Ag Finance and Income Protection Risks

A Fear of the 1980s for Farmers and Black Swan Risks for Cattle Producers

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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Oklahoma farmer and attorney Barry Squires is concerned about a potential repeat of the 1980s farm crisis. He said economists and others aren't factoring in all the financial risks farmers face with higher interest rates, higher diesel prices and lower commodity prices. (DTN photo by Chris Clayton)

OKLAHOMA CITY (DTN) -- Farmers and ranchers are expressing some anxiety about the downside risks they face with higher loan costs and potential black swan events.

When a few Oklahoma farmers and ranchers got the chance Nov. 6 to raise some points about the farm bill and rural concerns with House Agriculture Committee Chairman Glenn "GT" Thompson, they stressed some of the various financial risks facing producers.

Barry Squires, a farmer and attorney who described himself and others as "agriculturalists," said he is concerned about a possible repeat of the 1980s farm crisis. He said economists and others aren't adequately factoring in all the financial risks farmers face with higher interest rates, higher diesel prices and lower commodity prices. While some dispute comparisons to the early 1980s, Squires sees a lot of similarities. The current interest rates might not be as high, but farms today are also significantly larger.

"I think the boat they are missing now is the size of farms and ranches is seven or eight times larger than farms were in the '80s, so that raise in interest is much more of an elephant in the room than anybody thinks," Squires told DTN. "These drops in prices coupled with the fuel, coupled with the interest, are going to create a lot of challenges for so many agriculturalists that are carrying any debt."


So many people look back at the 1980s and point to interest rates that were 17% to 19%, and the interest rates now being offered for operating loans are closer to 9% or 10%. Squires said the problem, as farmers go to renew their loans, is the interest component of that renewal is significantly higher than the payment was just a year or two ago.

"And when that happens, if a farmer cannot pay the interest component of their loan, a bank has no option but to foreclose," Squires said.

So many agricultural areas remain propped up by strong land values, which made it easier for some farmers who own land to renew their loans. However, that doesn't work out for people who do not have the luxury of that extra collateral to use for a loan, Squires said.

"The agriculturists of the '80s were not lazy people. They were not stupid people. They just had too many problems to overcome," he said. "In the 1980s, our balance sheets were destroyed to a point that our lenders couldn't work with us. And it's imperative we get in front of this before it happens."

Squires, who works on policy for American Farmers & Ranchers/The Oklahoma Farmers Union, suggested to Thompson and other lawmakers that they should consider a subsidy on the interest payments or some similar program to help with fuel costs. Thompson demurred on that point, but he did note there could be some expansion for Farm Service Agency (FSA) loan programs in the farm bill.


While producers such as Squires have their concerns, the Purdue University/CME Group Ag Economy Barometer rise in October suggested farmers in October's survey "were slightly less concerned about the risk of lower prices for crops and livestock and felt somewhat better about their farms' financial situation than a month earlier."

The survey suggested farmers overall are more optimistic about their farms' financial situation now compared to September. Purdue economists noted, "The index's rise stood in contrast to USDA's' forecast for 2023 net farm income to fall below 2022's income level."

Still, the Purdue/CME survey also indicated that while farmers may have better views on their finances, the Farm Capital Investment Index in October "was the lowest reading of the year for the investment index." Roughly 78% of the farmer respondents said it was a bad time to make large investments in their operation. Rising interest rates were the most common reason for that response.


In a separate conversation from the crop side, cattle producers are trying to protect their margins from downside risk right now. Fed cattle prices for December and February contracts have come down off their highs in the past month, but are still trading above $178 per cwt. Still, the contracts have lost about $12 a head in that time.

Michael Kelsey, executive vice president of the Oklahoma Cattlemen's Association (OCA), said Nov. 6 that cattle markets remain exceptionally good right now, but that creates a lot of risk for producers and the need for risk management tools.

"The amount of risk in agriculture is intense," Kelsey said, highlighting support for the livestock insurance policies that are increasingly catching on with producers. "We're dealing with so much capital and with so few animals, and specifically in the cattle industry, those programs are critical."


Livestock Risk Protection (LRP) has become a popular risk-management option for producers. Kelsey said it has been "a salvation" to producers right now.

"It has really exploded in Oklahoma," he said. "We've certainly seen a tremendous use amongst OCA members. What's so good about that program, too, is it really doesn't matter the size of the operation. It's great for small producers with 20 head and it's great for big producers."

USDA Risk Management Agency (RMA) data on livestock policies isn't as detailed as crop insurance, but RMA shows livestock policies have jumped from 7,000 policies in 2021 and $14 billion in liability to more than 16,300 for this year with liability covered at $26.45 billion. LRP became a much more viable option for producers after the 2018 farm bill because caps on the costs of the program and premium subsidies were lifted.

Asked if there are policy needs or concerns right now, Kelsey said none immediately came to mind, but cattle producers want to protect LRP and see if there are some options to improve it. Lenders for cattle producers are also increasingly asking about their risk management plans. That often begins with either the LRP insurance or hedging, Kelsey said.

"Black swans can happen anytime. You know that we're in a global market, so managing risk is just critical," Kelsey said.


At the Agricultural Bankers Conference across town, there was more discussion about alternative financing options for producers who may be struggling. A Kansas attorney also talked to bankers about how to prepare for tough conversations with distressed borrowers. That includes advice to bankers to pay closer attention to assuring farmers' business plans are grounded in reality.

David Kohl, a professor emeritus of agricultural finance at Virginia Tech, pointed out to bankers a couple of "psychological" elements in the economy -- $100 a barrel oil and 10% interest rates. Both can lead to shutting down an economy, he said.

"Those are elements that can change the cash flow very, very quickly," Kohl said.

Also see, "Ag Bankers Concerned About Farmer Liquidity and Income Coming Out of 2023," at….

Chris Clayton can be reached at

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Chris Clayton