Farm economy braces for another year in the red

Jan. 11, 2017, 6:45 a.m. ·

Elliot Chapman’s tractor and hay baler in a field of alfalfa. Chapman had to sell most of his equipment at a loss when he ran into financial trouble. (Photo courtesy Elliot Chapman)

Listen To This Story

There is a downside to record-breaking harvests. Prices for commodities like corn and wheat are at their lowest point in a decade. Farm lenders expect fewer producers will be able to pay back their loans. What does that mean for the farm economy?

Farmers across the Midwest are trying to figure out how to get by at a time when prices for commodities from corn, to wheat, to cattle, to hogs mean they’ll be struggling just to break even.

“Prices are low, bins are full, and the dollar is strengthening as we speak and that’s just making the export thing a little more challenging,” said Paul Burgener of Platte Valley Bank in Scottsbluff, Nebraska.

Burgener says the problem is oversupply. Farmers responded to booming prices by planting more crops and improving their land. Soon, crop production outpaced demand.

“We did what most people would do if they had a factory and had a lot of demand. You expand,” said Brent Gloy, a Purdue University economist who also farms in southwest Nebraska.

American farmers aren’t alone, Gloy says. The expansion of farm land is a global phenomenon. “In South America from 2004 to 2014, they added roughly 86 million acres of principal crops.”

Gloy says that is about equal to the number of soybean acres farmed in the United States each year. With this much land in production, the current low grain prices will last as long as the weather allows good growing conditions.

Farm income in the U.S. has declined three years in a row, and the increasing strain on farm businesses has been documented by the Kansas City Federal Reserve. Land values are down. Farm debt continues to rise. More bankers report they expect some farmers to have trouble paying off their loans.

Low prices have also triggered a surge in payments from government programs. The U.S. Department of Agriculture expects payments from government safety net programs to reach $12.9 billion for 2016, an increase of nearly 20 percent over the previous year.

The farms with the most debt are expected to be the first to run into trouble. That often means new farms borrowing money to get started, but also includes farms that borrowed money to buy land or livestock when prices were high.

“Anybody who was in a growth mode,” said Brad Lubben, an agricultural economist at the University of Nebraska-Lincoln. “More acres that are perhaps cash rented. More machinery. More inputs.”

But if today’s hard times sound like a repeat of the 1980s farm crisis, Lubben and other economists who spoke to Harvest Public Media say that’s not the case for the farm economy as a whole.

“It’s difficult to call this a crisis,” Lubben said. “It’s certainly a concern.”

All farmers will have to cut costs on big ticket items like fertilizer, land rent, and machinery, Lubben says. But many farmers were able to add to their rainy day fund when times were good.

“Farmers went into this downturn of income following some record years in the crop sector and more recently the livestock sectors,” said Damona Doye, an agricultural economist at Oklahoma State University. “So there was hopefully a lot of cash reserves built up.”

HARVEST VIDEO: How do farmers navigate between expenses and the promises of efficiency from shiny new equipment? Harvest Public Media attends the "Super Bowl of Ag Equipment" to see how producers negotiate wants and needs during low commodity prices.

Despite continued downward trends for indicators like farm income and land values, economists still believe farm failures will be isolated.

“The number of producers who are truly in financial stress with impacts on their operations is a relatively small percentage,” Lubben said.

Unfortunately for Elliot Chapman, he is part of that small percentage.

Chapman, 25, chose a hard time to start a farm even though it seemed like the best time. It was 2013. Grain prices were coming off of historic highs. He was farming with his dad and uncle near the town of Lyman, Nebraska on the Wyoming border. He decided to strike out on his own to raise corn, alfalfa, and dry edible beans.

“I was living the life,” Chapman said. “Ever since I was a little kid I always wanted to do what Dad did.”

But farming is an expensive business. New farmers rarely have money set aside. Chapman borrowed $94,000 to buy a few tractors, a semi, a combine, a hay baler and other equipment he needed, even if most of it was 30 years old. He also took out a loan to buy seed, fertilizer, and fuel.

“Holy cow, was I in deep after that,” Chapman said.

Crop prices plummeted. Hail storms hit.

“It was just that first year when things tanked. I mean the last year was good then, man, it almost went straight down. It was hard.”

Last spring when Chapman went back to the bank to renew his loan, he was told he no longer qualified for credit.

“And I had already had a crop in the ground,” Chapman said. “We went straight to survival mode. What do you do when you go in there and you’ve got a crop in the ground and they say, ‘No?’ That puts a lot on a guy.”

Chapman was out of money to farm, but still had a debt to pay. His answer to that problem was mediation. Farm states created mediation programs after the 80s farm crisis to help farmers avoid foreclosure and prevent the kind of mass bankruptcies that tore through rural areas. In Nebraska it’s the Negotiations Program.

Mediation does not mean loan forgiveness. Chapman still owes the bank its money, but the plan they came up with helps him work through his debt while keeping his family’s land.

“The biggest thing for me is I was able to keep the family farm in the family,” Chapman said. “I didn’t want to be the guy who lost the family farm. That was always my worst nightmare.”

Now he works at the Sioux County roads department, and does freelance farm work on the side. Someday, he hopes to start his own farm again. When he does, it will be with some hard lessons learned about the ups and downs of agriculture.


Harvest Public Media is a reporting collaboration focused on issues of food, fuel and field. Harvest covers these agriculture-related topics through an expanding network of reporters and partner stations throughout the Midwest.