FARGO — The impact of the U.S. trade war with China on farm commodity prices is bad, but it is not clear whether low prices and a lack of markets will turn into a credit crisis like the one that crippled the ag industry in the 1980s.
The Steffes family’s auction business in the Fargo and Arthur, N.D., areas served farmers and lenders as they dealt with the decade-long 1980s crisis. The times and challenges were instrumental in growing the Steffes Group into a multistate auction name.
“I was the child of the farm crisis,” said Scott Steffes, 57, president of the company that today operates in seven states, but primarily in North Dakota, South Dakota, Minnesota, Iowa and Wisconsin.
Scott’s father, Bob, farmed and started a local auction company in 1960. Bob started as a livestock auctioneer and branched out doing local equipment sales.
After a partial grain embargo to Russia in 1980, the farm crisis tightened its grip from 1982 to 1987. Interest rates soared and lenders had gone to a pattern of “equity lending” — making loans based more on rising land values than year-to-year profits, the Steffes men recall.
Farm liquidations started in 1983 and the values for ag equipment hit bottom in the summer 1985, Bob said. “We sold out farmers in those days that we probably shouldn’t have,” said Bob, now 82. “They got caught and land values dropped. Machinery values dropped. Banks get nervous and they want out.”
As farmers faced tough choices, Bob urged them to “do the best you can” with a sale, and cut their interest losses. “A lot of hand-holding,” Bob remembers. “Many people were lost, didn‘t know what they would do without a farming job.”
Scott said he remembers Bob giving one Red River Valley farm wife money to buy groceries.
In many cases, the banks lost “way more than the farmers did” in the sales, Scott said. He witnessed “lots of asset destruction in the 1980s, by farmers who were really disgusted and disappointed in their demise.”
Scott remembers repossessing a Case 4894 four-wheel-drive tractor. He found it sitting in a field in May with a 10-bottom plow. The farmer had removed the oil plug and run it dry. “He destroyed it,” he said.
In another situation, a farmer sent a combine down the field, running it wide open until it “plugged so bad that the back end of it bulged out like a pregnant wood tick, just letting it sit there for the winter with full hoppers.”
Things got better after 1988, and into the 1990s, Bob remembers. Farmers became aggressive in 2010. “They decided there was a future here,” Bob said.
Commodity prices declined after 2012, but yields increased.
“The farm crisis catapulted everybody that was in agriculture to a different level, us included,” Scott said.
Today, the company today is 60% equipment and 40% real estate. The company last year did 365 auctions – the equivalent of one a day – and all online in some form. They’ll do 400 auctions this year. Scott has two sons in the business, as well as other family members.
Scott acknowledges that, yes, some of today’s clients have “made long-term commitments on short-term markets,” which has a feel of the 1980s. But overall conditions today are “not even close” to the 1980s, he said.
Maybe 10% to 15% of the farmers have “very deep” irretrievable problems, where in the 1980s, “everybody had problems,” he said.
Crop production, commodity prices and interest rates are the “three legs” to a stool for farm conditions.
So far, many farmers have been “hitting singles and doubles” by getting good crops while interest rates remain low. Scott said there are a lot of farmers who are “very debt-conscious” based on their family history in the 1980s.
“There’s a lot of folks out there that just don’t borrow money,” he said.
Farmers are much more aware of “asset management” — using their option to sell equipment, or even land, to cut back on debt. “It’s not uncommon for a farmer to buy a combine in the fall of the year and sell it immediately after harvest,” he said.
The biggest tipping point would be a poor commodity market that would continue more than a year or two.
The average Steffes retirement equipment sale today grosses $600,000. Out of 100 farm retirement auctions in the past year, “virtually none” sold any owned land.
Scott said a considerable concern for farmers is a significant rise in interest rates to, say, 10% or more. So far, that doesn’t seem likely, as federal policies seem to be driving interest rates downward. Farmland values remain strong, in part because of competing investment values, such as certificates-of-deposits.
“Right now there are way more buyers than sellers in the farmland world,” he said.
“I’m still pretty optimistic about the stability of U.S. agriculture,” Scott said. “It’s different than it was in the 1980s.” Farmers today remain confident in their production prowess and need continued production and consistency. Some people this year took advantage of “small windows” for marketing grain profitably. Farmers need “relatively safe commodity prices,” and he said $4 per bushel corn “works for a lot of people.”
Today’s situation is confused by conflicting or counterintuitive federal figures for the size of the crop, or estimates of how much isn’t planted, Bob said. Farmers today face “short-term issues, and they’re political,” he said.
Bob, however, said the past year provided evidence that just because someone farms 20,000 acres or more, “doesn’t assure profitability.”
U.S. intervention in markets and the backlash on soybean exports to China puts farmers “right back in” to financial troubles. “They’re using grain – soybeans and corn in particular – to do national politics with the Chinese, and it just really hurts. It may not end just because we can get through 2019. It’s going to be carried into 2020, until there’s an election.” He thinks “anything is fixable” and wonders if a fix won’t come next spring or summer, to “bring this good news to the markets before people vote.”