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Ag At Large: Today's smarter farm economy

I stood in a Moorhead, Minn., bank office the other day, talking with a loan officer about the current farm economy. We talked about how it's different than conditions during the farm credit crisis of the 1980s, where farmers found themselves in ...

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I stood in a Moorhead, Minn., bank office the other day, talking with a loan officer about the current farm economy. We talked about how it’s different than conditions during the farm credit crisis of the 1980s, where farmers found themselves in the hole.
I remember how desperate farmers could be when crop prices plummeted and interest rates skyrocketed. I remember the scam of an over-promoted miracle crop - Jerusalem artichokes - and the creativity in building a corn ethanol industry.
For my ag lender friend, the 1980s ended a farming dream.
As we spoke at his desk, he reached over and pulled out the original promissory note signed by his father and written by American Bank & Trust Co. of Moorhead. The $25,000 operating note was written Dec. 15, 1980. His dad’s “initial rate” of interest was a whopping 17 percent, and the note was due April 14, 1981.
‘Reaganomics’
Farmers thought inflation was their worst problem. The cure was worse.
In the 1976 presidential race, President Gerald Ford promised to “Whip Inflation Now.” He lost to Jimmy Carter, who failed to rein in inflation. Carter lost to Ronald Reagan in the next election.
With Carter gone, Federal Reserve Chairman Paul Volcker clamped down on the money supply, cutting inflation from 12.5 percent in 1980 to 8.9 percent in 1981 and 3.8 percent in 1982.
Farming Reagan supporters saw their economy collapse. “Reaganomics” cut government spending, income taxes and deregulated oil prices.
Dunseith, N.D., farmer Dwight Coleman’s 480-acre farm was being forced into foreclosure by what was then known as the Farmers Home Administration. He hired lawyer Sarah Vogel, who in 1983 filed the famous Coleman vs. Block class action lawsuit. It required due process and stopped foreclosures on about 80,000 farm families with FmHA loans. The same concept was extended in the 1987 Farm Credit Act, which prohibited the federally chartered Farm Credit System lenders from foreclosing, if it cost more than forgiving some debt.
Vogel was elected North Dakota agriculture commissioner in 1988 and served until 1997, before going back into private practice, and then into retirement.
As the farm economy is becoming more difficult with lower crop prices, Vogel is now considering a run for North Dakota governor, under the Democrat-NPL banner.
Careful cuts
Farmers today have been through some strong economic years, and interest rates are still low.
Upper Great Plains farmers have largely seen a moist period since 1993. Input costs, including machinery and land, are high, but farmers have some control over their land rental rates.
Lenders will play a key role, and I hope they are wise. The strongest lenders know farmers need enough capital to produce strong crops. Their clients might need to make cuts, but they should be strategically made.
It might mean not spending as much on machinery, if the primary goal is avoiding taxes.
Is history repeating itself? My lender friend and a colleague think not.

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