Knutson: Skeptical about an ag apocalypse
GRAND FORKS, N.D. -- If you're involved with U.S. ag, you know the score: continued poor crop prices and once-great-but-now slumping cattle prices are hurting farmers, ranchers and ag businesses. There's little chance prices will rally anytime so...
GRAND FORKS, N.D. - If you're involved with U.S. ag, you know the score: continued poor crop prices and once-great-but-now slumping cattle prices are hurting farmers, ranchers and ag businesses. There's little chance prices will rally anytime soon, so the economic hit almost certainly will continue for the foreseeable future.
If you're involved with U.S. ag, you've also heard the dire predictions: Crop and livestock prices will stay low for years. Land values will collapse. Farms, ranches and other agribusinesses will drown in debt. Bankruptcies will abound. An economic disaster - one even worse than the horrific 1980s - is just around the corner. Agricultural Armageddon! Ag apocalypse!
I'm skeptical. Not skeptical as in "I refuse to believe it." Skeptical as in "I have reservations."
My take: The ag economy is struggling, and most likely will continue to deteriorate. But things aren't nearly as bad - and might never get as bad - as they were in the 1980s.
I base that conclusion on decades of personal and professional observations, including ones from the ill-fated '80s. I also base it on conversations with farmers, ranchers, ag bankers, ag economists and ag businesspeople this spring and summer.
One example: I participated in, and wrote a news article on, a recent telephone conference hosted by the Economic Research Service, an agency of the U.S. Department of Agriculture. The ERS found that farm solvency, though deteriorating, is strong by historic standards; an ERS economist, in response to my question, said it's substantially stronger than in the 1980s.
Unless you lived through them, as I did, it's difficult to understand how much Upper Midwest agriculture suffered in the '80s. They were the long, awful aftermath to the brief 1970s boom in which high crop prices encouraged producers to buy equipment and expensive farmland with money borrowed at double-digit interest rates. When crop prices and land values plunged, deeply indebted farmers couldn't repay the money they owed.
True, the current ag environment has painful similarities to the '80s. The 2008 to 2013 ag boom produced strong profits; farmers had the money to buy equipment and expensive farmland. Now, crop and livestock prices are slumping, and profits are hard, if not, impossible to come by for most producers.
But farmers in general have far less debt today; they used cash, not credit, for a lot of their 2008 to '13 purchases. And interest rates are vastly lower today, which lightens the burden on folks who did borrow. These aren't the '80s; it's not even close.
But there will be casualties
That said, there will be casualties ahead.
Some will be aggressive operators who bet the ag boom would continue indefinitely. Decide for yourself whether these overly confident producers deserve sympathy. Personally, I can't muster up much.
The list of casualties will include some producers and ag businesses hurt by repeated bouts of bad weather. They suffered the downside of the boom - higher input costs, higher land values - without enjoying the profits that went with it. I do sympathize with them
I also feel badly for young producers who entered ag late in the boom. They, too, are experiencing the downside without most of the benefits.
It's been said that a recession is when somebody else loses their job and a depression is when you lose your job. No doubt the same applies to agriculture. Times are tough when somebody else can't pay their bills; times are disastrous when you can't pay your bills. If you're in serious financial trouble, a big-picture analysis is irrelevant.
But what I'm hearing and seeing tells me Upper Midwest ag, in general, is a long way from Armageddon. And I'm skeptical we'll get there. Tough times, yes - but not an apocalypse.