Lee Fuchs is a senior lending officer with AgriBank, St. Paul, Minn., the Farm Credit system's largest district bank with $20 billion in assets. Fuchs works with Farm Credit in making and servicing loans to pork producers.

Q How is last year's hog market reality and this year's hog market outlook, affecting the way you handle accounts? A The hog market hasn't caused AgriBank to substantially change how we handle accounts other than we are more resistant to requests to build more hog buildings that increase the industry's production capacity. As in the past, we continue to work closely with producers who are sound production and financial managers, and have efficient production systems that utilize modern technologies to produce a consistently high-quality hog. We believe our primary pork accounts are survivors.

Q Has your long-term position or attitude changed?
A Our long-term position hasn't changed drastically. It is fair to say that in the near term our attitude toward the industry has changed in that the production sector needs to reduce production levels to meet slaughter capacity. The overall pork chain seems to be in relatively good shape with improved efficiencies, higher quality products and strong profitability. And the industry has done a good job of enhancing demand. But producers can't continue to produce at the same levels as in 1998 and expect market prices to reach profitable levels.

We haven't seen many producers cut back, but we haven't pushed it real hard yet. If prices stay low, eventually bankers will force production cuts. How far it has to go is not known. We'll continue to look at this on a monthly basis, if not a daily basis, to see if we need to change our attitude to make producers cut back more aggressively. We hope the industry will have the discipline on its own to do it before the bankers do it for them.

Q What are the main things you look for in an account? What is most damaging to an account?
A We look for producers who are experienced in production and financial management. We also look to finance producers with sound production systems that can fully utilize modern technologies such as segregated early weaning, all-in/all-out, multiple-site production and artificial insemination. Knowing that producers have accurate financial reporting information and reliable management accounting systems in place goes a long way in convincing us that they're good financial managers.

Q How do you see the pork industry changingàor what needs to change?
A The industry will likely continue to coordinate vertically and horizontally. Producers will continue to coordinate horizontally with each other to share strategies and enhance their positions and staying power. Producers also will work more closely with packers and processors to coordinate improved supply chain management practices.
If the pork industry is to compete with poultry and other competing products, this type of coordination must continue. It may leave some producers out in the cold. Competition for consumers' dollars is the driving force. A vertically coordinated system can deliver higher-value products to the consumer than an uncoordinated system.

Q What can pork producers expect from lenders in the year and years ahead?
A Producers will need to position their lender as a strategic partner, otherwise it will be difficult to compete. In the future, this type of relationship will become more prevalent. Producers that link up with lenders that have this attitude will have the advantage.

Q What is your message to producers concerning risk-management tools?
A It makes sense to aggressively alleviate risks everywhere you can. Hog market price risk is what most people think about, and if a producer doesn't have marketing contracts that provide some risk/reward sharing (most don't), he will need a strong balance sheet with substantial liquidity (and a banker with a strong stomach) to survive price volatility.

But there are other risks that also are important to manage. Production risks such as cost of corn and soybean meal need to be managed, typically through hedging. Also, environmental risks need to be under control. Pork production is one of the most risky ventures anywhere and producers who do not aggressively mitigate risks will not survive in the business as owner/operators.