Some, but others need an intervention, economist says
When Gove County farmer Craig Zerr entered the profession of his father and grandfather a few years ago, he was doing so amid one of its toughest times.
So he turned to his farm’s idle semi trucks and trailers to supplement his income by custom hauling cattle, hay and other commodities.
“With the trucking, we already have them on the farm, so I use them as a way to make extra money,” the 28-year-old who lives near Park, Kansas, said. “For me, it’s helped out quite a bit.”
The nation’s farms are in a “new farm crisis” as Kansas State University experts put it during the Cover Your Acres Conference on Jan. 17 in Oberlin, Kansas. And, as Zerr and others in attendance would soon learn from the variety of speakers, it could be another crucial year as farmers battle to turn a profit—especially the ones struggling to make payments on their rising debt.
Some financial woes are so deep that economists like Mark Wood questioned whether these farmers can stay in business.
Wood, the lead economist with the Northwest Kansas Farm Management Association, gave attendees the same difficult picture during the two-day conference, which started Jan. 16.
Average net farm income for northwest Kansas farmers hit more than $400,000 in 2011 as crop prices soared. But, in 2016, the average net farm income dropped to just $300 a farm and, for 2015, the average producer was in the red.
Household expenditures and lifestyle choices are difficult to pull back after such good years. Larger operations, especially, are having a difficult time lowering their family living, which hit highs of more than $130,000 during the boom times. According to the Kansas Farm Management Association, the average family living expenses for 2016 was around $70,000.
Historically, income taxes have been the largest single nonfarm expense. But, that has declined because farmers aren’t making as much as they once were. Taking its place is health insurance—and some farmers without a spouse working an off-farm job are paying $2,000 to $2,500 a month for insurance—nearly $30,000 a year. With only one health insurance carrier in the region, several have opted into a health sharing ministry program to help cut costs.
Meanwhile, cash expenditures are climbing. The debt-to-asset ratio continues to grow for some farms, causing cash flow problems.
Wood is hoping some of the 160 farms that are part of the association’s northwest Kansas analysis will realize they need to make critical decisions—and fast—or they will lose their farm.
“Cash flow problems the last three or four years for sure are contributing to the financial stress situation,” Wood said. “That can’t continue for too much longer before it takes some people out of business.
“I don’t have as many answers as I have concerns,” he added.
The cash-strapped farms
Earlier this decade, things couldn’t have been better on the farm. With record prices translating to high incomes, farmers bought new machinery, expanded their lifestyle and some bought land.
But by 2014, the downturn began. Wood said over the past four years there has been a steady increase in the number of large operations that have shifted from the high 25 quartile of farms to the low 25 quartile—a position typically held by part-time farmers and younger farmers. Meanwhile, some of those smaller farms and moved into the high quartile.
Cash expenditures for those lower-tiered farms have jumped from $306,833 in 2012 to more than a million in 2013 and continues to climb, he said. Moreover, these farms have more total cash expenses through 2016 while all other quartiles of farms worked to varying degrees of success to reduce their cash expenses.
Or, as Wood put it, these farms are spending more than a dollar to make a dollar.
“And if you look at the revenue, they have stayed in the bottom. There is a group of people who have persistently been there for the last four years,” he said.
The farms in both high and low quartiles are similar, too. The average age of the farm is the same—55. They differ by only 100 acres and their number of irrigated acres and cattle were roughly the same.
“I find it fascinating, I’ve never seen that before,” Wood said. “The top and the bottom are almost carbon copies except for one thing—the bottom is carrying about a million more dollars in debt.
“They are burning through equity, their liquidity is gone,” Wood said. “And my argument is they won’t be in business very much longer or the banks are going to say enough.”
Some of the other farms in higher quartiles also report negative cash flow, but not as severe.
Those in the high 25 percent of farms are making money.
“Yes they are big, some of them,” he said. “But many of them are in the top 25 percent because they have good cost efficiency. … They aren’t doing as good 2011, but we aren’t in 11. We don’t have $7 corn. We have $3 corn.”
Managing the stress
Charlie Griffin, a research assistant professor in the School for Family Studies and Human Services at Kansas State University, calls this the “new farm crisis.”
Griffin, after all, knows about farm crises. He has spent much of his career assisting with the impact of the 1980s downturn—running a farm hotline from the university. And Griffin, who grew up on a farm in Rice County, continues to provide support for agricultural families.
“But I don’t know what this one is going to be like,” said Griffin, another speaker at the symposium. “I don’t think it will be like the 1980s … I don’t think interest rates will shoot up to 18 percent.”
But some things are the same. Commodity prices are low. Debt is soaring.
“From 2011 to 2014, 2015, we did exactly what anyone would have done flushed with income,” said Griffin. “You might have bought a new car. We maybe upgraded the kitchen or house or built a new one. We took nice vacations for the first time in years.”
Now families are struggling to cover their living expenses. But not all have tightened their belts like they could have.
“Some of us have gotten used to a nice lifestyle, and it is hard to cut back when you are used to that,” he said.
Farmers learned a lot from surviving through the 1980s, Griffin said. Some of those lessons carry over today. One of those is how to deal with the burdens of financial, as well as family, stress.
“That’s why I want to talk about the new farm crisis. We can handle this for a year,” he said. But any longer, “You are burning up assets” he added. “You are taking down the accumulated assets of that business and family.”
But where does the farm end and family begin? That’s tough, he added.
“Is it where you take the muddy boots off? Is the back room where you hang your dirty overalls where you come in?”
“I don’t know how I could talk about one without the other,” Griffin said.
Farmers also must recognize the distress signals.
“It’s easy to get depressed when going through hard times,” he said. “I don’t think too much about suicide, but it does happen in our state. What we have learned across the whole country is that states that have farm crisis hotlines have had a much lower suicide rate in their farm population than states that don’t have it.”
What’s next
The crystal ball question is how long the new crisis could last, said Griffin, adding that farmers should have a long-term plan in place.
“We don’t know if things are going to get better in the next year or two or not,” he said. “I can’t find anyone on the production ag economics side willing to express an opinion on that right now—especially in terms of grain prices.”
But not all is doom and gloom. Shawn Diederich, an independent crop consultant from Colby, Kansas, who was among the attendees listening to Wood’s assessments, said his clients seem upbeat thanks to good yields in 2017.
“Our dryland crops were exceptional,” he said. “They had some extra bushels.”
Would it cover the costs?
“It’s close,” he said, but added with the current dry spell, there is a little concern about what would happen to income if farmers aren’t able to raise any crops this year.
Wood said the good yields should help increase the 2017 net farm income when the figures are tabulated later this spring.
“The average farm isn’t doing that badly, it’s not doing great, but it isn’t out of business,” he said.
But a few of his clients aren’t willing to change.
“Some of it is ego,” he said. “But ego is rarely a friend. This shows in cash flow.”
He pointed to a dot on the screen—which represented one of those farmers.
“I’ve been threatening to use a 2-by-4 to get his attention,” said Wood. “Maybe I need to put a nail at the end of the 2-by-4—maybe I can get his attention then. He is making mistakes that are obvious to anyone watching, but he is blind.
“We get so focused on tradition or whatever is important to us and if we don’t pay attention, we can blunder into this thing.”
Amy Bickel can be reached at [email protected] or by calling 620-860-9433.
