Trouble on the farm: 'We face a grim future' - | Chattanooga News, Weather & Sports

Trouble on the farm: 'We face a grim future'

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Jim Schriver has been farming since he graduated from Ohio State University in 1963. The 72-year-old grandfather of two grows corn, soybeans and livestock on his 1,600-acre farm in north central Indiana.

Like most farmers, Schriver has dealt with drought, freezing temperatures and the uncertainty that comes with toiling in the fields.

But Schriver says he's worried about a new threat to his livelihood—the real possibility that the U.S. agriculture industry could suffer a crippling economic bust after years of unprecedented boom.

"I think we have to be worried about this in a big way," said Schriver. "We face lower incomes, inflated land values and rising costs to farming. We have plenty of reasons to be worried."

"This could be very painful for farmers," said Blake Hurst, who grows corn and soybeans on a 450-acre farm in Tarkio, Missouri.

"I do expect things to get worse," said the 56-year-old Hurst, who went so far as to call the situation a near crisis. "I think we face a grim future."

What's setting off alarms in the farming community is a possible downward spiral in farm land values—coupled with an expected decrease in income—that could raise farm debt to unsustainable levels.

A report released last month by the Federal Reserve Bank of Kansas City warns that if farmers use their accumulated wealth instead of profits to finance their agricultural investments, they could end up in greater debt, risk bankruptcies and potentially face the loss of their farms.

There's precedent for such a boom-to-bust cycle—based on increasing debt. U.S. farmers suffered downturns in the 1920's and 1980's following economic booms in the 1910's and 1970's. In both cases, farmers' debt rose and left many bankrupt.

"I remember the 80's and it was a bad time," said Schriver. "Land values went south and a lot of farmers were in debt. There were a lot of bankruptcies from overdue loans that couldn't be paid."

The value of farmland is a vital economic linchpin for farmers. Farmland accounts for 85 percent of the typical farmer's assets and serves as collateral for many loans. If land prices fall, so too could the farms themselves. Investments in farmland have had three years of double-digit growth, according to the Federal Reserve study, as farmers keep throwing money into land instead of other investments like stocks.

"Land values can't stay as high as they are now," said Hurst, who's written on the subject. "They've increased at a double-digit rate for the last seven years in the corn belt area. But those values can crash in a hurry, increasing debt levels. Just look at former home owners in Las Vegas and Southern California."

"We can see debt already increasing," Hurst went on to say. "A Kansas Farm Management Association report says that the number of farmers with a 40 percent debt ratio is higher now than it was in 1979 and that farms with a debt ratio of more than 70 percent are three times as many today."

What could make a farm debt worse besides imploding land value is a rise in interest rates, said Roger Hadley, a 60-year-old farmer with 700 acres near Fort Wayne, Indiana.

"I think there's a false sense of normalcy with farmers about this right now," said Hadley, who grows soybeans and corn.

"Rates have been low for a while, but if they do go up, that's only going to increase the debt burden on farmers," Hadley said. "Loans would get more expensive."

What happens to interest rates and land values may be somewhat of a guessing game at this point. But it does seem fairly certain that farm incomes in the U.S. are headed down. The USDA predicts a 25 percent decline in farm profits for 2014, as commodity prices level off and exports are reduced.

This comes after incomes reached $98.1 billion last year—topping an overall increase of 147 percent since 1988, according to the USDA.

"We're having a lot of commodity surplus here in the U.S because the world is growing its own food," said Schriver. "And prices are going to go down as a result."

If farm income is lower, it only adds to the pain of increasing costs.

"Not too long ago it took $400 to grow an acre of corn," Schriver said. "Now its $1,000 an acre of corn. A bag of seed was around $35-40 an acre. Now it's $245 or more. It's getting very expensive to farm."

Like Schriver, Hurst and Hadley, Lin Warfel grows soy beans and corn. He has an 800-acre farm in central Illinois, some 140 miles south of Chicago. But unlike his fellow farmers, the 72-year-old Warfel feels a bit more more sanguine about predictions of an economic bust.

"I too saw the 1980's and it was bad, but I don't think we'll have the same situation even if land values fall," sad Warfel. "Banks are being more cautious and demanding more cash up front on down payments for loans. You used to see farmers borrow 100 percent of a loan, now you don't."

Farmers and banks may be more careful about loans than in the past but If and when a bust comes, there might not be much financial help to go around. Congress is currently debating a five-year agriculture bill with big limitations.

In an era of decreased federal spending, the Senate version calls for roughly $2.4 billion a year in cuts to agriculture, while a House version would save $4 billion out of almost $100 billion annually. Those cuts include more than $600 million in yearly savings from cuts that took effect earlier this year.

"There really aren't the resources from Washington like there were in the past," said Hurst. "They spent billions in the 1980's on supporting farm income but I don't see that happening again."

"And as for crop insurance, it's very important to farmers. However, it is tied to a five-year average of market prices, so the insurance guarantee will trend down as prices go down," Hurst added.

While still a cautionary tale for farmers at least to this point, the seeds for an economic bust in agriculture may have been planted.

"I know of a farmer in another state with a large farm who just went bust because of debt," said Jim Schriver, who went on to say his land is completely paid for and debt free. "It's likely to keep happening more often."

Schriver added that he's soon to retire and hand over this farm to his two 20-something grandsons. He echoed the concern from farmers and analysts alike that it's the younger generation that could get caught up in a downturn.

"They haven't seen the bust times like I did," Schriver said. "I caution them every time they want to buy something, 'Do you need this?'"

"I asked that recently about a tractor they were going to buy," he said. "They bought it anyway."

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