Scarce cash in land of plenty: Farmers adjust to downturn
MAXWELL, Iowa (AP) — Pale green and 8 feet tall, tightly packed corn stalks reach to the horizon throughout the Midwest in what is likely to be the biggest harvest the U.S. has ever seen.
Aside from a sense of pride in breaking the previous record by nearly a billion bushels, farmers won’t benefit. They’ll lose money on virtually every cob.
It’ll be the third consecutive year in which most corn farmers will spend more than they’ll earn. The growing has been too good and the resulting glut of corn depressed prices to a decade-low. It’s a similar story for soybeans, the second most common Midwest crop.
As a result, farmers are cutting costs, dipping into savings or going further into debt. Federal crop insurance and payments that help protect farmers when prices fall too low offer some protection, yet many farmers and their spouses supplement income with off-the-farm jobs. The drop in farm profits raises questions about agriculture’s boom-and-bust cycles and why people adhere to what at times is seemingly not a sustainable business model.
“I am 67 years old and when we examined my Social Security records recently, I had a 12-year stretch when I didn’t pay myself one single dime,” said Wayne Humphreys, who grows corn and soybeans and raises hogs in southwest Iowa. “We lived on my wife’s salary. Everything else went to the farm.”
Corn and soybean prices reached their height in 2012 but have since plunged, resulting in a 42 percent drop in farm income. For the nation’s roughly 2 million family farms, the average household income will be $118,890, but only about a fifth will come from the farm itself, the U.S. Department of Agriculture said recently.
“Typically this time of year the dealership would be talking to me about getting a new planter, and they have talked to us and we told them we’re going to pass,” said Joe Steinkamp who farms corn, soybean and occasionally wheat near Evansville, Indiana. “Obviously we’re concerned and we’re watching our pennies as we go.”
To get by, nearly a third of U.S. farms have to borrow money, and borrowing has increased because farmers need to finance operating costs and near-historic low interest rates make borrowing inexpensive. But banks are reporting an increase of past-due loans, an indication that borrowers are struggling to repay in a time of tight profit margins.
The current situation isn’t like the 1980s, when foreclosures contributed to the loss of 292,000 farms over a 10-year period. Some of that was caused by farmers who borrowed heavily during the 1970s’ low-interest rates then defaulted due to the combination of higher interest rates and collapsed crop prices.
The less-established farmers who rent expensive farmland or went into debt to purchase land or new equipment are “the ones I worry about,” said Harold Wolle, a fifth-generation family farmer from south-central Minnesota.
But sixth-generation Iowa farmer Grant Kimberley, who farms with his father, cautions that all is not well for those who’ve been doing this for a while, either.
“It’s getting to a tougher stage even for farms that are more established. Everybody’s feeling it now, especially guys like my dad. He’s 65 years old and has done really well and built things up, but we hope this doesn’t last forever because you hate to see a lot of those gains they’ve made over the years virtually get eroded,” Kimberley said.
To protect themselves, many farmers have diversified their operations — and sometimes, their crops — so when corn and soybeans aren’t profitable, other aspects of the farm may be.
“To be a good farmer, you have to be a good agronomist, you have to be a good marketer and you have to be basically good at farm business management,” said Chad Hart, an agriculture economist at Iowa State University. “You can’t just specialize and be a good producer and not be good at the others.”
Nebraska farmer Ben Steffen knows this: He milks 140 dairy cows in addition to growing corn, soybeans and wheat. The increased demand for cheese and improved milk prices has improved his bottom line.
And Kirby Hettver has sold a Monsanto-brand seed and precision planter parts for a few years in addition to helping his dad and brother grow corn, soybean and alfalfa in west-central Minnesota. “It has added a revenue stream for us, but more importantly, I’ve become a much better agronomist for our own farm with the knowledge I’ve learned from both of those businesses,” he said.
Farmers go out of business every year for a variety of reasons but “we’re going to see more of that than we do in typical year,” Hart said. Some have walked away from rented land or sold off some land in a last-ditch effort to generate cash, Kimberley said.
Crop insurance and farm support programs designed to step in when commodity prices fall too low or revenue plummets will help. Direct government payments to farmers are expected to increase nearly 25 percent to $13.5 billion this year, the USDA estimated, though that also includes money for disaster relief.
Debt and losses are an acceptable part of the cycle for farmers who crave the intangibles: the unpredictability of farming and the renewed hope that comes with every spring planting. All it takes is a drought, flood or other natural disaster in another part of the world to disrupt a crop and prices could jump, creating profit potential.
“If you don’t mind a little heartburn and lost sleep and a little hard work, it’s fun,” Steffen said.
But down cycles can shake even the hardiest of farmers, said Kimberley, who’s also employed by the Iowa Soybean Association and leads the Iowa Biodiesel Board.
“It does make you think twice. Do I really want to deal with this kind of life where four out of 10 years I’m most likely going to lose money?” he said. “It’s a great life. It’s been a good business on and off, but, man, I wish there was a little bit more consistency to it.”
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