WASHINGTON, D.C. — Just how close are American farmers to a 1980s-style financial crisis?
The answer to that question that might surprise Canadian farmers, who are enduring an uninspiring period, but hardly one of the darkest times in prairie farming history.
But in the United States, a far larger proportion of farmers are believed to be in financial trouble. Many analysts say more years of low crop prices and continuing high costs may worsen the situation.
In speeches leading up to the Senate confirmation vote for Agriculture Secretary Sonny Perdue, one senator described the “tough economic times” being experienced by American farmers. It is a perception that appears to be shared across the spectrum of Washington politicians and farm group officials.
However, U.S. Department of Agriculture chief economist Robert Johansson said U.S. farmers are still far from a 1980s-like situation since their debts are lower and their interest payments are easier.
“The trend is something that we’re watching, but the level right now is nothing that we’re all that concerned about,” said Johansson last month.
Most corn and soybean growers are getting by, but farmers who depend on wheat, cotton, hogs and poultry are under considerable strain, with about 20 percent “in a tough situation.”
Overall, about 10 percent of U.S. farmers are in financial trouble, Johansson said.
The specific commodities causing problems have been hit by low prices. Wheat has been a money loser for most American farmers for a number of years.
But American farmers are also grappling with a high U.S. dollar, making their goods more expensive for buyers to purchase.
Land rents haven’t helped. U.S. farmers tend to rent a higher proportion of their land than Canadian farmers, so that can be a considerable factor.
Johansson said the slump in crop prices since 2013 has not had a similar affect on rents.
“The main cost that is causing difficulty for U.S. producers is cash rent. It has stayed consistently high and hasn’t come down as much as we might expect,” Johansson said.
In some areas, land prices have fallen about 10 percent, but rent rates have stayed closer to peak values.
The saving grace for U.S. farmers is and will probably remain low interest rates, Johansson said.
Not only are most U.S. farmers carrying far lower amounts of debt than farmers did during the 1980s crisis, but interest payments are not nearly as onerous.
In the 1980s, U.S. farmers had a debt-to-assets ratio of 22 percent, but today it is 14 percent. Farmers then faced double-digit interest rates, but today are paying low single-digits.
Established farmers are probably facing the present low price period in a comfortable position, with the boom years of 2007-13 giving them a chance to pay down debt, buy equipment and improve their equity.
But Johansson said beginning farmers are looking at a bleaker situation, with no easy way to quickly build equity.
“I think their worry is justified,” said Johansson.
The USDA is predicting farm profitability to be flat for up to 10 years.
In 2012-13, the congressional wrangling leading up to the 2014 farm bill were influenced by a feeling from some that farmers were making big money and that government money shouldn’t be going toward them in good years. But Johansson said he expects the lead-up to the 2018 farm bill to be focused on ensuring farm program money is not reduced, since few are now arguing that farmers are doing well.
“Where we were in the last farm bill … is very different from where we are today,” said Johansson.