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Cole says debt today is more concentrated than in the 1980s.

Forrest Laws

June 18, 2019

What farmer above a certain age hasn’t wondered if the currently depressed state of ag commodity prices isn’t leading to a return of the 1980s when many of their neighbors went out of business?

Greg Cole, president and CEO of Little Rock, Ark.-based AgHeritage Farm Credit Services, began his lending career in 1984 when soybean prices fell to $4 a bushel and many growers couldn’t make loan payments on their operations.

Speaking at the Mid-South Agricultural and Environmental Law Conference in Memphis, Tenn., June 7, Cole displayed a “rather busy” slide that depicted the changes in farmer debt-to-asset ratios over the last 50 years. In the 1980s, he noted, the average debt-to-asset ratio for growers climbed above 22 percent.

“You can see we bottomed here in 2012, which was the best year (at 12 percent),” said Cole, who said earlier in his presentation that 2012 and 2013 was one of the most profitable periods in U.S. agriculture. “You can see it’s picking up (to a forecast of 13.9 percent in 2019).

“Here’s a perspective: We have the most stress now that we’ve had since the 1980s,” he noted. “But it’s not the 1980s, and I don’t expect it to be the 1980s. It would take a 40-percent correction across the board in U.S. farm prices to get back to that record I mentioned.”

What else is different between now and the 1980s? “Debt is more concentrated,” he said. “A recent study indicates that 5 percent of the farmers in this nation produce 75 percent of the output. That’s 107,000 producers. The University of Michigan’s football stadium, the largest in the country, will hold 107,000. So you could put those producers inside that stadium.

“That 5 percent are more highly leveraged. When you look at averages, that average is up there because they’re the ones borrowing the most money. Leverage is one of the things we will keep an eye on as we go through this environment.”

The impact of changes in commodity prices becomes more apparent when you look at a slide depicting the average profits of farmer customers of AgHeritage Farm Credit Services in eastern and central Arkansas.

“In 2013, 78 percent of our borrowers made money,” he said. “With the 50-percent decline that has occurred since then, most of them lost money. We had a rather strong year in 2017 because we had big yields and a strong PLC (Price Loss Coverage Program) payment.

“Let’s talk about this,” he said, pointing to a decline to 62 percent having a profit in 2018. “If you take the PLC payments for rice out of this and you take the MFP (Market Facilitation Program) payments out of this, it’s down here. That’s how big the government intervention is here with the farm bill and the safety net programs, especially here in the Mid-South.”

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About the Author(s)

Forrest Laws

Forrest Laws spent 10 years with The Memphis Press-Scimitar before joining Delta Farm Press in 1980. He has written extensively on farm production practices, crop marketing, farm legislation, environmental regulations and alternative energy. He resides in Memphis, Tenn. He served as a missile launch officer in the U.S. Air Force before resuming his career in journalism with The Press-Scimitar.

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