March 5, 2019
Media reports suggest the farm economy is about to face a rash of bankruptcies. But is agriculture really headed for another ‘80s-style meltdown?
Not according to Farm Credit Mid-America CEO Bill Johnson. We sat down with Johnson at Commodity Classic to discuss financial stress, farmer adaption, marketing, and young farmers. Here’s what we learned:
Farm Futures: With four straight years of low prices, the farm economy continues to struggle. What are you seeing?
Johnson: We’re really not seeing much of a change in numbers on bankruptcies, especially with our customers. They’re still pretty rare. Statistically the numbers have jumped, but they have also been at historical lows in my lifetime.
We have seen some stress in the industry, but our customer base has been resilient. Farmers are adapting and adjusting their operations. Most of our customers either broke even or made money last year. That’s not what you see in the headlines.
Yields helped. Government programs at end of the year related to tariffs, helped. But each year, farmers get to be better financial managers. I really think financial management is what’s doing it. We’ve seen farmers be able to take input costs out of a field.
Considering the reduction in overall income it’s been pretty amazing the results so far. We’re pleasantly surprised at the resilience of our farmers.
FF: With a weak outlook for commodities should corn and soybean farmers ‘de-commoditize’ their businesses?
Johnson: There are a few operations looking to diversify, especially in typical corn-soybean farms, but at the same time there is a limited number of diversifications you can do. It’s not a large expansion. We’ve seen livestock come back into play, both swine and poultry. Some strictly grain operations are expanding and adding grower barns.
They are bringing in business plans, profit loss projections. The question is, do they have enough staying power as they start up to make the new venture profitable? Can you diversify and still make money? We’re seeing some of that but not large numbers.
FF: How has the farm economy impacted agribusiness?
Johnson: Suppliers, like farmers, come in many different sizes. We have small agribusinesses all the way up to the large conglomerates. It’s tougher for the smaller companies, it’s tougher for them to compete compared to bigger operations. In that regard there’s similarity between producers and suppliers. As you think about the future, will smaller farmers come together and be able to leverage buying capabilities by working together? There is scale advantage in large operations.
FF: How are young farmers different from their fathers and mothers in terms of business skills?
Johnson: In Farm Credit we have a specialized young and beginning farmer program and to qualify for our best rates you must go to financial management classes that we put on in partnership with universities. We expected them to be very data driven and seek that education online; but we discovered that they like that network. They have a hunger to learn and get together with other young farmers. They want to figure out how to leverage their data with other farmers to improve their business.
We’re also finding that with more experienced producers, they are interested in benchmarking their farm against other farmers of the same size. So, being more data-driven is not necessarily a generational thing – it really depends on the attitude of that farm manager and how they look at their operation.
FF: What do farmers need to do to survive this prolonged downturn?
Johnson: We’ve been great producers, maximizing yields, doing little things to grow a crop better. I do believe people are now looking at how we market, and how we make decisions that maximize overall profitability, not just produce a big crop.
The sophistication level across agriculture is rising. We’ve got to be really good business people in addition to being good producers. We’re training our staff differently so that the result is, farmers are going to be business people first and producers second; we see that as a shift in the industry.
It’s a shift for the better, but there will be some hard growing pains.
FF: Some people say the three things that caused the ‘80s farm crash were trade issues, high surplus and high interest rates. Two of those three are in play today. Are we headed for another ‘80s-style downturn?
Johnson: As you think about the future the past can be beneficial, but it can also be limiting. We have worked diligently with our customers to lock in historic low interest rates. So, if the rates do take off in 5 to 10 years that’s one risk we’ve taken off the table, and that just wasn’t the case in the ‘80s.
It’s how you manage risk. Folks are better marketers; they’re using hedging, crop insurance – a lot of these things weren’t in place in the ‘80s. There’s a lot of tools and techniques farmers can use to protect themselves from worst case scenarios.
How long do we stay in this economic cycle? Some things are out of a producer’s hands. You have to step back and say, what are the things I can control, and use those tools effectively. We encourage people to talk to their lender and consider them a part of their insider team. Keep in constant communication on those ‘next level’ risks down the road, and think about how to prepare for those risks, today.
About the Author(s)
Executive Editor, Farm Futures
Mike Wilson is executive editor and content manager at FarmFutures.com. He grew up on a grain and livestock farm in Ogle County, Ill., and earned a bachelor's degree in agricultural journalism from the University of Illinois. He was twice named Writer of the Year by the American Agricultural Editors’ Association and is a past president of the organization. He is also past president of the International Federation of Agricultural Journalists, a global association of communicators specializing in agriculture. He has covered agriculture in 35 countries.
“At FarmFutures.com our goal is to get readers the facts and help them analyze complicated issues that impact their day-to-day decision-making,” he says.
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