10 trends to watch on farms right now
I had a sit-down discussion recently with Aaron Johnson, president and CEO of Farm Credit Illinois, based in Mahomet. He was joined by a 3,500-acre farmer from central Illinois who wanted to remain anonymous (I will call him Farmer T). Here are 10 bullet points from the discussion:
1. Balance sheets for most Illinois grain farmers are OK, but if you pull Market Facilitation Program (MFP) payments out, many would not be able to meet their cash flow needs in 2020.
“We had an ugly planting season last year but ended up with better yields than we thought we were going to have,” says Johnson. “We got the MFP payments and most farmers are doing fine, but now what? There is so much volatility in the markets.”
2. The situation on most row-crop farms right now is stable. “We have stable land values, low interest rates, and a solid crop insurance program,” says Johnson.
3. Crop insurance is the most valuable tool on farms. Last spring, Farmer T started planting on April 6 and finished on June 15. During the week of Fathers’ Day, he got 10 inches of rain. On July 10, he replanted seed beans in one field. He waited until November to harvest, got a frost on the beans, and they all matured at the same time. Yields were 40 bushels an acre, vs. 60 on the rest of his farm. Not bad.
4. Lenders are willing to work with you. “There are tools in the credit end,” says Johnson. “You can roll short-term debt up and spread it out.” If you can’t roll that debt up and have enough cash flow to repay it, then you need to make changes in your operation. Sell something. “Sooner or later there will have to be some asset liquidation,” says Johnson.
5. Farmers are still buying land. The best Illinois land is down from $12,000 to $14,000 an acre to about $10,000. “We’ve come down about 15% from the very top, but it’s been a soft and slow landing of about 4% a year,” says Johnson. Pension funds and other investors are back in the land market, as well.
6. Rural communities continue to struggle. “Opportunities for jobs in southeastern Illinois aren’t prevalent,” says Johnson. “Off-farm jobs in the past were oil- or coal-related and those have gone away. There’s almost nothing left but agriculture. We try to partner every chance we get with commercial banks on infrastructure and rural broadband to make those communities more vibrant. Employees want lifestyle, recreation, and internet.”
7. Farmers are retiring. The attendance at Farm Credit member meetings this winter about transitioning the farm to a new generation has doubled. “When margins get tight, there are more transitions,” says Johnson. “Being able to structure a major expansion for the next generation and not go under the table is the hardest part. We are spending a lot of time working with farm families. When there is not much margin and you are counting on an MFP payment that may or may not be there, those are challenges.”
8. The next generation often wants to sell the farm. “We are not finding too many heirs who want to keep the farm when Mom and Dad are gone,” says Johnson. “A lot more of those farms are going on the market. They are seeing the cash return going down. At $10,000 an acre, the kids say, ‘Hey, we are going to sell this.’ We are starting to see a lot of farmers putting the farm into trusts that the kids can’t sell it. They get the income, but it’s pretty tough for them to easily sell it. The farmers are saying, ‘I didn’t work my whole life to have my kids throw it away.’”
9. Stress management and mental health are big issues. Farmer T lost a neighbor to suicide recently. “We missed the signs. It’s called hiding behind a smile,” he says.
10. Coronavirus is a game changer. It’s hard to think even a few days ahead at this point. Farmers remain optimistic.