Farm Finance Series: The current situation and a look at history

With lower grain prices, higher interest rates, and increased production costs, some farms are facing a challenging financial situation. According to the Federal Reserve, the number of individuals experiencing severe financial stress remains low, but the trend is moving upward. The hard news is that the current economic pressures may force some farms to downsize or cease operations.

Machinery Debt Load

During the several years of higher profits earlier in this decade, some farmers sought to reduce their tax bills by purchasing new, higher-speed equipment and depreciating it using the IRS Section 179 Depreciation Election. These machinery expenditures are a focal point when it comes to current farm finance issues. Farms with excessive machinery debt loads may struggle to make payments.

So, are we facing another agricultural depression? For those of us who were in agriculture in the ‘80s, there are noteworthy similarities; however, by most accounts, we have not yet reached that level of economic stress, and it's unclear if we will anytime soon. In the 1980s, the rapid and intense changes in the financial situation caught the industry by surprise. Even if the current situation deteriorates, a key factor to remember about the 1980s is that most family farms were able to survive. Large numbers didn’t, but most did. Careful planning can help avoid a catastrophic situation at the individual farm level.

Farm Financial Stress is Personal 

Farm financial struggles are very personal – I understand this, as my dad sold out in the ‘80s when I was in college, just like his parents had done while he and his brother were serving in World War II. My dad was a child of the Great Depression and remembered the difficulties his parents had trying to make ends meet on their family farm. When the farm was sold, my grandfather was suffering from a debilitating farm accident from which he would never recover, and eventually, it was the cause of his early death.  

Undaunted, my dad began to farm on his own. He struggled for decades trying to make the farm work financially. We were never poor, but we lived a frugal lifestyle, as did many others of that era. I started helping on the farm at the age of thirteen and soon took on much of the field work, along with feeding the hogs, while my dad worked several jobs to make ends meet. 

My dad discouraged me from studying agriculture and urged me to instead opt for a more “stable career,” but I chose to study ag anyhow. When interest rates skyrocketed, and grain prices fell following the Soviet grain embargo, he sold out while he still had something to show for his efforts. He watched other farmers being forced out of business. Family farms suffered significant devastation in the 1980s. Economic challenges and foreclosures drove my dad's farm and a quarter of a million others out of operation. 

The Politics of Trade  

Domestic and international politics played a significant role in the farm crisis of the 1980s. The Nixon Administration implemented a short-term soybean export embargo in 1973 as a response to economic calamity brought on by shortages across a broad section of the economy. Soybean prices reached a record high of $10.00 per bushel as the nation faced various shortages, but then settled back to lower levels following the Nixon embargo. Then, the Carter administration used a ban on grain exports going to the Soviet Union as a political/economic weapon after it invaded Afghanistan. This triggered a dramatic fall in U.S. grain prices and an equally dramatic rise in interest rates. 

A Change in Career Plans

Following my college graduation, I began my career as an ag-loan officer, a role in which I prepared loan applicants for interviews with the loan approval committee. With a continuing poor ag economy, some applicants projected confidence to conceal their fears. Still, others were more candid about their anxieties, including a sixty-year-old man who burst into tears at my desk.  A few farmers directly asked whether they could pay me to influence their loan application to a more favorable outcome. This was neither helpful nor lawful. Such attempts at influence today could potentially lead to criminal charges, as lenders are required to report such suspicious activities. I worked hard to find real solutions for desperate farmers.

My boss tasked me with one of the most challenging tasks I have ever undertaken professionally. He asked me to deliver foreclosure papers to what I believe to be the nicest farm family I have ever met. They were good farmers, but they had an accident, and unfortunately, they weren’t adequately covered by liability insurance, which depleted their cash reserves. The situation made me so nervous that I accidentally locked my car keys in the trunk of the car while taking off my boots at their farm, having just told them the bad news. They kindly gave me a ride back to my office. 

The Outlook for 2025

We just completed the 2025 harvest. There will be some very uncomfortable discussions between farmers and their ag lenders in the coming weeks. Most farmers will be okay, at least for the time being. Some will be forced to make changes, and a few will be forced out of business. It’s essential to build and maintain strong relationships with lenders. Review this article for tips extension.illinois.edu/blogs/farm-coach/2025-03-21-tips-working-your-farm-lender.

Future articles of the Farm Finance Series will discuss the current farm economy and provide suggestions on how to assess and manage your farm's financial situation.

Kevin Brooks is a Commercial Agriculture Educator with the University of Illinois Extension at Havana, Illinois. Readers can contact Brooks at: kwbrooks@illinois.edu and https://extension.illinois.edu/blogs/farm-coach.

PHOTO CAPTION:  The vanished remains of a farmstead, once home to Kevin Brooks' family and their hog and cattle operations. Even the hill that hosted the windmill has disappeared.