral History Interview with Timothy J. Brannon

Timothy Brannon by John Klee - Mary Leon[Begin Tape #1, Side #1]

KLEE: The following is an unrehearsed interview with Tim Brannon of Mays Lick for the Kentucky Oral History Commission. The interview is being conducted at the offices of the . . .

BRANNON: Farm Credit Service.

KLEE: . . . Farm Credit Service of Northern Kentucky, in . I usually start these interviews by getting a little bit of background about the individual I'm talking to. So I want you to tell me a little bit about . . . I know . . . I know you, so, you know, you were raised in the area and just start us out like that.

BRANNON: I was born in Maysville. I've always lived at Lewisburg. My dad's a farmer. I farmed for a few years with my dad. Later went to school at for two years. Got a degree in agri-business and got my Bachelor's with the in agriculture. Graduated in `81. Went to work for Farm Credit in October of `81 and worked with Farm Credit since that time.

KLEE: I didn't realize you'd been with them that long. So you've seen several of the changes and things. Now what's your current position?

BRANNON: I'm a loan officer and that's just been recently changed. There's been a lot of reorganization with Farm Credit. People who were vice presidents are now branch managers, and branch managers are now loan officers, so there's been a lot of change in the last five years.

KLEE: Okay. Is this considered a branch? This location?

BRANNON: This is considered a branch of Farm Credit Service.

KLEE: Okay. And you're a loan officer with them.

BRANNON: Um, hmm.

KLEE: Let's review some of those changes of the last six years since you've been with . . . with the group. Now obviously this is part of the whole farm crisis, I guess you'd call it. Relate some of those . . . some of those changes.

BRANNON: When I came, in `81, the downturn in farm economy just started. And I thought at that time that things were gonna be tough, but I didn't realize how tough. It's lasted a lot longer than I think anybody would have anticipated. In `79, the peak of land values had just been reached in the area somewhere along . . . for typical land, say, in Mays Lick, crop land, you're probably even talking about $1,200 an acre. And since that time, declined to a point now some five or six years later where the value typically of crop land's at about eight fifty [$850]. When you take a fellow's financial statement and take off four hundred dollars per . . . per acre, you can see a lot of financial stress will be created from that. I had an aw-, awful lot of dropping people's equity during that time. As a result of that, had a lot of stress and strain goes on the individuals and Farm Credit Service too.

KLEE: How did the Farm Credit Services . . . that . . . that's the current name now, where did that come from? What kinds of [inaudible]?

BRANNON: A merger of the Production Credit Association and the Federal Land Bank Association. And that was done, it began about 1984 and in about 1985 it was completed by vote of the membership of both PCA and Federal Land Bank. That was done to promote stability among Farm Credit Services in some of the smaller PCA's and Federal Land Banks that had such losses from decline in land values in certain areas. Say in Iowa, land values at one time may have been two thousand dollars, and now they're eight hundred to a thousand dollars an acre, so they had lost a tremendous amount of money, and in order to keep the . . . that portion of the system afloat, they merged so that they could use the capital of the entire organization. And the same was true, both PCA . . . the time span in which PCA's and land banks have differed a little bit as far as the amount of time these programs . . . the PCA's are the short-term side of the business. So the problem surfaced a lot faster with PCA's than it did with the land banks. Land banks were the real estate end of the farm banking that

we . . . we deal with, and the PCA struggled from about 1979 to, oh, about `84 while the land banks have struggled from about `81, `82 until present. And the land banks have lost a tremendous amount of money, far greater than the PCA's because you have a lot [inaudible] short-term credit than you do with long. So there's been an . . . an awful lot of money lost in that time span on both . . . both sides of the deal.

KLEE: When you're . . . when you make . . . made that distinction, PCA's, they're more likely to do or they were more likely to do farm agri-business type loans.

BRANNON: Farm operating. Cattle, machinery purchases, small real estate acquisitions. Just about anything that you could put on the arm besides real estate. They can even take care of consumer goods, washer-dryer, even . . . even that type of thing. While the federal land banks dealt primarily with real estate purchases and rural homes and residence in the county that would be outside the . . . the [inaudible] Maysville, they could purchase a house. You know. That was the major distinct-, distinction: one just deals with real estate, and the other with everything that goes on the farms [inaudible].

KLEE: What about the . . . the situation with Farm Credit Services now? Still in the midst of the crisis?

BRANNON: Still awful bad. Right now, Farm Credit overall holds 2.2 million acres of real estate throughout the . , the . . .

KLEE: Are you saying that they . . . in other words, that's out of the hands of the farmers? That's . . . they've had to take that over?

BRANNON: They've had to take that back. We own 2.2 million. The Farmer's Home Administration owns about 1.4 million that they've taken back. The insurance companies, I would say, maybe a smaller amount yet; maybe a half million to .2 million. But an incredible amount of land's been taken back from farmers throughout the . The worst areas that we have are western , , and portions of . We also have , but has, with eastern , has stayed a little more stable because of the diversity in agriculture in those areas. The areas that dealt with corn, soybeans and row crops are the ones that's been hardest hit, so . . .

KLEE: Okay. Some of your literature talks about how the Farm Credit Services are not a branch of the government and so forth, which is a . . . which, I guess, when they hear federal land bank, they thought of the government.

BRANNON: It's a quasi-governmental agency is what they call it. And our original beginning started with funds from the government. In 1919, when the federal land banks organized, they borrowed money from the federal government, as did PCA a few . . . a few years later when they started out. And since that time, the money has been paid back in full to the government, and the funding that we use now to finance our loans is derived from stock market and the bond market, where a blue chip stock or [inaudible] and the reason why we have had such a good record with our stocks and bonds is that the government has said that they will buy our bonds, and in essence, they haven't really lended their name, like a treasury bond says with the full faith and whatnot of the federal government. Ours doesn't, but the government says, you know, we back the Farm Credit system and it's quasi-governmental. And our rates have stayed about one percent higher as far as on barn costs than . . . than the federal government, which is really good for a lender to be able to accomplish this because it's usually higher than that; there's usually a larger spread in the amount that you have to pay. The investor looks, says . . . looks at the stocks through risk, so historically, the investors have seen our bonds as less risky than other types of investments that they could make.

KLEE: I see. If a government wants to help farmers that have credit problems, would they coordinate through organizations like yours in some way, or . . .

BRANNON: Not necessarily, but here in the past few years, that has been the case. Farmers Home Administration is actually the arm of the government that deals with farmers and . . . one of the lenders of last resort. If a farmer can get it from anywhere else, he's expected to. The Farmers Home Administration, however, no longer has funding since the Reagan administration to make farm ownership loans, and their farm operating loans are severely limited because they must have, I believe it's a rule now that they have to have at least two objections from another lender in order to obtain funding through Farmers Home. So what they have shifted their emphasis towards is use of a guaranteed loan program which says to a lender, we'll make . . . if you make this farmer a loan, we'll guarantee your loan up to ninety percent of the principal and interest which means that the lender, on his investment in farming, as long as he follows the rules of the guaranteed loan, will never lose more than ten . . . ten or so percent of principal and interest, which is a really good deal, so that . . . they have shifted more or less from a direct lending to a guarantor type of arrangement.

KLEE: And so they . . . they work with you in that capacity?

BRANNON: In that capacity. Otherwise, there is not that much direct involvement. There is a governor of farm . . . farm credit board which is appointed by the president. He appoints certain members to govern the FCA, which is our regulatory body that takes care of the Farm Credit Service.

KLEE: What was that then?

BRANNON: FCA.

KLEE: Okay. What's that stand for? Offhand?

BRANNON: I ought to. [inaudible] think . . .

KLEE: And you say they're a regulatory body?

BRANNON: Yeah, they're just a regulatory . . . Farm Credit Administration, which is appointed by the president [inaudible] and they oversee the bank. They do audits. They make sure that we're in compliance with the policies of the bank, and make sure that we're not exceeding . . . exceeding our charter, such as getting into areas we shouldn't be. Um, hmm.

KLEE: I see. Has . . . as this contraction has occurred in the farm credit area, let me . . . talk with me about your specific responsibilities now. You said that PCA used to do, you know, operating costs. You do real estate kinds of loans. Are you still involved in all those areas?

BRANNON: We're still involved in just as many areas, but so much of our time is spent now servicing accounts that are in trouble, working with farmers to get the guaranteed loans. Like, [inaudible] was here this morning and he's branch assistant for Farmers Home Administration, and we have a lot more involvement with Farmers Home Administration in order to work out problems. It used to be, if you had a problem, you'd just say . . . go down to Farmers Home Administration and see if you can refinance your loan. Well it's not that easy anymore because they have to . . . no longer have the funding. So you have to service these accounts still, and work with FHA to accomplish something. And so much more of our time is spent with taking care of problems than [inaudible].

KLEE: I see. I see. What . . . tell me about, you know, a farmer comes in and obviously if he's got a problem, he can't make his loan payments. What . . . what's . . . what do you see as the cause of this?

BRANNON: For a lot of them, it's not bad management or lack of effort on their part to pay the . . . the loan payment. A lot of it's been caused by bad timing, which people had invested from about 1978 to `83 in land automatically had a loss in home equity because whatever they bought has appreciated. And same way with farm machinery or some of the other agricultural assets there for a long time. Combines, for example, a tremendous amount of depreciation. If you bought one, for a few years, they would just drop off because there was no demand. Nobody wanted a combine, and the same with [inaudible]. And a lot of the problems with the farmer has been just bad timing. Another problem . . .

KLEE: To the uninitiated, how does that relate to . . . to making your loan payments? Because the equity in land has dropped, they can't borrow against that to get operating expenses?

BRANNON: That's right. If their financial trend is bad . . . we look at five things [inaudible] Farm Credit: that demand factor, which is the individual history of performance, how he paid on his loans.

KLEE: [inaudible]

BRANNON: His repayment ability, which relates to past history of whether he's made profit or not; security, whether he has enough collateral to cover the loan; financial position, which relates to his owned equity, whether he has a high owned equity or a low owned . . . low owned equity. As far as his risk-bearing ability and also scope, which means the term of years, the type of interest rates, the conditions under which the loan needs to be made. So all those five things have to play . . . play a part and work together in order for us to make a loan. We need to see all those five things meshing together to make a good loan. And if an individual's owned equity has a sharp drop, that's signals that you may have some problems. And with the drop in land values, there has been a sharp drop in owned equity, [inaudible] beyond their control, so . . .

KLEE: So really, all . . . several of these factors have . . . have been affected by nothing that the farmer has done. His securities, collateral obviously has declined and his owned equity and, you know, his payment ability. Course my . . . my research primarily is on tobacco. While we were on this . . . these . . . these ideas, course tobacco's always been an important crop in this area. How did that factor in to a loan in the past, and how does it relate to today?

BRANNON: Oh, we still look at tobacco as the chief income producer on a lot of farms. We generally each year use an earning statement. We use the past tax years to show what his tobacco income has been. Then we look at his tobacco base that he's expecting to have the coming year, or whether he plans to lease any tobacco, and figure it . . . the support price from the last year. And we use that as a . . . as a guide to see whether he has enough income to service all the expenses that he's expecting to put in a crop [inaudible] living, and generate profit to take care of his loan principal [inaudible] payment.

KLEE: So if you're calculating on a support price, then the amount of income then has actually dropped in the last six or eight years.

BRANNON: Quite a bit. The tobacco has really suffered from a decrease in price and tobacco base. The tobacco base is off from what it was in about `79, `80 by about a third. So this had a tremendous effect on farmers' income, and there's really no way to recoup that easily for a small farm because tobacco's a labor intensive crop that a small amount of acreage can return a large amount of income. Once it's reduced by a third, there's really no substitute available. You can't get it from corn, can't get it from peppers, cabbage, or anything you wanna grow around this area that a lot of people have tried to shift to vegetable crops to [inaudible] these peppers and whatnot, and look for different ways to . . . nothing that you can grow in this area really would return you the amount of money per acre that tobacco will.

KLEE: And from the viewpoint of the loan officer, they come in and say, well I'm planning this much money on peppers, you don't . . .

BRANNON: We would look at it, but we realize that that's not really a solution. Most vegetable crops take a lot of experience and you don't have too much success the first few years on a new venture like peppers or . . . some also [inaudible] zucchini. There's all sorts of interest in other vegetable crops now, but it takes, like anything, you don't take a tobacco farmer for thirty years and stick him growing peppers and expect fantastic results.

KLEE: Plus you can't count on . . . there's not a support price. You can't count on a natural income. If your . . . you say that a lot of your time now is . . . is taking care of servicing existing accounts. Obviously, you're in a . . . in a . . . in, sometimes, an unfortunate position that you have to foreclose on someone. What . . . what kinds of . . . what kinds of steps . . . obviously [inaudible] you try to refinance is one thing.

BRANNON: We . . .

KLEE: What kinds of steps go into that process?

BRANNON: . . . we take a look at the individual as far as his earnings now, his financial position, and review the entire loan to see just what the fellow's standing is right now. And based on that, we try and make a recommendation and not always is foreclosure the answer for some individuals. Sometimes, you might say . . . 'stead of refinancing, why don't you try and get an outside job or partial liquidate some items that you don't need. Say if you have . . . if you're over-equipped now for what you work, if you have a hundred horsepower tractor and you've gone out of the grain business, you don't need a hundred horsepower tractor, so readjust there, and . . . and try and do some things that will trim down the operation and make you more efficient. Sometimes you try and work with FHA for guaranteed loans, restructure the loan on terms. Say if a fellow's down to the last ten years of his federal land bank loan, we can reschedule it up to thirty years, which makes a lot of difference in the payments. Same way with the PCA. If a fellow's had an operating loan that he's not able to pay, can restructure it over a period of time, instead of calling it due in one year's time. So there's several things you can do; just depends on the individual, whether it's gonna make a difference in his operation, whether he will be successful after. Because there's no use keeping an individual in an operation that's losing money. It may be losing us money and if it's losing him money, that's no good either. You might as well call a halt to it. But there's not that many things that you can do to work out some of the situations. Sometimes you're just severely limited, because if the income's not there, there's not much that individual can do.

KLEE: Course you have a vested interest in not foreclosing too, because some of these loans were made out on . . . on land values that were greater than they are today. And you'd rather see someone pay it off, I guess.

BRANNON: That's right.

KLEE: From a profit viewpoint.

BRANNON: That's right.

KLEE: What happens when you do foreclose? Do you . . . in those cases, do you have an auction? You try to sell these things privately?

BRANNON: We give them a choice if we can. We would much rather see that the items are sold privately because historically if things are sold at public auction or absolute auction, where someone is being forced out, the prices paid for those items is a lot less than would normally . . . so we usually try and have the people sell it at an auction, but just through their own arrangements, not ours.

KLEE: This office services how many . . . how . . . how big an area now?

BRANNON: We cover Lewis, parts of Lewis, Mason, Bracken, Robertson. We don't go across the river. That's a separate region, but we do take care of those.

KLEE: Is Fleming not part of your area?

BRANNON: No. Fleming is in another area that's run by Kirby Clark. He's the branch manager.

KLEE: Right. So, in . . . in your area, those . . . like four counties or something like it, what . . . how many foreclosures do you see and how many have you seen, say, in the past year?

BRANNON: Well, that's shifted somewhat too on the federal land bank. Loans in trouble over a certain amount of time, ninety days, are transferred to an entity of Farm Credit called Capital Corporation. And they deal primarily with loans that are in trouble and they work out either a liquidation or restructuring [inaudible]. PCA still has to handle all they're servicing [inaudible] land bank debt. Overall, the foreclosures really take a long amount of time, so as far as seeing one on the horizon with some of the new laws, Chapter 12 or . . . they have rights to appeal under Farm Credit, I would say maybe three over an . . . overall in this office during a year's time.

KLEE: Since you brought it up, I'll go ahead and mention it. Chapter 12 is a new piece of legislation, relatively new, and I kind of watch the Lexington papers and see how many . . . I think there was one in this week for the . . . I guess that would be most of this part of the state. There haven't been any Chapter 12's in this area yet?

BRANNON: Not in this area. There have been in . That office there, they've had, I think, three. And has a few more problems [inaudible], but they've had several since the new law.

KLEE: Okay. Now, Chapter 12 will only just . . . for some researcher in the future listening to this tape, as I understand it, it's . . . it's a way to refinance your loan based on current equity as opposed to what the equity was or what the value was when the loan was . . .

BRANNON: Really heavily based on the appraised value of the individual's assets: the land, his machinery, cattle. And what the court does, is if the individual owes $150,000 on $100,000 worth of collateral, they'll say that $50,000 is set aside for the next three years, and the individual has from then on just to take care of the amount that is against the property at that time. The $50,000, if they show a profit during the next three years, some amount of money is allowed to go towards that $50,000 [inaudible]. If nothing is shown over and above what the normal cost of the farm operation [inaudible], there's nothing really set towards the $50,000. That just eliminates it after three years.

KLEE: Yeah. Are you . . . are you-all expecting this to happen here?

BRANNON: We have one I was thinking of, while you mentioned it, that I . . . it had slipped my mind. But there's one in Lewis County that's taking a . . . Chapter 12 does have some areas that wouldn't suit some people, and that is that you have to have the income necessary to service the . . . the debt. And some . . . some of these individuals are taking Chapter 12 now that don't really have the repayment ability. So it's just . . . actually just forestall foreclosure for a little bit longer.

KLEE: Just to . . . to go back again. Most of the . . . you're dealing with loans that went back twenty years. Are those kind of people having much trouble? Is it just this `79 to early 80's group?

BRANNON: It's pretty wide and varied, but where you see the majority of the problem are the younger farmers or the farmers that have invested during the `78 to about `83 area, when land values were high. The vast majority of farmers still have very high owned debt. I think nationally it's something like eighty percent owned equity, and the average farmer has $250,000 in owned equity which is pretty high, when they say overall the net worth of the farmer has only dropped two or three percent. And I would guess that's true because a lot of the landowners, my father for one, have established . . . he's been established for thirty years, and he [inaudible] borrow any money and you'd be surprised at the number that borrow money at all. And I would say that would be somewhere, oh at least a third of all the farmers have no need for any type of lending at all.

KLEE: I was gonna ask you about that. Do you get very many people that own their farms that come in to . . . to borrow operating expenses?

BRANNON: No, not that many. On occasion. Just depends on what type operations they have. Mason's a very varied type of area as far as it has varied tobacco, has a lot of industry compared to some of the other areas which allows part-time farmers who . . . who don't really need . . . need to farm but do it just because they want . . .

KLEE: Lifestyle or . . .

BRANNON: . . . the lifestyle. So the area doesn't lend itself [inaudible] happen to have [inaudible] tobacco farmers traditionally have been pretty heavy on borrowing operating during the summer and paying it back at the end of the year. But the number that are tenant farmers have decreased, and they have been a big area as far as for borrowing on farm operating during the summer months.

KLEE: Are you not dealing with very many tenants then, much, anymore?

BRANNON: A few. The last president that was here, which was Mr. [inaudible] from Virginia, he said he was surprised to see that there was any tenant farmers in the state of Kentucky cause he had just migrated to Kentucky to take the position here as president. He said that in and , along in those areas, the tenant farmers were gone twenty or thirty years ago. And that he was really surprised . . .

KLEE: A remnant of the past?

BRANNON: Yeah.

KLEE: Okay.

[End Tape #1, Side #1]

[Begin Tape #1, Side #2]

KLEE: This is side two of a tape with Tim Brannon of the Farm Credit Services. You were talking about the diversity of farming here and the part-time farmers. You know, this is not any profound statement, but we've seen farmers getting older. Is that something that you see here?

BRANNON: That trend is probably on the increase more than on the decline because the young farmers that were in it are saying, you know, why should I go to the trouble of . . . of struggling through this? And there's fewer and fewer farmers that are of a young age. The times have just eliminated them.

KLEE: Sure. Let me . . . let me talk about that as far as you do obviously . . . you know, there's still people coming in. You said you had a . . . a closing after this interview. How does a person get credit today? I mean, is there . . . there's not too many people that . . . do you . . . do they . . . are they mostly sons and daughters of farmers and do you require co-signing most usually or . . .

BRANNON: On young people, that's quite a common process, to have co-signers because what you see in a person aged from twenty-one to thirty-five even, you see owned equities that aren't quite up to par. We like to see about a fifty percent owned equity. And after . . . that's after the loan's closed, which is really not easy to do. So a young person really doesn't have the size that you would need, you know. They're sort of small, they might have a net worth of twenty-five thousand dollars. They may be asking you for ten or twenty to get some sort of farm venture, which is throwing them even . . . even further in debt. And it's awful hard to do anything with young people unless they do have some sort of co-signer as a . . . that you can work up guarantees or a new thing that we're trying to work with some of the younger farmers that wanna buy a farm or get some new projects that . . . not easy.

KLEE: In this time period we talked about before, it seemed to me and maybe back in the 70's, there was quite a bit of boom going on in agriculture, and there were a lot of people going into agri-business type things . . . hatcheries over in , pig operations in and so on and so forth. Has that just about run its course or what . . . what happened to that . . . those large grandiose plans that . . .

BRANNON: We had one that was [inaudible] and it had something like ten prominent area farmers in it. And it was a sow operation that was to be an investment for them under a Subchapter S that would allow them to retire, was a so-called end of the project. But along the way, something went wrong. Hog prices went down. Feed costs went up and these fellows had a large amount of net worth and I'd say seventy percent of them took bankruptcy. They had by the time the project was ended, so a lot of the grandiose plans, or at least the one that I was associated with, was a real fiasco. Just ended in disaster for all of them.

KLEE: Obviously, though, when . . . you know, when they . . . when it was looked at on paper and in the planning stages, everything looked like it worked out, as far as . . . it was because of the unpredictability of prices and . . .

BRANNON: The interest rate that these fellows had plugged in at the time when the project started, and I think it started about `77, `78, they looked at the interest rate and up 'til that time the interest rates had been fairly stable. I'd say anywhere from six and a half to eight percent, somewhere along in there. And they computed that the rate . . .

KLEE: [inaudible]

BRANNON: Um, hmm. And along the way, the rates got up to as high as . . . I think here at PCA we were at sixteen and a half at one time, and they . . . that was when the rates at a bank were eighteen and nineteen percent. So we stayed under, but there's no way that you can survive an eight percent error in your calculations of interest and expect to survive, and it wasn't really these fellows fault, but it was just a combination. And the same way with the overall plight of the farmer. It's not been just one thing that's conspired to hurt the farmers. It's been bad weather over the past three years here in the county, interest rates been higher the last few years than they had been anytime previously, commodity prices have been cheaper during that time period. It's just been a combination of things.

KLEE: Let me . . . let me deal with . . . well, before I leave that . . . young people and farming . . . in other words, there's just really . . . there aren't really . . . there's not very many people that can go out and wanna buy a farm and make a living off of it.

BRANNON: No.

KLEE: Unless they've got something behind them or going . . .

BRANNON: Either they have to have an outside job or someone that will give them some backing to . . . to get into . . . to lend some stability to the operation.

KLEE: When you're looking at the farm to lend money again, and of course as you said, it makes a little . . . a little easier because you're . . . you really need co-signing and . . . and lots of owned equity. Where does tobacco fit into the value of that farm, and you know, it used to be that real estate agents might figure that tobacco poundage was worth four or five dollars a pound on value, or something like that. There's no such formula anymore.

BRANNON: There may be through other lenders, but what we primarily look at in our appraisal of the farm, we use comparable sales first. That's where you take a farm that's sold or several farms that have sold in the general area of the farm that you're interested in. Say if you looked at a farm at Mays Lick, you'd take three similar farms that have sold in Mays Lick in the last few years or year or two, and use it to compare to this one. And you sort of extrapolate the changes, the difference in crop ground, the difference in size, the difference in location, and use that to come up with a figure on the value of the land, and then back . . . then add back in the value of the building. And that's one way to do it. There's also a cost approach, where you can take the value of the building minus depreciation, and then add in the value of the land. Also there's the income approach, and that's where the tobacco would come into play, where you figure the value of the farm, the value of the income of the farm, and divide it by certain . . . eight percent . . . just general . . . general what we use. Say if the tobacco on the farm was ten thousand pounds at a dollar fifty, that'd be fifteen thousand dollars. [sounds of calculator] You'd figure eight percent that that farm would be worth $187,500 or you use a certain percentage and that sort of determines the value of the land because from an investor standpoint, if you weren't a farmer, and were just an investor, if you said in looking at this farm, look at the income that it'll produce, it'll return a certain percent. Well, I'm looking for a certain percent return at least on this property, and that's how you would go about it, if you take the income and divide it by the . . . the percent return you'd expect and that would be the amount that you'd be willing to invest in a particular property. So it's established that the bottom end of the market, at the very least, this property would be worth this, cause it will return me so much money for my investment. So that's where the tobacco would come into play.

KLEE: Okay. I wanted to run through some of those . . . some of those problems that you see and, you know, course they relate back to you directly because you're . . . you're helping these farmers try to stay alive and the government's role, what . . . what is . . . both on the credit end . . . I don't know if they could do anything and then also from just the regulation of farmers, how has that . . . how has the government either contributed to the problems or . . . or helped solve them?

BRANNON: Well not so much in this area, but in other parts of this district, during the 70s, the farmers were encouraged to go to grain. And you'll see this a lot in , , and western . Operations that had been corn and hogs or corn and feeder cattle, or corn and whatever, where they took the corn on the farm, or the grain or whatever type of grain they raised and fed it to an animal or livestock, and used that to increase their income by feeding a few cattle. Well, it got profitable to where instead of feeding to an animal you would just bulldoze out the fence lines, forget the farm buildings. You can go to and see all sorts of buildings deteriorated. Nothing there. And no fence. And so when the government said let's boycott the Russians and not grain to them, that didn't help anything, and that messed us up sort of in the world picture as far as the sale of feed grain. And I guess we're in a world economy now, as far as on grain. It's hard to compete with the Australians on the wheat and a lot of different things. But once you bulled out those fences, unless the buildings deteriorate, you can't really afford to invest [inaudible] put them in because you've decided to make your operation more profitable by feeding animals or hogs and so . . . so they've had their part, we've had our part, and the farmers.

KLEE: So they geared up to produce grain, and now that's it's no longer profitable, they . . . there . . .

BRANNON: They have no choice.

KLEE: Yeah, they're over-invested [inaudible] they can't reinvest.

BRANNON: Well they . . . they've destroyed what . . . what buildings and investment that was there before to . . . to have another type operation. They . . . they've lost the diversity. They no longer have the ability to do some other things with the land.

KLEE: Although tobacco's important in this area, and as you said, you look at it as the primary source of income, farmers are fairly well diversified, aren't they? There's a lot of dairy operations?

BRANNON: Generally, there's dairy, beef. We've seen a little increase in hogs here lately. Sheep have made a comeback; not as much in this area, but in other parts of east . There's been a strong re-emphasis to grow sheep, so it's an area that's able to be a little more diversified. There's some corn and soybean operations in the area. But there's an awful lot of diversity that you can find in the area. The thing that's helped keep this area strong as it has been, from the standpoint of land values and repayment ability of the farmers to keep the land, have been outside income because of the industries. Browning, East Kentucky Power, [inaudible], Jockey International, [inaudible] and a lot of part-time jobs for the farmers' wives doing this and that. So that's contributed to keeping the area . . .

KLEE: So we've had like a thirty percent increase as opposed to, you know, course you're familiar with these other places cause you're all part of the same system. Where they've had a fifty percent drop in . . . the . . . what about the government's role in the tobacco program? Course, you know, your interested I know because your family's involved, and I guess [inaudible] here too. What . . . what do you see that situation as going, and how does it relate to you?

BRANNON: Well, eventually I think tobacco will no longer exist because I can see the government continue to push no smoking and the health consciousness that it's tried to the last few years, and continue to support the tobacco income as well. What I see, what I think will happen and I . . . I don't know if this is right or not, but I . . . I think the tobacco will eventually be phased out, that the government . . . I don't know if there's any organized plan to do this, but over the long term for the next twenty years, just keep shifting tobacco down as far as big income-producing crops. And eventually the loss [inaudible] farmers, give them a time to adjust over a period of time to other operations: dairy, beef, whatever else that they might want to get into.

KLEE: In other words, they might have like a buy-out plan like they did with dairy or . . .

BRANNON: I . . . don't . . . don't see buy-out but I see just . . .

KLEE: Just letting it die?

BRANNON: Yeah, just a . . . a . . . ever-increasing decline. We're not gonna support it. The price'll keep going down. Gonna be less interest [inaudible] continue to decrease, and it eventually will die off.

KLEE: How does . . . does that relate in any way to . . . of course, you know, lending institutions that in the back of their mind, how . . . how does that relate to . . .

BRANNON: The possibility of tobacco right now, if they were just to cut it off, it would be tremendously damaging to all the financial institutions in Maysville, cause you eliminated the income of the farmer. A large portion of it. Whereas if they take it over a period of time, it won't be so bad because you'll have time to adjust. Farmers can get a job elsewhere. He can shift his operation to dairy or he can shift it more to beef or he'll have some adjustment time, and I think the farmer is pretty adjustable and able to cope with a lot of change, if he's given time. And I think if he gets that . . . that time, he can . . . he can do all right still. But it's gonna be an adjustment period for farmers just like it has been in all these other states. I don't think gonna have much of an easy road.

KLEE: Right. What do you . . . you go out to look at these comparable values and so forth because I guess there are already people that were on the fringe, where tobacco was making more money and now it's not really worth doing. People that you're talking about, like part-time farmers and so forth. Or people that were raising their own decided well, it'd be just as well for me to leave this. Are there, as you look at these farms, are the farms actually going out? Obviously some things . . . we have farms that maybe have only eight or ten acres that are decent or less than that, you know, that they could grow tobacco and that's about it. Are there farms actually going out of farming? You know, are there . . .

BRANNON: There's being less done on them I think is a big part of it. Less maintenance. You don't keep your fences up. You don't mow as often as you should. Instead of mowing once every year, you mow once every two or two. Yeah, and I think a lot more leasing is [inaudible] just lease instead of grow it ourselves. There's been a lot of that type thing going on. The competition for a lease is still very intensive, even though the lease that you pay is just almost like spinning your wheels. You're paying fifty-five cents to lease a crop, and your production costs are almost enough to eat up any profits you'll get out of it. So . . .

KLEE: I was gonna ask you to mention . . . I . . . I guess you have to look at that when people say I want to produce this much income, but . . .

BRANNON: It doesn't make any difference.

KLEE: It's a no-win situation there.

BRANNON: You can produce . . . you're just turning dollars, and you're not really generating any profit off it. Why do it?

KLEE: What . . . what about the . . . the future of farm lending institutions? You said that right now the situation is still . . . is still in the . . . in the middle of it.

BRANNON: I think there's gonna be continuing . . . a large amount of change with Farm Credit because there's gonna be less and less farmers to service. So there's gotta be some change made. The number of farmers decreased, I think it was, four percent just a few years ago, down to about two percent now. And so you're eliminating an awful lot of numbers of people that need . . . need the services.

KLEE: Yeah, you don't have as many potential customers . . .

BRANNON: No. No.

KLEE: . . . and as you said, a lot of people that are staying . . . if there's no new farmers, some of these people are eventually getting out of trouble, or they own their . . . their operation . . .

BRANNON: The reason why Farm Credit was organized in the . . . 1919 with the federal land bank and PCA, their need is not the same as it was in 1919. The reason why we were chartered was because of the Depression, that farmers weren't able to get any money, and that's just not the case anymore. There's an awful lot of sources of credit with insurance companies, the banks have been deregulated. They can get into a whole lot more different areas that they had before and I think [inaudible] continue to shrink and have to shrink with the farmers and have just as many pains and problems as they do.

KLEE: That's why you-all . . . I see, you know, on the [inaudible] board above your head to ask about insurance, the cost of insurance. You're getting into other kinds of areas.

BRANNON: Areas.

KLEE: You . . . you talked about different sources of income for farmers, but new farmers really are . . . [inaudible] most anywhere. And local banks are much more conservative than . . . than a farm credit institution. Do they . . . you really . . . you're really servicing two different markets, aren't you?

BRANNON: Well, part-time and full-time farmers. The part-time farmer is the wave of the future, I think. And maybe the way that Farm Credit will be able to survive. What I think will happen in this area, as well as several other areas in Kentucky that are industrial, you'll see more smaller, part-time farms that are more or less just a lifestyle more than anything else. Still have an outside income, piddle on the farm with a few beef cattle or maybe a little bit of tobacco, and you'll see less of the full-time farmer. And even those full-time farmers will be large . . . very large operations or they'll be part-time. And I think we're gonna see that break a lot clearer over the next few . . . few years, say ten to twenty years, it's gonna become real evident I think.

KLEE: Well, I was referring to, also, to the . . . to the lending institutions. They're really . . . I mean, they don't get the same kind of customer as you.

BRANNON: No. No.

KLEE: Because of the demands as far as down payments and those kind of things.

BRANNON: No, it's . . . well our biggest competition is State National Bank, and they're . . . they've been an aggressive bank .

KLEE: More aggressive . . .

BRANNON: . . . and Security Bank up the street has always been very competitive. Bank of Maysville's a very conservative bank. doesn't deal really with any farm loans, and neither does Buffalo Trace. And those are the largest . . .

KLEE: Institutions . . .

BRANNON: . . . lenders in the area. Those and FHA. And FHA's more or less out of funds.

KLEE: Right. Maybe to conclude . . . course you were in . . . you were a farmer, and you were raised on a farm. Is . . . are you one of those persons that would like to do that as a lifestyle? Or . . .

BRANNON: Eventually I'd like to get back to the farm. For like [inaudible] you know what's gonna happen, but you still wanna . . . you . . . you . . . it's just a great lifestyle and a . . . I have an awful lot of fond memories of being on the farm and I don't think there's any other life like it. You can really enjoy it.

KLEE: That's . . . in that . . . I guess that's where . . . the only farmers are gonna be. I mean, there's . . . obviously people weren't being trained, you know, new to be farmers. They have to . . . they have to have that kind of in their blood, I guess. And one of the [inaudible] . . . oh, I was gonna ask. We . . . you talked . . . we talked about the fourth operation that was kind of an agri-business type operation. We still have a lot of farmers in the area, and there's a lot of farm land, but we . . . they still . . . there's . . . business really hasn't come into the . . . into the market. What's gonna happen as . . . farmers are getting bigger? Is it just gonna be big . . . very big family farms?

BRANNON: In this area, you'll see a greater tendency toward that. As far as large commercial farms in this area, I don't see. The land doesn't lend itself to . . . to that type of enterprise. The land is ridge land, crop land. Places you'll see that will be and where you have these vast amounts of acres that you can invest in, and see a certain amount of return and go at it if you're efficient. And I think corporations will push toward that. Here, it'll be the families that have held the land, hang onto it and passed on to their sons, and if they have an opportunity to . . . to acquire a piece of the neighbor's land who's maybe not done as well, I think you're gonna see a bigger shift toward that larger, family owned farms. Here you don't really see much potential for the . . .

KLEE: [inaudible]

BRANNON: [inaudible] type farms. No. And then you'll see a lot of small part-time farms because a person is able to pay a lot more for a smaller amount of land than he is for a large amount of land. So they'll be able to out-compete them on that scale.

KLEE: And as . . . as long as . . . a dairy operation for example. Because you have to have lots of dairy operations close to the centers of population, they will continue, you think, to be fairly profitable . . .

BRANNON: I think . . .

KLEE: . . . and make it?

BRANNON: I think the dairy will do fairly well as long as . . . dairy is divided into milk sheds. And that's government controlled too.

KLEE: Oh is it? Okay, I didn't realize that.

BRANNON: So these milk sheds protect different areas. They keep them, like from from coming to and dumping their milk. As long as we're able to protect our market, we'll do fine. But as a matter of fact, most of the south has got a milk-deficit. They need more milk than they can actually get under the present . . .

KLEE: The way the sheds are set up. I guess [inaudible] that . . . and I wanna know what your attitude was, was that, you know, eventually you might see farming disappear . . .

BRANNON: No.

KLEE: . . . in the area.

BRANNON: Hmm-um. I think . . . you'll see larger, family-owned farms and then the small, part-time farmer [inaudible]. And I think you'll see a large increase in that because if you look throughout the county now, you'll see some of this going on now. Owens Pike just . . . out of Lewisburg, you'll see these eleven acre tracts of nice homes. And you know, the guy says, well, you know, why spend four thousand for a lot, when I can own that eleven acres for just a little more? And I think that's the direction we're headed.

KLEE: Yeah. I appreciate you talking to me.

BRANNON: All right.

[End Tape #1, Side #2]

[End of Interview]