We started farming in the mid-’80s, like a lot of farmers in my generation. We are now approaching our sixties, but unlike some other farmers who seem to be doing very well, we’ve had a few bad years in a row, and our debts grew to the point where they now almost equal fifty percent of assets. Every year it seems like we get deeper in rather than further out.
Are we the only ones who are dealing with this and how do we get out of it?
Dear Debt Bitten:
I don’t know if you’ve been reading the newspapers, but one out of every six small business (employees under 100) are going out of business due to the virus. Through no fault of their own, many businesses are putting up ‘Closed’ signs on their family-run operations – especially restaurants and bars – and other places where people used to meet.
Farming, like a lot of other businesses, has had a bad time since almost 2016 or thereabouts. Prior to this time, the big land rush was on. High prices on almost all commodities led every farmer to think bigger and bigger and no price was too high! Got to get bigger!
Reminds me of the days back in the 1970s when bankers and lenders were out telling their old-fashioned no-debt farmers they had to get bigger and better. The eighties came along, and with the ban on wheat to Russia, and interest rates going up in the high teens, the country lost almost fifty percent of our farmers in the next decade.
It’s funny how unprecedented debt always seems to follow unprecedented good times in farming, but that’s the nature of the beast.
With paying interest rates, the higher your debt ratio is (the more debt to assets you have) the higher your interest rates are. The first thing to do is see if the interest rates you are paying can be lower at another financial institution or lender.
Maybe you qualify for some FHA rates or if you have a child farming, maybe he or she can get a Beginning Farmer loan at lower rates than what you are paying. Many people hate to have their children go into such high debt, but ultimately you and your son will be responsible for the debt and if you can get lower interest rates and survive, that’s really what’s most important.
Two, and this is the hardest thing for farmers to get their heads around, it’s maybe time to downsize.
The last decade has been let’s go, let’s get bigger and it leads to a lot of problems when prices don’t support it later on. Many farmers have been bitten by the same bug so to say you’re all alone in this would just be silly.
Of the farm families who are surviving well, it’s because they usually had a few things going for them. One, their debt to asset ratio never got out of hand and two they usually had some other source of income to offset the bad prices (wind, oil, etc.) Everybody else, from large to small operations, has their struggles right now.
In the past, when farming has gotten into trouble, the federal government has been good with coming up with programs so they don’t face the loss of farms like they did in the 80s. Now, with the pandemic, you’re one of the millions of businesses in trouble and you might not get the attention you used to.
As such, you might have to consider selling some of your land off. Most men seem to have a huge problem with this as they think it signals to the neighbors, they are having problems. Who cares what they think? If you have to swallow your pride and sell some land to get back to a good debt ratio, in two years everyone will be talking about someone else, so, again, who cares what they think?
Every farmer believes the next year is the one that will pull them out – they are the ultimate gamblers. Of course, everyone thinks everyone else is doing good. True, some of them had gambles that paid off, but just like at the casino, if one person wins a thousand dollars on the dollar machine, that means there were nine hundred and ninety-nine losers!