In 2018, Minnesota farmers earned, on average, their lowest net farm incomes in decades, according to a report released Monday by Minnesota State and the University of Minnesota Extension. Net farm earnings have declined in three of the last four years.
Median net farm incomes dropped 8 percent between 2017 and 2018, from $29,022 to $26,055, the lowest they’ve been since the researchers started surveying farmers 23 years ago.
According to Dale Nordquist, associate director of the Center for Farm Financial Management at the University of Minnesota, it’s the longest string of low incomes Minnesota farmers have seen since the farm crisis in the 1980s.
Big rains, droughts and price fluctuations bring about bad years every so often for farms. But as Minnesota farmers see another year of depressed profits, some in agriculture wonder if this is another farm crisis in the making: one like the crisis in the ’80s characterized by farmer suicides, bankruptcies, and farmers getting out of the business.
The ’80s farm crisis
The farm crisis of the ’80s happened fast. Facing a wheat shortage at home in 1972, the Soviet Union signed a deal to bring $1 billion in U.S. wheat, feed grains and soybeans to their country. At the time, it was the biggest grain deal in history.
Among other factors, demand for U.S. ag products lined farmers’ pockets with cash. Land prices went up, but in order to produce more, farmers bought more and more acreage — at very high interest rates.
The increased value of farmland meant farmers could borrow more for things like seeds, fertilizer and equipment. The situation resembled the residential housing bubble in more recent memory, “where folks were using their houses as a credit card,” said Joe Mahon, regional outreach director with the Federal Reserve Bank of Minneapolis. (Mahon spoke with MinnPost early in March, ahead of the media blackout leading up to the Federal Open Market Committee meeting.)
Then, in 1979, the Soviet Union invaded Afghanistan, and the Carter administration retaliated with economic sanctions and trade embargoes, which stopped imports of U.S. grain into the U.S.S.R. “We had such a huge surplus of grain. We were growing grains that had no market. We were producing too much,” said Jim Nichols, who was Minnesota ag commissioner during the crisis and is still a farmer in southwest Minnesota.
The loss of land values meant farmers couldn’t borrow as much — nor could many of them pay back the bank.
A 1985 story in Time recounted the plight of a 44-year-old Minnesota farmer clinging to his land after losing his animals and machinery because he couldn’t repay a $136,000 loan. “You really feel like a failure,” he told the magazine.
Many Minnesota farmers were in similar straits. At the height of the crisis, a third of Minnesota farms were in serious financial trouble, Nichols said. Some farmers faced crushing debt loads; others lost their farms. Suicides among farmers increased, and the effects of the crisis rippled through rural America.
More than the normal ups and downs
Today’s decline in farm incomes comes in the wake of a few broad trends. In some ways, they hearken back to the ’80s crisis.
The agriculture industry rode out the Great Recession on high crop prices. Demand was up everywhere. International markets like China and India were importing more and more from U.S. farmers, and ethanol producers drove demand for corn. In 2012, Minnesota farms saw record incomes as a drought took out crops in other Midwest states but spared Minnesota.
High prices for crops like corn and soybeans enticed farmers to produce more of them. As supply rose, prices dove, Nordquist said.
Though prices have stayed low, farmers continued to produce high yields. That allowed them to make up the income lost to low prices by selling more crops overall, even if the oversupply then reduced prices further, Mahon said. “You end up with output prices that are near break-even and strong yields that offset some but not all of the effects.”
Prices haven’t been helped by a trade war. After the Trump administration put tariffs on a number of Chinese goods, China retaliated in part by cutting its import of American crops. While the trade war with China is best known for its impact on soybean growers, other trade battles (renegotiating the North American Free Trade Agreement and pulling out of the Trans-Pacific Partnership are examples) took away markets for farmers across the board.
Nichols illustrated the difficulties soybean farmers are facing with an example: For farmers who don’t own the land they’re farming, land might rent for $200 an acre. Seeds cost $50 an acre. Chemicals are at least $50 an acre. Machinery and labor could cost as much as $100 per acre. That adds up to $400 per acre.
The price of soybeans declined before the tariffs hit, but they’ve dropped further since the trade dispute with China. As of Monday, soybeans were trading at $9 per bushel — roughly two-thirds of what farmers were getting per bushel in 2012.
An acre can produce about 50 bushels of soybeans, Nichols said. At $8 or $9 per bushel, a farmer can take in about $400 to $450 per acre. “To grow soybeans right now, you’re going to lose money. It’s just a cold, hard fact of life. You’re costs to grow that crop are going to be more than $400 an acre,” Nichols said.
According to the survey released Monday, crop farmers earned slightly more in 2018 than in 2017, but are making much less than they were a few years ago.
All told, 34 percent of Minnesota farms lost money on operations in 2018, according to the survey. Slightly more — 40 percent— lost net worth after accounting for family living expenses and taxes.
Dairy farmers have been hit particularly hard, dropping to $15,000 net farm income in 2018 from $43,000 the year prior, according to the survey.
Declining demand, low prices, and oversupply were the start of their troubles, only compounded by trade disputes. Many dairy farmers have gotten out of the business, selling their herds.
Agriculture Commissioner Thom Petersen spent the first months of the year traveling between the Capitol and pre-planting season farm events. At back-to-back appearances last week in Austin and Albert Lea, he talked with several farmers whose roofs collapsed because of snow.
Weather damage is just the latest blow. He gets reports every other week showing “sobering statistics” of how many farmers are getting notices to enter mediation with banks over defaults. He gets calls from farmers asking for help.
“A farmer calls me on Monday and says, ‘The bank told me I need to sell half my cows by Friday to make my payment,’” Petersen told MinnPost. “You try to build it up during the good years and ride out during bad years. We’ve had too many bad years right now to have to ride out. That is a concern.”
The state is doing what it can to bolster programs that have been in place since the ’80s crisis to help farmers during bad times. The Rural Finance Authority declared an emergency and, with money freed up by legislators, will give interest-free loans to help farmers with weather-related damage.
Dairy farmers are getting the most state-level attention. In debates over legislation setting up dairy farmer assistance programs, legislators emphasized the need to get cash into farmers’ hands quickly. The new Federal farm bill includes provisions helping dairy farmers cover their margins but there’s lag time as the new rules are implemented. At the state, “We’re working at the department on some different bridges to help them get to June,” Petersen said.
A new grant program the Minnesota Department of Agriculture announced recently aims to help dairy farmers raise or maintain the grade of their milk to get better prices. Petersen said it could make the difference for some in the state. He hopes the Legislature also will pass additional funding for state farm advocates and the Farm Legal Action Group, which help farmers navigate business decisions and keep their farm.
The House passed HF 232 at the beginning of March to put more funds toward farm advocates and add a rural mental health counselor to work with farmers bear the emotional weight of the economy. The bill is waiting for a hearing in the Senate agriculture committee.
Rod Hebrink, president and CEO of Compeer Financial, an agricultural lender that operates in Minnesota, Wisconsin and Illinois, said three main factors separate today’s downturn from the farm crisis in the ’80s.
The first is that both farmers and banks have changed the way they’ve done business since the ’80s. Today, farmers tend to borrow more on the basis of potential earnings than the value of their land, which means they have less debt overall. That makes the market less sensitive to short-term downturns.
The second is that interest rates are much lower today than they were in the ’80s. At one point, in 1980, the prime rate was as high as 21 percent. That’s about four times the general interest rate today.
The third, Hebrink said, is that this downturn has come on more slowly, allowing farmers to adjust the way they do business to compensate for market fluctuations.
There are also fewer farmers today than there were in the ’80s — by about 30,000. So while a downturn has effects beyond farming in rural communities, the number of people directly affected by a downturn in the agricultural economy is less than it was in the 1980s. Today, 73,000 farms operate in Minnesota.
Each year, farmers take out an operating loan to buy the seed and pay for the machinery they need to farm the land they’re on. One question, going into this growing season, is whether farmers who have been struggling will be able to borrow at all. If they can, the question becomes how much of their farm they’ll have to mortgage to do it.
“I’m very concerned as we get a little closer to spring, more farmers than in the past will be denied operating loans. What kind of crisis will we have on our hands?” Scott Carlson, executive director of Farm Legal Action Group, told MinnPost in February. FLAG runs a legal assistance hotline for farmers in Minnesota, with the help of some state funds. The national organization was born after the ’80s farm crisis and advocates, sometimes in court, for farmers that are underwater with their banks.
The Minneapolis Fed reported increases in farm bankruptcies in 2018, a sign that farms can’t just keeping treading water. As farmers lose cash, they become more desperate for credit and they become riskier to lend to, said the Fed’s Mahon.
“Farmers made a lot of cash during the good years and they’ve had year after year of falling incomes and they’ve been eating into that cash. The nice situation would be that this reverses before that happens,” Mahon said. “But there’s not a lot on the horizon to suggest it will.”