Iowa's Financial Stress Builds

Potential Losses Wear on Corn State

Elizabeth Williams
By  Elizabeth Williams , DTN Special Correspondent
All ag customers at Mike Hein's Liberty Trust and Savings Bank in Durant, Iowa, will receive financing this year, but it's not been business as usual. (DTN photo by Elizabeth Williams)

AMES, Iowa (DTN) -- Cautious -- that's what the farmland brokers and rural appraisers termed their mood last week at the spring meeting of the Iowa Realtors Land Institute. It may look like business as usual as planting begins, but beneath the surface, financial stress is building in farm country, Iowa Concern Hotline director Margaret Van Ginkel with Iowa State Extension would add.

The hotline, established in 1985 during the farm financial crisis, has seen an increase in call volume this spring. "Questions concerning tax consequences of selling machinery or land, what if they stop making payments on machinery, worries about whether a farm operation can support two or three generations. The vulnerability is there," Van Ginkel said.

Iowa is a bellwether state for agricultural stress, given its rapid run-up in farm incomes, land values and cash rents during corn's 2008-12 glory years. Some lenders think the commodity fall will be harder here. One sign is that Land Institute members think the state's farmland prices tumbled 5% on average over the last six months, according to its March 1 survey. Since 2015, Iowa land values have fallen 8.7% across the state with top-quality cropland decreasing from $9,516 per acre to $9,146, the survey found.

However, bankers assured the audience they aren't clamping down hard yet.

Mike Hein, vice president of Liberty Trust and Savings Bank in Durant, Iowa, said his bank will finance all their farm customers this spring.

The same is true with farm clients of First National Bank in Waverly, Iowa, said vice president Steve Willemssen. "However, our concern is this can flip in a hurry," said Willemssen.

On the other hand, banks are defensively positioning themselves, according to industry watchers.

"I've seen lenders taking more collateral and setting up more Farm Service Agency guarantee loans," said farmland broker Roger Johnson with Farmers National Company in Cedar Falls. "As a former lender, that often means you're setting up the first step toward collection. That's not to say we are there yet. They're just protecting themselves."

Mediators with the Iowa Mediation Service have been extremely busy this spring. "That tells me some banks are going through the first steps before they foreclose, although in many cases mediation can preclude bankruptcy, provided a reasonable plan of restructuring can be negotiated," said Cedar Rapids attorney Joe Peiffer, who specializes in agriculture bankruptcy law.

"Up to this point, agricultural losses have been minimal," said Hein. "That's primarily because the decline in asset values [for machinery and land] have just been recently reported."


"Farmers are getting loans, but that might not be the best strategy," advised Peiffer. "One southern Iowa client told me his bank had approved his loan, but then he went home and looked at the projected numbers and thought, 'This won't work.'" The projections were for $4-per-bushel corn and $9.20-per-bushel beans with 180 bpa corn and 60 bpa soybeans.

"I asked him what his average yields were in the past five years -- 50-55 bpa beans and 170 bpa corn. And the local fall corn price? $3.50," Peiffer recalled. "When we put in more realistic numbers, the farmer went from a $20,000 profit for the year to a $145,000 loss. He left my office and cancelled some farm rental contracts."

However, DTN has not found a lot of rental land changing hands this spring, although that could change in the next two weeks: Tenants may find they don't have the money to both pay their landowner and put the crop in the ground.

"Land control is such an emotional issue, it's difficult to make a business decision," Peiffer added. "The farmer knows if he lets a piece of rented ground go, he may never get to farm that again. I ask my clients, if you lose money farming that ground, how many years can you afford to keep farming it? How much can you afford to lose simply for the chance to farm it in the future? It is even more difficult to get a farmer to not farm his owned land. Emotions run high and can cloud good business decisions."

Cash rents have softened a little, Iowa farm managers and rural appraisers reported at their statewide meeting, but rents are still strong in some areas. Waverly banker Willemssen said cash rents in northeast Iowa are still in the $300- to $400-per-acre range.

"In our area, a farmer signed a two-year lease for $400 per acre at Christmas time," he said.


Volatility has bankers most worried. Hein's biggest concern right now is machinery and equipment values. "Those are the core assets that we look at when we re-finance to help a customer carryover debt. And when you start to accumulate operating losses, that tells me trouble is brewing," he noted.

Tractors and equipment under $100,000 have retained their value, but late-model, big, used equipment has seen prices drop 15% to 20%. Some items have dropped 30%, "but we're not seeing that across the board on all items," said Andy Goodman, president/CEO, Iowa-Nebraska Equipment Dealers Association.

That means farmers with $1 million in equipment may be looking at a value of only $600,000 to $700,000, said Hein.

"We're talking big numbers on every scale -- land, machinery, inputs, repairs," Hein said. In 2010, just seed/fertilizer/chemicals for corn cost less than $150 per acre. This year, said Hein, those three input categories are projected to be $345 per acre on corn following corn in eastern Iowa.

Where can a farmer cut expenses? "We use $60,000 per year for living expenses for many of our borrowers, although some are $80,000 to $100,000," said Hein. "If they are paying for health care, it's hard for a family to get by on less than $4,000 to $5,000 a month."


Kyle Hansen, with Hertz Farm Management in Nevada, Iowa, said he has seen Conservation Reserve Program ground renewed this year at double the previous CRP payment. CRP land that was getting $160-per-acre payment was renewed at $320 per acre.

"Some landowners are looking at $280- to $300-per-acre rent for 10 years in the CRP and think that's a good alternative," said Hansen.

The bottom line is this will be a "survival" year for many Iowans. Last year higher-than-normal yields saved the day for many farmers. "And just because cash flows are bad, it doesn't mean the pile of cash that accumulated the last five to 10 years has gone away. Yes, some of it has been spent and some will be used as working capital, but [that wealth] is still there," said farmland broker Johnson.

Elizabeth Williams can be reached at


Elizabeth Williams