Kansas farmers face debts and drought

Dan Voorhis
The Wichita Eagle
This March 10, 2017 photo shows Derek Sawyer, who farms and ranches near McPherson, Kan. He says farmers can't weather much more of the economic downturn that has hit the agricultural industry. (Travis Heying/The Wichita Eagle via AP)

INMAN, KS (AP) - The 1980s are still seared in the minds of farmers: crushing debts, foreclosure auctions and the loss of generations-old family farms.

Now, those bad old days may be staging a comeback in Kansas farm country.

It's not just that wildfires scorched more than 700,000 acres and killed thousands of cattle in southwest and central Kansas, amid the return of drought in much of the state. It's that most farmers in Kansas and nationwide haven't been able to make much, if any, money farming for more than two years.

It's not at crisis stage — yet. The vast majority of farmers are managing.

They've put off purchases, rolled over loans, sold off land and equipment and, in the worst cases, auctioned off the farm and retired.

But the threat is gathering momentum, and a crash would reach beyond the small farm towns to impact the whole state.

The Wichita Eagle reports that agriculture in Kansas generated $5.1 billion in economic activity in 2015, the most recent year for which figures are available, which is just 3.4 percent of the overall $150 billion Kansas economy.

But farming underlays vastly more economic activity, such as the beef plants, ethanol refineries, farm machinery makers or even just the town cafe, which are not included in that number. Basically, what would the western 80 percent of Kansas look like without farming?

The cause of the problem is pretty straightforward: Following several terrifically profitable years, prices for every grain and animal grown in Kansas dropped to near decade-long lows and stayed down, even as production costs have recently started to fall.

Profit margins are either razor thin or negative.

Most used the good years to pay off loans and buy seed and fertilizer with cash, but many also invested in more land or a new combine on credit. Some aging farmers took the opportunity to sell out to their children, which loaded them up with debt.

Farmers are accustomed to navigating the ups and downs of their livelihood. Still, the violence of the price drop starting in 2014 caught many by surprise.

"It went from being so good to being so bad so quickly that they aren't able to make the payments on their equipment," said Landon Frank, a loan officer at First National Bank of Scott City and a part-time farmer.

Last year, farmers caught a break with timely rains and a record harvest. But farmers say 2017 is critical.

If prices for most farm commodities don't turn around, many will have to sell off land and equipment. Foreclosures are still low, but will increase.

"2016 ended up being better than we expected, so that was a big help," said Mykel Taylor, an agricultural economist at Kansas State University. "But we see 2017 as possibly the worst year because if we have a normal yield and low prices, that will not be sufficient to cover the cost of production, let alone the debt of the last year."

Derek Sawyer visits his cattle every day at this time of year.

Right now, it's calving season among the 80 cows on the pasture next to his house and farm between McPherson and Inman.

At feeding time, he watches as cows jostle for space in front of their food. Dozens of new black calves skitter around, curious but wary, not moving far from their mothers. They're too young to eat hay, still relying on milk.

This is where Sawyer makes his living. He'll raise these calves, now the size of large dogs, until they reach 850 pounds. They'll gain two and a half pounds a day on hay and a special diet he supplies. When they go off to feedlots, their weight gain speeds up. He gets paid when he sells them to the beef packers.

Sawyer, a fourth-generation farmer in McPherson County, has run his family's farm for 11 years.

He farms 2,500 acres of wheat, corn, soybeans and grain sorghum, and owns 700 cattle, so his operation is bigger than average for that part of the state and diversified. Even so, he's feeling the pain.

Last year, he sold 250,000 bushels of grain and hundreds of cattle, and still took a loss. The bank rolled the unpaid part of last year's annual operating note into this year's annual operating note.

He hasn't bought a piece of equipment or made a major purchase on the farm in a couple of years.

The good news is that his wife, Katie Sawyer, works full time. She was just named district director for U.S. Rep. Roger Marshall. They have two young boys.

Together, the family's income is down, but not out.

"Having a spouse off the farm is vital," Derek Sawyer said. "I don't know how we could do it any other way. I don't know how I could pay for health insurance or take care of a lot of that stuff without her income."

With the birth of their second son, he got evicted from his home office. Plans to build a garage/office are on hold. Now he works at the kitchen table.

"We won't be taking a vacation this year," Katie Sawyer said. "That sounds frivolous, but we're not giving up necessities, yet. But we aren't spending money that doesn't have to be spent."

Derek Sawyer said prices and weather are beyond their control. He is focusing on avoiding costly mistakes on the things he can control.

"We'll get through it, but we need a good crop," he said. "Without a good crop — and the prospects are dwindling every day because it's staying dry — things will be pretty hard."

When area farmers don't spend, Inman feels it.

Inman lies about 10 miles down the road from Sawyer's farm. It's a heavily Mennonite town of 1,300 people.

Mayor Jim Toews said the farm downturn has hurt those businesses that deal with farmers, such as equipment dealers and repair shops. But so far it's had only a mild impact on the rest of the town's businesses.

McPherson is a county with a diversified economy, including manufacturing plants and a large oil refinery just up the road.

But one of those feeling the difference is the Inman Harvest Cafe on Main Street, busy on a recent day with customers dining on the Mexican lunch buffet.

At a back table, a group of regulars sat eating and visiting with owner Loren Thiessen. After things slowed down for the meal, he and his daughter, Katy Reinecker, talked about the challenges they face.

Reinecker, who runs the place, noticed the farm downturn in her business a couple of years ago. Mondays had been so slow, they started closing.

"I used to have my regular farmers that came in every day," she said. "And they'd bring in three, four, five people with them.

"In the last couple years, they've backed down to maybe twice a month."

It's more than this latest downturn, Thiessen said. It's the slow decline in rural population. He sold a machine shop in Inman in 2008 because he just didn't have enough work anymore.

But a few years ago Reinecker discovered a secret to survival: People love her made-from-scratch fried chicken and will drive 50 miles or more to get it. When she serves it on Fridays, she said, she has sold as much as 150 pounds of it.

"Fried chicken literally saved us," she said.

Since its peak in 2013, Kansas farm income has fallen more than 40 percent, according to the U.S. Bureau of Economic Analysis. Income for the farmer, as the owner of the business, has dropped 66 percent.

It has meant a recession in parts of rural Kansas, a plunge accentuated by the collapse in gas and oil drilling over the last two years.

Retail sales in 39 Kansas counties in the second half of 2016 fell below those of the same six months of 2015, according to sales tax collections.

That's an indication of how widespread the pain is being felt, but it's only noticeable in rural areas, said Gov. Sam Brownback.

"That's not eating a meal out or buying something at the local store," he said. "It's just stark.

"Sedgwick County is fine, Johnson County is fine, Douglas County, Shawnee, but when you get over to Barber County, it's stark."

The recession has also been a dead weight on job creation momentum for the state. In January, the most recent month available, Kansas had 2,400 fewer jobs than in January 2016.

And this year, a couple of other things that proved a bonanza for farmers in the good years are coming back to haunt them.

Farmers had their state income taxes eliminated in Brownback's 2012 tax restructuring. Because of the budget shortfalls since then, the Legislature appears ready to reinstate those taxes this year.

Farmers are also seeing an unwelcome hike in their property taxes. Agricultural land is taxed on an eight-year moving average with a two-year delay. In the good times, as their incomes were rising, their property taxes were actually falling.

But now, the formula captures the high farmland prices between 2008 and 2015.

Recent testimony to Congress by Nathan Kauffman, economist with the Kansas City Federal Reserve Bank, said a 1980s-type crisis doesn't appear "imminent" because farmers continue to own land, and banks continue to lend against it.

But the value of that farmland in Kansas has fallen 20 percent from its peak, according to Kauffman's testimony. That means that 20 percent of the equity used to secure loans has vaporized. Banks have to ask for more collateral, shrinking farmers' ability to borrow.

And experts say that expectations for any substantial long-term increases in crop and cattle prices depend on getting export agreements figured out and the dollar falling in value, big sources of agricultural anxiety right now with the Trump administration in power.

The clock is ticking and conditions are eroding. Kauffman warned that if farm incomes stay low, land values continue to fall and debt keeps rising, the 1980s could return in a few years.

Others put the crisis point sooner.

"They can last another year, maybe two, but it will be tough," said Frank, the Scott City banker. "We might lose — and I'm just pulling a number out the air — 10 percent, if things don't change after a year.

"Those are the people who are flat broke. Another 50 percent will be struggling."