The average age of farmers in Illinois hovers at around sixty years of age. This statistic implies that many current farmers have memories of the 1980s when the world of Midwest farming fell apart: many family farm operations were forced out of business. The 1970s saw a sharp increase in grain prices, followed by a sharp decline in the early 1980s. However, farmland in 1981 was bought at auction for record levels per acre. Not long after, the situation led to land value collapsing. Illinois farmland values hit bottom in 1987. Illinois rolled past 1996 before land values returned to 1981 levels.
Many factors led to the Ag Depression of the eighties. Interest rates skyrocketed as a response to back-to-back deep recessions caused by high inflation. Farm mortgage loan rates rose to 17.5%. Many farm mortgage loans had adjustable interest rates, which adjusted upwards and led to great difficulty in making loan payments. Foreclosures on farms became commonplace. If that wasn’t enough, just before the beginning of the farm crisis, the Carter Administration placed a grain export embargo on the Soviet Union, which had become a strong and growing market for US grain exports. Relationships between farmers and agriculture loan officers became stressed.
History doesn’t necessarily repeat as evidenced by predictions of “bad times for farming are coming” in the late 2010s, which were unexpectedly met by record farm profits. The current political news brings concerning thoughts about the economic future of farming as we are faced with higher interest rates, lower grain prices, and import markets at risk due to trade wars and tariffs.
Voices of concern about the future of farmers are being voiced, but few are predicting a 1980s collapse. As individuals, there isn’t anything farmers can do to prevent difficult times. However, you can make your situation more secure by having a good relationship with your ag lender. Having multiple lender options and relationships may be helpful. Building an ample supply of cash reserves is another way of preparing for possible financially stressed times. Here are suggestions to help your lender relationship:
- Be friendly, professional, and concise in communications with your lender.
- Understand your balance sheet and keep it updated. Know how to build one yourself.
- Work up your cash flow to present to your lender rather than relying on your lender. Be aware if any financed projects make sense.
- Ask your lender what is needed before meeting with them.
- Make sure you are in agreement with your spouse or other family partners and have them present and a part of your presentation at your loan meeting.
- Discuss any liens on collateral with your lender including lease contracts with Illinois Landowner Lien provisions.
- Call your lender before problems become big problems.
- Use your computer for record keeping and keep accurate financial and production records.
- Additionally use your computer to create a business plan narrative roadmap of how you got to where you are, where you are going, and how you plan to get there.
- Provide your lender with a contact list of key suppliers and advisors.
- Do not attempt to influence your lender with money or gifts. There are strict rules for lenders, and this would be unethical.
- If you aren’t carrying full crop insurance, be prepared to explain why. Your lender expects payment.
- Dress professionally for your important meetings.
- Carefully read all documents before signing and make clear to your lender that you understand what you just signed.
- Never avoid or put off replying to requests from your lender.
- Your lender will likely need to present your loan proposal to a loan review board. Your lender doesn’t like surprises in front of the board so avoid surprising your lender.
Following these suggestions will help you to build a strong relationship with your lender. A rock-solid relationship with your lender is one of your most valuable assets in a stressful farm economy.
This article is for educational purposes and not to be construed as legal advice.