Despite low prices, trade wars, this ag downturn is 'piece of cake' compared to 1980s
Rockwell City, Ia. — A twisted shaft in Randy Souder's corn head earlier this month had him calling a half-dozen Midwest suppliers to see if he could replace the part.
More than likely, he'll repair the combine himself, a practice that began in the 1980s farm crisis, "when we didn't have a nickel," he said.
In many ways, the lessons learned in the 1980s shaped how Souder and his wife, Cindy, farm today. They rely as little as possible on lenders and they've expanded their Rockwell City corn and soybean operation conservatively.
The low corn and soybean prices today are "a piece of cake compared to the ’80s," he said.
But trade disputes, rising interest rates, and tumbling commodity prices have farmers and others comparing this downturn to the farm crisis, a recession that remains Iowa's worst since the Great Depression.
Adding to concerns: U.S. farm debt is climbing, sitting just 8 percent below the peak in 1980 when adjusted for inflation, USDA data show.
And farm income has tumbled. U.S. farm profits this year are expected to be half the 2013 record. Iowa farm income last year was 65 percent below a 2011 high.
But the likelihood of another 1980s farm crisis is "relatively low," said Chad Hart, an Iowa State University agricultural economist. He noted that declines in commodity prices, land values, and income were "quick and sharp" in that decade.
"That’s what creates the crisis," Hart said. "What we’ve been through in the past five years has been slow and relatively shallow."
'Stuck in a hampster wheel'
USDA economists say the agriculture industry is entering a "potentially vulnerable period," but note that the downturn shouldn't be as "severe as the farm crisis of the 1980s."
Farmland, machinery, operating and other debt has increased, but so has the value of assets.
"In contrast to the 1980s, recent decades have seen farm assets appreciate more rapidly than debt, so the farm sector’s debt-to-asset ratio remains low by historic standards," USDA said in a July report.
The strength of farmland values has been key in helping farmers through this downturn.
Land values fell 63 percent in the 1980s to about $787 an acre in 1986, an ISU land survey shows. Last year, values were at $7,326 an acre, 16 percent below a 2013 peak.
"The biggest issue we had in the ’80s was a rapid drop in ag land values, which led to a rapid drop not only in net worth of farms, but the collateral on those farms that supported agricultural lending," Hart said.
That "forced a lot of banks to extremely tighten down on credit or deny credit outright, which forced a lot of farmers to make forced sales," he said.
That cascaded. "It felt like we got stuck in a hamster wheel," Hart said.
"If we were to have a return of the ’80s, that would be the major thing that would trigger it: If we see land that has to be sold in order to pay the bills," he said.
Souder was a young farmer when the 1980s a crisis hit. Both he and his wife took off-farm jobs to help make ends meet.
"Prices were dropping the limit every day," Souder said. Elevators stopped buying corn or soybeans for a time.
For about three years, he made fiberglass boxes during the day at a local manufacturer and farmed at night. His parents helped out, buying seed and fertilizer, which the couple later repaid.
"The banks didn't want to talk to you," Souder said, as interest rates were around 18 percent. "Going in to beg for a loan was tough. That was the last time I borrowed operating money."
He found a used parts place he could go to fix his equipment. The couple raised some livestock to help feed the family.
Neighbors lost farms. Close to 13,000 Iowans stopped farming from 1980-88, the U.S. Bureau of Economic Analysis shows. And consolidation has continued almost annually since then.
The ag recession pulled down the state economy, with manufacturers laying off workers.
At the same time, meatpacking operations were closing or reorganizing as well.
"We were being assaulted in Iowa and in rural Iowa across a number of fronts," said David Swenson, an ISU economist.
Iowa's unemployment rate hit 9.1 percent in 1983.
It didn't get "righted until sometime after 1987," Swenson said. "We endured almost a seven-year contraction."
In September, Iowa's unemployment rate was the second-lowest in the nation at 2.5 percent.
About 137,000 residents left Iowa, looking for jobs in states that had escaped the farm downturn, U.S. Census data shows.
"Everyone was trying to figure out how to survive," Hart said. "Some farms did fail. Others were under financial stress, looking to reorganize."
'Most talk about breaking even'
Since the 1980s, Iowa's economy has diversified, with expansion in finance and insurance expansion, business services and health care.
"A diversified economy can handle more stress," Swenson said.
And while farmland values have declined slightly, "we don't have the broad-based ag land speculation ... and the associated irresponsible lending and borrowing" that occurred in the late 1970s that led to farmers being highly leveraged with debt, he said.
Ag lenders have made changes, requiring higher down-payments with land purchases.
Peg Scott, CEO of Union State Bank in Greenfield, said many of her bank's customers went through the ’80s and are financially cautious.
And a good harvest this year should help farmers meet their loans. Scott, president of the Iowa Bankers Association board, believed her customers would all get needed credit for next year's credit.
She anticipates that more Iowa farmers will want to restructure debt this year.
And more loans could end up on lenders' watch lists. But she doesn't anticipate federal pressure to limit ag credit or a return of the 1980s.
"Yes, prices are low, but farmers are ... cutting back on expenses, putting off capital investments," she said. "Most of them are talking about breaking even."