By Rhonda Werner
The agriculture industry has always been a volatile one. They don’t call farmers gamblers and entrepreneurs for just any reason. As John F. Kennedy said, “The farmer is the only man in our economy who buys everything at retail, sells everything at wholesale and pays the freight both ways.” The way farmers do business may not always make economic sense, but for most years, it works and it works well — until it doesn’t.
Years like 2015 and what the expectations are for 2016 make those in the industry think harder about, well, everything.
The ag industry has ridden a wave over the past seven or eight years of good prices, good weather and good yields. Some say prices were a little “too good,” but regardless, most enjoyed the ride and were able to position themselves in a much better financial situation.
Although no one wants to talk about how painful today’s lower commodity prices are, there are a few things to be thankful for. Farmers are not in the same situation as the 1980s.
Most of today’s farmers recall the ‘80s in some capacity. They were either farmers themselves or the children of farmers and remember the stress, the droughts and the evening world news constantly talking about the plight of the farmer. And no one can forget Willie Nelson trying to do his part by organizing the first Farm Aid concert in 1985.
In talking with several of my contacts, farmers who prefer to remain anonymous, two of the key differences between now and the 1980s farm crisis are interest rates and land rent.
Most remember the sky-high interest rates that crept in and turned many people upside down during the ‘80s. An increase from 7 percent interest to nearly or above 20 percent is crippling in any circumstance. Thankfully, today and for what appears to be the immediate future, interest rates are very low.
Because the past several years have been ideal for the farm economy, most businesses are not leveraged as high as they were in the 1980s. Every situation is different, but financial statements have not been completely turned upside down like they were back then.
Although land rent may seem to be an issue today, research shows there is a huge difference in how people are handling land rent situations. Land prices were inflated in the 1980s, even higher than the land prices of the past few years. Landlords today seem to understand that the economy has changed and are more willing to work with renters before contracts are even due to make negotiation less painful.
From my conversations with farmers about the 1980s, land owners weren’t quick to provide relief to those renting the land and would even take them to court over keeping those contracts. Land values also plummeted in the 1980s, and few farmers were in a financial position to even buy what was considered to be a bargain.
The “perfect storm” of the 1980s was also made worse by several other factors, like multiple-year droughts and crop disasters at levels I’m not sure we’ve seen since. Crop insurance has been around since the 1930s, but it wasn’t until 1980 that it was expanded to more areas and crops.
There were many factors leading to the farm crisis of the 1980s and the industry as a whole has learned a lot from that time frame. The industry has changed to better mitigate risk, and although there’s a lot of pain involved in the ag economy of today, overall we are in a better place than 30 years ago. We may have to ride this wave for another year or two, but most farmers I’ve spoken to believe that towards the end of the decade things will be looking up again.