Farm Economy Stuck in the Mud

Feb 29, 2016

There are mounting concerns about the direction of the farm economy. The U.S. Department of 

Agriculture expects farm income to fall for the third year in a row in 2016. At the same time, farmers are borrowing billions more from banks to get by.

The change in farm fortunes follows a drop in prices for corn and soybeans, the top Midwest crops. Supply and demand are both working against the commodity markets. Farmers have raised an oversupply of grain, while at the same time the slow global economy has brought down demand.

To make ends meet, some farmers are giving up leases on farmland they can't afford and selling equipment they don't need.

At the Lee Valley consignment sale near Tekamah, Neb., on a recent day, dozens of used tractors, planters and other miscellaneous implements were on the auction block for farmers looking to make a deal or make a few extra dollars. It was a muddy day, with trucks and four-wheelers leaving deep black ruts. Fitting weather for an industry wallowing in bad news.

Amanda Johnson was at the auction. She and her husband Matt raise cattle and crops near Scribner, Neb. Johnson was hoping to save money on used fence posts because making money looks tough.

"It really depends on markets, really it does," Johnson said. "I'd say even if you can break-even, that's doing pretty good for the markets right now."

Colten Josoff is among the number of farmers who have to supplement farm income with a full-time off-farm job. Josoff, 23, farms a few hundred acres with a friend around Louisville, Neb., but he says the farm is too small to afford buying equipment new or making a full living.

"Granted, I would love to farm full time, but you still got to pay your bills," Josoff said. "If you got to go get a job at McDonalds to pay 'em, that's just what you've got to do."

Josoff doesn't flip burgers, he actually works in the ethanol industry. But economists expect more farmers to look for extra work to stay in the black.

With less income coming from the land, Kansas City Federal Reserve economist Nathan Kauffman says farmers are borrowing more to keep their farms afloat.

"We're continuing to see pretty strong demand for farm loans," Kauffman said. "That's primarily reflecting strong demand for short-term cash flow."

Farmers are burning through the cash they stashed away during the recent good times, Kauffman says. Now, they're forced to borrow to pay for essentials like seed and fertilizer.

As a result, farm debt is projected to pass $372 billion this year. Adjusting for inflation, that's the most farm debt since the late 1970s, when the rural economy began to melt down. But Kauffman says today's numbers are not a sign of history repeating.

One big departure from the farm crisis is interest rates, which remain near historic lows rather than at the historic highs of the 1970s. That makes it less expensive for farmers to take on debt.

Also, land prices have not collapsed. The latest reports from Federal Reserve offices in the Midwest show land values declining most places by a few percentage points in the final months of 2015, although some ranchland continues to gain value.

"So the fact that farmland values are holding up pretty well and farmland as an asset is by far the biggest portion of the farm sector balance sheet means debt-to-asset ratios aren't rising too much," Kauffman said. "Those values have stayed strong."

The debt-to-asset ratio is a kind of barometer for farm finances. Land is a farmer's biggest asset. If his farmland is still worth a lot, he can sell parts of it to pay off debts and isn't at-risk of default. Right now the debt-to-asset ratio in farm country is about 13.2 percent, up a few percentage points from recent years but low compared 22 percent during the '80s farm crisis.

Jerry Catlett, a banker at Bruning State Bank in Bruning, Neb., believes that's a good sign.

"Like in the '80s you didn't know if you were going to have a farm sale come the end of the year. I don't think we're anywhere close to that," Catlett said. "But that doesn't mean there's not a few exceptions out there where there might be folks looking at that right now."

In other words, some farms might fail, but that doesn't make it a farm crisis.

And that's partially thanks to taxpayers. Government supports could provide a backstop for some producers. Farm payments are expected to payout thirty percent more this year than last year.

It may be enough to keep some farms from going under, but Scott Olson isn't counting on farm payment programs to earn a living. Olson is an auctioneer at Lee Valley and also farms around Tekamah, Neb. With planting season coming up he says there will be a fine line between making money, and losing it.

"But, you know, you can't just quit for a year. You've still got taxes to pay, and a family to feed," Olson said. "You've got to work and try to make it work."

Like other farmers across the region, he'll plant his corn and beans and hope for the best. If you're not optimistic, he says, you're not a farmer.