The failure of New Frontier Bank in Greeley, Colo., has sent many of the area's farms and feedlots into a tailspin.
New Frontier, the largest lender in northern Colorado, had $2 billion in total assets when it failed last spring. As much as $800 million of that was tied up in massive agriculture loans, making it one of the biggest agricultural banks to fail this year.
Farmers who rely on operating loans to finance their business may be the hardest hit. Many have not been able to find new credit in this tight market. Federal bank regulators have been propping them up over the past few months. They have paid to feed — and in some cases milk — thousands of cows, but that emergency bailout is about to end.
At his farm in Fort Morgan, Colo., Chris Kraft is dangling off a ladder on a huge tractor called a forage harvester. This $500,000 beast will gobble through eight rows of corn at a time. It chops it up finely — stalk, ear and all — into feed for Kraft's 5,000 dairy cows.
This spring when milk prices plummeted and New Frontier collapsed, everything here began to teeter. The line of credit Kraft relies on to pay for all this equipment was in limbo.
"I would say this is, in my lifetime, anyway, it's been the toughest business year we've ever had," Kraft says.
The failure of New Frontier has created enormous logistical problems, according to Colorado Agriculture Commissioner John Stulp. He says it's not like closing down a commercial store that sells widgets. You can't just shut down farms overnight and start them up again.
"This was an operation that dealt with living organisms, dairy cows for the most part, that need to be cared for on a daily basis, that need to be milked on a daily basis," Stulp says.
The Clock Is Ticking
So the Federal Deposit Insurance Corp. has been paying to keep farms open for the past few months. And that's what's made this situation unique among the 90 or so other bank failures that the FDIC has managed this year.
Gary Siebenforcher is heading up the New Frontier acquisition for the FDIC.
"When we came in here, we committed that we would not allow animals to starve or be mistreated," Siebenforcher says. "I mean, we have actually advanced millions of dollars feeding these cattle."
So far the FDIC has spent $35 million and counting. But the agency is not a bank. Its mission, Siebenforcher says, is to come in and efficiently shut down failed banks and sell their loans in bundles as quickly as possible.
The clock is ticking for farmers who had loans with the bank. The agency has warned that its pot of money that pays for bank failures is dwindling.
Siebenforcher says he is making sure that the loans are sold to investors with experience in agriculture. And most of the new investors, he predicts, will hold on to the loans until the economy rebounds. After all, they're buying them at a bargain price.
That's what farmers like Kraft are counting on.
His loan was bought at an auction at the end of the summer. And he says he's negotiating with the new owners, and hoping to stay in business.
"God hasn't let us down yet, and I don't think he will, but there's other people who are going to have struggles trying to get this thing sorted out," Kraft says.
Four other dairies that had loans with New Frontier have filed for bankruptcy so far, and most of their cows have been sent to slaughter.
Agriculture officials in Colorado expect other farms will see their operations significantly downsized. The full effects of the fallout from New Frontier's failure won't be known for some time, but it's an enormous economic setback for a region that had been one of the most productive farming areas in the U.S.