A recent Successful Farming magazine’s article caught my attention because it indicated that today, farmers are retiring in greater numbers than in the past decade. It pointed out that when profit margins are tight, more transitions occur, but the next generation isn’t eager take over operation of a farm because cash returns are declining. So in many instances, rather than following in mom and pop’s footsteps, the kids are more likely to want to sell the farm, because good Midwest farmland is selling for $10,000 or more per acre, which looks like a better deal for children to consider. However, some farmers are placing their farms in trusts so they can’t be sold, to protect a legacy that retiring parents worked to build through hard work and sacrifice throughout their lives. They aren’t about to see their children sell off everything.
Last week, I talked about farm ownership, and pointed out that 98% of farm and ranch land in the U.S is family owned. Small family farms make up about 90% of all farms in the country, using 52% of the land to produce 26% of all farm production. The current agricultural downturn is not affecting small family farms, but rather impacting many midsize and large scale farms. The era of viable small family farms ended in the late 1980’s. Although the number of farms had declined throughout most of the 20th Century, by the 1970’s there were still many small operations where at least one person worked full time on the farm and supported the whole family. But the economics changed drastically for thousands of these farmers when the ag economy was hit with the 1980’s debt crisis.
The seeds of the debt crisis were sown in the early1970s, when Secretary of Agriculture Earl Butz eliminated a crop set aside program that had limited corn acres to control the supply of that grain. He followed with his mantra to farmers of, “get big or get out,” coupled with urging farmers to plant grain crops “from fence row to fence row.” for export to the Soviet Union in the mid 70’s. These policy shifts coincided with the rise of major agribusiness corporations, and resulted in declining financial stability of small family farms as farmers bid up land to heed Butz’s recommendations to get bigger. Lenders too, encouraged farmers to borrow money to buy more land and equipment based on the inflated value of the land that their families had farmed for generations. But when the Soviet Union stopped buying U.S. grain at the end of the decade, grain prices crashed. Then interest rates zoomed to over 18%, and farmland values plummeted. The house of cards built on inflated land values crumbled, and the era of profitable small family farms came to end with thousands of farmers filing for bankruptcy, while farm sales were held throughout farm country to auction off the assets of formerly secure family farmers.
The current downturn in the ag economy is currently not affecting most small family farmers, but is impacting many midsize farmers who are financially overextended because of their purchases of high priced land and equipment over most of the 2010s. High commodity prices from 2007 through 2012, brought on by the passage of Renewable Fuel Standards, weather events both in the U.S. and internationally that limited grain supplies, and increased grain exports lulled farmers into thinking that good times had come to stay. When the 2014 farm bill was being debated, farmers and some ag economists believed that $3 corn, $4 wheat and $8 soybeans were a thing of the past, which encouraged farmers to once again follow the adage of getting bigger or get out. Currently, cash bids for corn many parts of the country are less than $3.50, wheat is around $4 and soybeans are $7.50. Though the difference this time around is that land prices haven’t suffered because of the downturn in commodity prices, which has been a blessing for those farmers who have used land equity to buy assets that have no hope of returning profitable cash flows.
Small farmers on the other hand, have watched from the sidelines knowing that the 95 to 96% equity they have in their farms gives them a firm cushion against both low commodity prices and the specter of falling land prices. Although many of these farmers have other non farm income streams, they are still doing what they love…Growing crops and livestock, and living the country life.
Wendell Berry wrote: “Why do farmers farm? Love. They must do it for love. They love to live where they work and to work where they live.