(before we get started; I am watching some agriculture shows on television this morning. They just had an interview with an agriculture financier who made the claim that the current ag climate is “nothing like the 80’s.” It is interesting that most of the agriculture land has been financed heavily by agriculture lenders, sometimes without significant cash input from the farmer. Fear of an 80’s farm crisis scenario would reduce the value of most agriculture land-land which is financed heavily by the same people who are saying that this is not an “80’s farm crisis scenario.” I hope this is just coincidence. GN)
In the last few years, agriculture has changed. If you are in your mid 30’s or 40’s and farm, your idea of farming was pretty positive until the last 4 years. It’s been good business and you have a new pick-up and a lake home.
I compare our current condition to the late 70’s farm crisis, in my own mind. In the 70’s, commodity prices went sky-high, people purchased a lot of equipment and I remember seeing people rent land who were not from around here. Farmers started bulldozing trees-sometimes on marginal land and sometimes they bulldozed little groves on good land. The justification for marginal land clearing was that higher commodity prices would make even poor land cash-flow while we justified removing the little groves from productive land by saying it was easier to farm the fields without obstacles. Farmland got crazy-expensive and those who supplied seed and fertilizer raised their prices to mirror higher farm profits.
I remember when the first domino fell, I was about 12 or so. Wheat prices went down so people needed operating loans. Back in the 70’s, you probably put a lot of your crop in without an operating loan, particularly when times had been so good. High interest rates had not affected the farmer too much as he didn’t need much borrowed debt. Now he needed help which meant money. Most farmers had debt in the form of a land loan which they had at a fairly low interest rate. Operating loans came with a higher interest rate and to obtain one, the farmer had to re-finance all debt at the higher interest rate. Now he had more debt compounding interest against him- at a much higher rate.
The Soviet Union invaded Afghanistan in 1979 and President Carter responded with an embargo against the sale of grain to the Soviets. It was an okay reaction by Carter but at a terrible time. The simple loss of sales to the Soviet’s hurt prices but my guess is that the fear it created did even more to erode commodity prices. Some farmers reacted to the farm crisis by committing suicide- the stories I’ve heard of suicide on the farm came after the embargo. When debt is so high and income is so low, there is no hope.
In the last few years, commodity prices have dropped and a lot of accumulated wealth has been spent to keep cash flowing on the farm. Farmers are good at hunkering down and the first place you see this is at the implement dealership. I drive the implement lots often and see little turnover. KFGO radio reported on February 10th that Titan Machinery will close their store in Thief River Falls this year. Agriculture affects other businesses and I wonder how close Arctic Cat was to a revisit of 1982 prior to Textron arriving with deep pockets. Arctic Cat’s bankruptcy really hurt back in the eighties when a farmer’s wife typically worked on the line or in sewing. Thank goodness someone stepped in this time.
The farm shows on television remain very positive-until they interview commodity brokers. Most of these farm shows are like your favorite aunt who tells you that you aren’t fat, you are just big boned. Commodity brokers are like a trip to your family doctor who simply tells you “yep, you’re fat.” Many farms are losing money and those that are making money are performing the feat on tiny margins spread across massive acreage-at massive investment.
So we’ve had the flush of high prices, high purchases and unbridled optimism. Now we have much lower prices, fairly high debt and questionable sources for operating loans. Some of our trade agreements are now in question which creates volatility which creates the same fear that really lit the fuse on our last farm crisis implosion. If we do get a crisis, perhaps the volatility will be the saving grace for those who are still sitting well financially. Volatility is where you can make money as you can sell on the highs and hunker down on the lows. Anyway, I hope it doesn’t happen but I hope farmers have a plan “b” in case it does happen.
Maybe things will turn around this year. A drought overseas and a hungry China would help. It is easy for me to sit at my little farm and play “fantasy football” with the real-world farm statistics. I know there are real farmers, working hard, behind the numbers. I just don’t feel the anxiety proportionate to world events and I want farmers today to be farmers tomorrow. Best of luck and let’s hope for a lovely sunrise but plan for lonely sunset .
I found this PBS video I had saved and thought it would fit in well with this column:
one more, very heartbreaking…..