With Economy Stuck In The Mud, Farmers Sink Deeper Into Debt

Nebraska Public Media | By Grant Gerlock

Published March 3, 2016 at 7:00 AM EST

Many farmers are selling unused or out-of-date equipment to make money in a year when grain prices are low.

At the Lee Valley consignment sale near Tekamah, Neb., dozens of used tractors, planters and other equipment were on the auction block for farmers trying to save a few extra dollars. It was a muddy day, with trucks and four-wheelers leaving deep black ruts — fitting conditions for an industry wallowing in bad news.

Amanda Johnson is hoping to buy some used fence posts. She and her husband, Matt, raise cattle and crops near Scribner, Neb. Making money looks tough for them this year. "It really depends on markets," Johnson says. "I'd say even if you can break even, that's doing pretty good."

The U.S. Department of Agriculture expects farm income to fall for the third year in a row. At the same time, farmers are borrowing billions from banks to get by. To make ends meet, some farmers are giving up leases on farmland they can't afford and selling equipment they don't need.

The change in farm fortune 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.

Colten Josoff, 23, of Louisville, Neb. works a full-time off-farm job, because farming his land doesn't pay enough by itself.

Colten Josoff, 23, is supplementing his income with a full-time, off-farm job.

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

Only 44 percent of farmers called agriculture their primary occupation in the most recent census by the USDA. Small producers, especially, rely on outside income. But economists expect farmers of larger operations to look for extra work in order to stay in the black.

And 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 says. "That's primarily reflecting strong demand for short-term cash flow."

Farmers are burning through the cash they stashed away during the 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 difference 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 most land values declined by a few percentage points during the final months of 2015, but some ranchland is actually gaining value.

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

The debt-to-asset ratio is a kind of barometer for farm finances. If a farmer's land is still valuable, parts of it can be sold to pay off debts, and the default risk is low. 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 with 22 percent during the '80s.

So while some farms might fail, that doesn't necessarily make it a farm crisis.

That's partially thanks to taxpayers. Government farm payments are expected to be about 30 percent more this year than last year.

It may be enough to keep some farms from going under, but Nebraska auctioneer and farmer Scott Olson isn't counting on farm payment programs to earn a living. 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 says. "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.

This story comes to us from Harvest Public Media, a public radio reporting collaboration that focuses on agriculture and food production.