If you loved the 1990s, you're in luck. The future is about to repeat itself.
You remember the years post-1980s-debt-crisis and pre-ethanol-boom: Attention to early-season grain marketing mattered. Corn growers were happy if they eked out a $50/acre profit. With skimpy margins, farms and farm supply businesses consolidated to gain economies of scale. Instead of phasing out as promised by the 1996 Farm Act, government farm subsidies became a staple of farm budgets. Quick students learned the value of LDPs, marketing loans and payment limits.
Now no matter what economic think tank you choose--USDA, FAPRI, Informa--all are predicting sluggish global economic growth, dim export prospects and bearish commodity prices through at least 2020. That sets the stage for on-going negative margins should crop producers fail to realign their input expenses and cash rents. It also means growers will be need to be more self-reliant than they were 20 years ago, since most farm program payments will downsize just as financial damage accumulates.
Already, vendors report more stress in operating capital and a surge in past-due accounts. Testifying at a House Agriculture Committee hearing this week, CHS Capital President Randy Nelson reported a number of farm customers who have been dropped by their lenders are requesting credit from their local co-op suppliers this spring. CHS Capital reported nearly 1,000 past due accounts the first three months of 2016, up more than eight-fold compared to 2015.
"If prices remain low throughout 2016 and the outlook is not positive, CHS Capital believes many farmers will choose to preserve their equity and will rent out their farmland or liquidate assets," Nelson said, especially growers close to retirement and those without successors.
A string of loss years could be especially destructive, other financial experts believe. At an April 14 House Agriculture hearing, Joe Outlaw of the Agricultural and Food Policy Center at Texas A&M cited evidence of erosion in farm cash flow and real net worth. Based on projections of AFP's representative farms in 20 states, half of the feed grain, oilseed, wheat and cotton farm operations will be in poor financial condition by 2020, if these conditions continue, he estimated.
Unfortunately the results should be viewed as optimistic, Outlaw added, because Agricultural Risk Coverage (ARC) payments are frontloaded. The ARC price benchmark is expected to decline over time, meaning producers will be receiving little support by the time this farm bill expires.
Already, growers nationwide are telling Outlaw and his Texas A&M colleagues:
--Obtaining financing is much harder. Many farmers who received operating credit this year still had to go from bank to bank to secure financing, endure tougher rules and put up more collateral.
--Cash rents have come down a little, but nowhere near the amount that commodity prices and returns have fallen.
--Most are concerned conditions will be worse next year, posing problems for themselves and for young farmers without equity.
"The current poor situation on farms across this country would be considerably worse if not for the safety net provided both by Tittle I commodity policies and federal crop insurance," Outlaw said.
"In my opinion, the interest groups that continue to call for changes that would negatively impact these two key policy tools clearly either have no idea how difficult the financial situation is across agriculture or they simply do not care."
So like the 1990s, tight times and farm program criticisms are back in fashion. What's different is that without a change in the commodity price outlook or farm supports, you'll need more self reliant solutions to succeed.
Follow Marcia Taylor on Twitter @MarciaZTaylor
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