‘I do not want to go back’

Photo by Deb Gau A panel of Lincoln County farmers and bankers talk about the impact of the 1980s farm crisis with RTR High School students in January. Panelists said the crisis had complex causes. Speakers included farmers Don Buhl and Bob Worth.

The farm crisis of the 1980s left a serious impact — not only on U.S. agriculture, but on the level of local farms and communities across southwest Minnesota, area residents said.

Between 1981 and today, “We’ve lost almost 40,000 farms and farmers in Minnesota, and unfortunately much of them in the 80s,” said Lake Benton resident and former Minnesota Agriculture Commissioner Jim Nichols.

“I lost a lot of friends, and a lot of neighbors that were farming,” said Lake Benton area farmer Bob Worth. “That was when we had three families on a section. We had people, then. And the 80s really did drive a lot of people out of our towns, out of our schools, out of our churches – everything. It just really, really hurt small-town U.S.A., and agriculture as a whole.”

Worth and Nichols were part of a panel of southwest Minnesota farmers and bankers who discussed the history of the farm crisis with students at Russell-Tyler-Ruthton High School earlier this month. The crisis had many causes, and it took changes in agriculture policy and finance to try and recover, panelists said.

RTR teacher Erick Harper said the idea to hold a panel discussion came as part of a class he was teaching on the history of American agriculture.

“I wanted to bring in a group of people who could give a little more of the nuts and bolts of what happened in that time period,” Harper said.

Panelists included Nichols, a former state senator and state Agriculture Commissioner from 1982 to 1990; Worth, president of the Minnesota Soybean Growers Association; Don Buhl, a past president of the Minnesota Pork Producers and the National Pork Producers; Gary Kellen, senior vice president at First Independent Bank in Russell; and Tom Harper, who served as a Lincoln County Extension agent from 1981 to 1992.

Panelists said the farm crisis rose out of a mix of different factors. Nichols said the farm economy was good in the 1970s, when he bought his farm. But things changed in the 1980s.

“I blame Congress for a lot of what they did that brought us into this. Because we had pretty good farm prices back in the 70s, and the ’81 Farm Bill really put us into a slide,” Nichols said.

“Congress decided that we needed to increase our exports pretty dramatically,” he said.

But that proved difficult to do.

“They said we needed to get the prices down there to where farmers in Brazil have to quit growing soybeans. And now (Brazil grows) more soybeans than we do — 5 million bushels –so that didn’t work.”

Nichols said the average price of corn, which was $3 a bushel in 1980, fell to $1.55 a bushel and stayed low for most of the 80s.

At the time, he said, there was a USDA program that allowed farmers to get loans using stored grain as collateral. “Whatever the loan rate was for that year, the cash price was never off by more than 10 cents,” he said. “The price went down because the government almost cut the loan rate in half.”

“The crazy part was that Congress did not eliminate the stored grain program, so you could still put (grain) in the bin and get it sealed for several years. And then the cash price was so low you couldn’t afford to pay off the loan that you borrowed, so you would forfeit the grain to the government,” Nichols said. “That really hurt.”

In 1986, the government was getting billions of bushels of grain turned over to them, he said. “Every bin was full — on the farm, at local elevators. Cargill was so full, they had corn stored on barges in the Mississippi River . . .We were completely full up with grain, and the price was low.”

The story for farmers got worse, because the banks eventually needed to get paid, Nichols said.

“For a lot of farmers, they couldn’t go out and borrow money to plant the next crop,” he said.

Farmers could try renting out land to neighbors, but those neighbors often didn’t have money either.

“It was a vicious situation. There was no way to get enough income to begin to pay off your loans. And really that started because Congress cut the price to, in theory, increase exports.”

Worth talked about how Minnesota farmers faced suddenly losing borrowing power in the 1980s. In the past, having a good net worth allowed farmers to borrow money, he said.

“The FDIC lowered the value of the land by one-third. So say land at that time was $900 an acre, you woke up the next morning and your land was $600 an acre. And you probably owned $700 an acre against the land, so all of a sudden . . . you have a negative net worth,” Worth said. “It was the same way with machinery. The machinery was always a good value, and overnight they lowered that by one-third. So a $200,000 line of equipment is now worth $120,000. And all of a sudden, you are just in terrible shape.”

“When we lost the value of the land and machinery, we did not have any borrowing power,” Worth said. “The banks would say ‘We’re sorry but we’re going to have to sell you out,’ to try and recoup.”

“I can attest to what Bob’s saying, because I started in banking in 1985,” Kellen said. “In the beginning of 1986, I wrote down the balance sheets basically exactly what (Bob) was saying. I took a third off your current assets — your grain, your livestock — a third off the machinery, and a third off the land. And then you looked at what was left on the balance sheet.”

“The other thing that lending did back then was, we based it off of balance sheets, not cash flow,” he said. “That changed in the last half of the 80s, where we looked more at cash flows and how we can make this work.”

“I remember at the beginning of 1986, I did 29 FSA guaranteed loans that spring for 13 different bank customers, and I think seven or eight of those survived, out of the 13,” Kellen said. “It was not fun times.”

“I’m sure many of you sitting here are saying, how in the world could this happen? How could somebody have been so wrong about what was going to come in the future?” Buhl said. The farm economy that many young farmers were entering in the 1970s was very different, he said.

In 1974, the price of soybeans had doubled. “It was very good for my dad. He had no debt, he could go to town and buy a house and retire,” Buhl said. People thought the current conditions were the new reality for farm prices, he said.

“I’ve heard about five times in my farming career, we’ve reached a new plateau, talking about prices. And it never holds. But that was the idea,” Buhl said.

A lot of young people came back to farm in the 1970s, but things changed when a variety of factors changed cost structures for farmers.

“If your timing was wrong, and you bought a farm at the wrong time, or you leveraged all your assets to buy land and machinery, the interest rates would eat you up,” Buhl said.

Inflation and rising fuel costs also had an impact on farmers, he said.

“That tightening of the monetary policy and raising of interest rates was a way to deal with that. For anybody who was carrying debt like farmers were, that was devastating,” Buhl said.

Harper said he had a hard time getting farmers to pay attention to balance sheets and cash flow in the 1970s.

“They weren’t interested. They said we can get a loan at any bank,” he said. “They would even borrow the interest that they owed that year, and roll it over.” Inflation led to farmers building up “this incredible paper profit” in the 70s, only for land prices to later plummet in the 80s, Harper said.

Working together and finding solutions

The impact of the farm crisis was taking a toll across the country during the 1980s. In the national media, people saw farmers form “tractorcades” traveling to Washington, D.C. to raise awareness of the crisis. The Farm Aid benefit concert was also organized in 1985.

Panelists said they had mixed feelings on how effective those high-profile events were.

“All it did was, it brought awareness of the problem. It didn’t fix anything,” Worth said.

Kellen said the protests “showed how scary things could get.” Things were tense for bankers, he said.

“You didn’t know what was going to happen. When you put people’s backs up against the wall, where they’re losing everything, sometimes they figure they’ve got nothing to lose,” he said.

“I can remember one time, there was a farmer further north in Lincoln County. He had a load of grain – wheat I believe – he brought to the elevator in Ivanhoe, and he wasn’t happy with the price,” Harper said. “He went out and dumped the whole load on Highway 75. That was how cheap prices had gotten.”

“You just lose your temper, and you do stupid things sometimes,” Harper said. But farmers were feeling desperate. When you lose the farm, he said, “Your kids and family lose their home. So it’s really scary in that situation.”

In Minnesota, efforts like the creation of a state mediation program helped many struggling farmers.

In the 1980s, at least one-third of the state’s farmers were in severe financial distress or facing foreclosure, Nichols said. Under the direction of then-Governor Rudy Perpich, Nichols worked to find mediators to help farmers and bankers.

“The volunteer mediators, they were such good people that were really trying to help,” he said.

Worth said he himself went through the mediation process. “It was either that or be sold out,” he said.

“Mediation is a very unique experience. You sit with your banker on one side, and there’s a panel on the other side,” Worth said. “You try to mediate a way that you can structure your loan, so you can continue to farm. And basically it was the restructure of everything. Everything you owned had to be restructured.”

The process didn’t work for everyone, but in Worth’s case, it did.

Kellen said banks weren’t anxious to foreclose on area farmers, so the mediation program was helpful.

“Sitting at the mediation table was a good thing, trying to get everybody to understand where everybody’s positions was at, and trying to get it to work out and get it to cash flow,” he said. The program is still going today.

“People got together to try and figure things out, and a lot of times there was a positive outcome because of that,” Buhl said.

Nichols said the creation of another program aimed at helping struggling farmers get income also ended up having other benefits.

During the farm crisis, many farmers were in the position of not being able to borrow money to farm, and at the same time not being able to find renters for their land, Nichols said. “So I wrote out this program that I called the Conservation Reserve Program – CRP – and took it to Washington. I got Tom Harkin from Iowa to introduce it, and Dick Gephardt to introduce it,” he said.

According to the U.S. Department of Agriculture, the Conservation Reserve Program is one of the largest private-lands conservation programs in the country today. Farmers enrolled in the program take marginal farmland out of production in exchange for rental payments. CRP land also had to be planted with species that helped improve the soil over time, panelists said.

Although the proposal met with resistance at first, Nichols said CRP offered a way for farmers to get income from some of their land. He said the program was initially set up to cover a total of 30 million acres.

“That helped a lot, because then we had a source where farmers could at least go and maybe get 50 acres of their land into the program and get some income off of that,” he said. The CRP also had additional benefits of controlling surplus farm production, and improving fragile farmland.

“Hunters loved it because it gave them good wildlife habitat. But more importantly, (the land) stayed in there for 10 years, and the land got better over 10 years,” Nichols said.

“There are some positive agronomic effects to the CRP, and it did help some farmers. But I’m sure it also hurt some businesses on Main Street,” Buhl said. When farmland was out of production, farmers were spending less on supplies like fertilizer and equipment.

After the 1980s, farmers also changed their financial practices, panelists said.

“We have to do so many more things financially than we did back then,” Worth said. Farmers have become more prepared to cover the “what ifs” of agriculture, he said.

“I think all of us up here learned from the 80s,” Worth said. “I lived it. I do not want to go back.”

However, Worth said he was concerned about future generations.

“We’ve got to educate our 30, 40, 45-year-old farmers that it is possible that this could happen again,” he said. “Be prepared. Get yourself financially sound, and listen to your banker.”


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