Ag conditions better now than the 1980s

Jonathan Knutson
Forum News Service

The overall U.S. agricultural economy has slumped in recent years, but several key measurements show that current conditions are better in important ways than they were in the rocky ag sector during the 1980s, a federal government report says.

Relatively low interest rates and the rising value of farm assets, particularly farmland, help to prop up today’s ag economy, according to “Financial Conditions in the U.S. Agricultural Sector: Historical Comparisons,” a recent report from the U.S. Department of Agriculture’s Economic Research Service, or ERS.

Andrew Swenson, a veteran farm management specialist with North Dakota State University Extension, agreed that current conditions are better than they were four decades ago.

“We’ve seen some farmers go out of business (recently), but overall, things aren’t as bad as they were in the 1980s,” he said.

The ERS report notes that the ag sector’s financial health has declined since the sector’s multi-year run of prosperity from 2008 to 2012. But the report also finds that, put in historical perspective, current conditions aren’t particularly bad:

• From 2012 to 2017, the farm sector saw the largest multi -year decline in net cash income in percentage terms since the 1970s. But farm income in 2012 had been at a near-record level, so, even with the large drop, inflation-adjusted income remains close to its long-term average.

• Farm sector debt has risen to nearly the same high levels as four decades ago. Even so, interest expenses remain below the long-run average level because of historically low interest rates.

• Though land values have fallen in some areas and caused farmers’ debt-to-asset ratio to rise since 2012, that ratio is still low compared to the 1970-2017 average.

Low interest rates definitely help today’s farmers by holding down the interest they pay out, Swenson said.

A hypothetical example: Say that a producer borrows $100,000 to buy farmland and promises to repay the money over 15 years.

With an interest rate of 15%, which was common in the mid-1980s, the monthly payment is roughly $1,400, with $1,250 of that amount interest in the first month.

With an interest rate of 5%, the monthly payment is $790, with $417 of that amount interest in the first month.

Ag boomed in the mid-1970s, which led many farmers to expand and take on debt, eventually causing them to struggle in the 1980s when crop prices and land values slumped. The latter reduced farmers’ assets, hurting their ability to borrow and inflicting heavy losses if they were forced to sell land at much lower prices than what they paid.

Today’s relatively stable land values hold up farmers’ assets, improving their financial situation, he said.

Other factors are helping current ag conditions, too, Swenson said.

Modern farmers generally were more prudent with their spending after the 2008-2012 boom than their predecessors were after the mid-1970s prosperity, he said.

And modern ag lenders overall are shrewder and more disciplined, helping them to avoid many of the eventually onerous loans made in the late 1970s and 1980s, Swenson said.

Strong yields in some recent crop years, combined with government payments, also help to bolster current ag conditions, he said

In addition to the economic differences between the 1980s and today, Swenson sees a social difference.

“There’s less stigma to being in financial difficulty today than in the 1980s,” he said.

Back then, many farmers were so upset about possibly losing multi-generational farms that they were reluctant to talk publicly about it or to seek help.

Today’s farmers generally are more willing to be open about financial difficulties, Swenson said.