If you've been around Upper Midwest agriculture as long as I have, you know a whole lot more than you want to about tough times. You've lived through the sky-high interest rates of the 1980s, you've experienced drought, you've suffered flooding, you've endured poor crop and livestock prices. You understand the economic pain that farming and ranching often brings, just as you know that ag brings good times, too.
I try to avoid being a doom-and-gloom guy. But my professional and personal life revolves around ag, and I don't want to be an ignore-reality guy, either. So I'll repeat what some knowledgeable people are saying:
There's more economic pain ahead. Crop prices are so low, and profits so hard to come by, that some farmers will struggle to secure financing for the 2019 crop season.
We don't know yet how deep or widespread the pain will be. The uncertain yields of still-to-be-harvested crops contribute to that. So does market uncertainty created by President Donald Trump's controversial trade policies; whatever else you may think of Trump, you can't credibly deny that his policies are working against crop prices.
My best guess is, there's not going to be a wave of farm bankruptcies this winter; we're a long way from the dismal 1980s. Today's farmers have three advantages: their overall managerial ability is higher, interest rates are much lower and the extended run of prosperity from 2008 to 2012 gives most of them a little cushion against tough times now.
Three groups in particular are at risk now, it seems to me:
• Young farmers who got started after the 2008-2012 ag boom. They couldn't strengthen their operation during the good times, and consequently have less cushion now.
• Farmers victimized by multiple years of bad weather. Yes, the federal safety net limits the sting of adverse weather and low prices. But just as a heavy winter coat doesn't fully ward off sub-zero temperatures, federal payments don't fully offset poor yields and prices.
• What I call "aggressive operators," or farmers who expanded ambitiously, apparently betting on high crop prices, big yields or their managerial skill, or some combination thereof.
Again, I don't think there will be a wave of bankruptcies. The bigger threat, I think, is cash-flow, or money flowing into and out of a business during a period of time. Lenders worry some farms won't cash-flow successfully - i.e., bring in enough money to cover money going out. So lenders will say to some farmers, "We don't think your cash-flow is strong enough to justify lending you money to put in your 2019 crop," or words to that effect.
I wish I had some good advice for at-risk farmers. The best I can do is to encourage them to keep in close contact with their lender. Every ag banker I've ever talked with - and I've visited with quite a few through the years - stresses the importance of regular, candid communication with clients.
I also can invite farmers and lenders to share their insights. If you're a farmer who wants to discuss your financial struggle, drop me a line. If you're a lender with thoughts or suggestions for at-risk farmers, let me know.
No, the sky isn't falling. Upper Midwest ag is inherently cyclical. It brings both good and bad times; always has, always will. Regional agriculture in general, and most individual ag operators, will survive and go on to prosper.
But we'd be foolish to ignore reality. Tough times are coming; pretending otherwise will only worsen the pain.