In the grinder: Farm economy continues to present challenges for producers
WILLMAR — After five years of low commodity prices, Minnesota farmers may feel like they've been through a grinder.
"It's not only grinding on people's finances but it's also emotionally very, very tough," said David Kohl, a farm economist who spoke Wednesday in Willmar to a crowd of about 225 farmers, Ridgewater College ag students and farm lenders.
"It's a grinder type of cycle," Kohl said.
Unlike the farm depression of the 1980s that hit the ag economy fast and hard, Kohl said the current ag downturn has been slow and "methodical" and could take a toll on farmers who were poor managers during the good times.
Kohl, who is well-known for his farm financial insights and views on upcoming trends in agriculture, said it's not the "tough times" that cause problems for farmers but the short bursts of economic "good times."
During those good times, he said, farms can quickly expand beyond their means or bring in members of the younger generation with less experience who then take on too much debt.
It's the scenario that happened right before the farm depression of the 1980s.
Back then, baby boomers came home to take over the family farm during high profits but then suffered from low prices and high interest rates that resulted in many foreclosures.
Those same baby boomers expanded and brought their own kids into the business when profits soared between 2006 and 2012 and are now trying to transition farm ownership to a new generation when times are tough.
In the audience there were students hoping to take over the family farm, older producers ready to get out of farming and ag lenders who see both the risks and opportunities of that transition.
But Kohl said farm transitions can be successful if skills and assets from each generation are used.
"On our farms, if you take equity, experience and knowledge and combine it with youth, management and growth and innovation, you're going to take your business to the next level," Kohl said.
"There's a lot of opportunity despite some of the tough, more difficult times in agriculture."
Kohl said not all farmers will survive the grinder cycle.
While about 40 percent are good managers that he calls "greenliners" who are still growing despite the economic downturn, Kohl said there are 30 percent on the bottom that he calls "redliners."
Kohl said technology — including drought-resistant seeds — combined with high prices made money even for poor farm managers when times were good.
"Money was too easy," he said.
Because of worldwide surpluses, Kohl said high commodity prices won't be coming back anytime soon.
He said some of those redliners, who may be large producers with a lot of land who look invincible but have already burned through their financial reserves, would be better off getting out of the business now to preserve some equity rather than losing the business.
"They're starting to face a lot of cracks in the ice," Kohl said.
There's another 30 percent of producers who are not really growing but not losing economic ground that could grow by using valuable tools, including carefully tracking expenses, revenues and cash flow through farm financial programs, he said.
Kohl said there are many other factors that affect the farm economy that farmers cannot control, including international trade agreements, the value of the dollar, growth of the U.S. economy, low unemployment and if the Federal Reserve increases interest rates.
He said growth in the general U.S. economy is usually not good news for the farm economy.