ISU report: Iowa farm finances continue to erode, with 44% of growers struggling to cover costs

Despite President Trump's agriculture bailouts, Iowa farmers continue to see their financial condition erode, a cash crunch that had 44% of producers last year struggling to cover their bills, an Iowa State University report shows.

The percentage of financially vulnerable farmers climbed from 31% in 2014, according to the report that examines growers' ability to cover short-term liabilities such as seed, fertilizer and herbicides with easily accessible assets such as cash, stored grain and market-ready livestock.

"It's very, very concerning," said Alejandro Plastina, the ISU agriculture economist who conducted the study. "It’s getting harder and harder for farm operations to cash-flow their business."

Plastina expects farmers' struggles to continue this year, with a tough growing season and dim prospects for improved prices. Record spring rain hampered planting, leaving nearly 464,000 acres unplanted. And the fall harvest has been slowed by rain, sub-freezing temperatures and snow.

Farmers have struggled to escape a downturn that began in 2013, a slump made worse by a U.S. trade war with China, Mexico and Canada that cut exports and depressed already low prices.

The Trump administration rolled out a total of $28 billion in farm assistance packages over the past two years to offset losses due to trade. Plastina said the assistance Iowa farmers received has slowed, but not reversed, the trend of financial decline.

Farmers have worked to lower costs and restructure debt, shrinking payments and freeing up cash. Some growers also have sold unneeded equipment and land to keep operations afloat.

"There's been a lot of damage done to farmers' finances over the past several years," said Chad Hart, an ISU agriculture economist. "And while things have gotten a little better, they haven't gotten better enough to prevent some significant financial problems."

Iowa farm debt highest in the U.S.

Iowa farm debt hit $18.9 billion in the second quarter, the highest level in the nation, according to Ohio State University agricultural lending data. However, Iowa's loan delinquency rate was 1.5%, ranking 39th lowest nationally.

Nationally, farm debt is projected to reach a record high of $416 billion, U.S. Department of Agriculture data shows. When adjusted for inflation, U.S. farm debt sits just below the 1980 record at $431.6 billion, the high before the 1980s farm crisis. It's still the worst recession in Iowa after the Great Depression.

Farmers' declining working capital — primarily the cash they have on hand to pay short-term bills — equaled $189 an acre over five years, according to Plastina's study, which looked at tax returns and other financial documents for 214 mid-sized farms in Iowa.

With about 16,200 mid-sized farms in Iowa, with each growing crops on an average of 815 acres, the study indicates farm operations have lost up to $2.5 billion in working capital over the past five years.

"Farmers have a lot less cash on hand today, and that makes it tougher to pay the bills today than five years ago," Hart said.

Plastina said cash-strapped farm operations "are running out of options," since they've likely already taken steps to restructure debt or receive new loans with land or machinery as collateral, Plastina said.

"We don't see an improvement in commodity prices," he said. "That's what makes the outlook scary."

The increased financial vulnerability doesn't necessarily mean that Iowa farmers are headed for bankruptcy, Plastina said, but that could be the final destination if the weakness continues.

Nationally, farm bankruptcies rose 24% to 580 filings in September, compared to a year earlier, the American Farm Bureau Federation reported. It's the highest level since 676 filings in 2011.

"It signals that the weakness in the farm economy across the country continues to rise," said John Newton, the bureau's chief economist.

Iowa had 24 farm bankruptcies over the past year ending in September, a 140% increase over a year earlier. Altogether, Iowa has 86,100 farm operations.

"Everybody knows we've had low commodity prices for a number of years now. The disruption we've had in demand has complicated things," Newton said. "There are a lot of challenges out in farm country, and these bankruptcy trends show that."

Government provides nearly 40% of farm income

Newton said nearly 40% of this year's projected U.S. farm income — about $33 billion of the $88 billion in profits — comes from government aid tied to trade, disaster assistance, support programs in federal farm legislation and insurance payments.

Iowa farmers received $646 million in market facilitation payments last year, the report shows, reducing per-acre losses to $189 from $237.

The federal aid program is designed to offset trade losses with direct payments to farmers, to purchase surplus farm goods for food banks and schools and to open more export markets.

Through May, Iowa farmers received $987.7 million in farm mitigation payments, based on data obtained by the Associated Press. But Hart said the additional support "doesn’t necessarily fill the hole. It just makes the hole a little smaller."

Officials already are discussing the possibility of additional trade payments in 2020, a presidential election year, although the decision depends on the outcome of ongoing trade talks.

"My concern is what happens if profitability does not improve and those payments go away," Plastina said, adding that the cash crisis farmers are experiencing will only worsen. "That will be a tremendous liquidity pinch for Iowa farmers."

Hart said Plastina's study helps explain why "especially rural Iowa may not be feeling as though the economy has been growing like the national and state economy."

"Oftentimes, the farmer is the economic engine in rural Iowa, and that part of the economy has not been growing," he said. "If the farmer is taking a loss, that rural economy is probably taking a hit as well."

Although prices have "slightly improved from last year, they haven't improved enough to help farmers' bottom line," Hart said.

Ryan Cox, vice president of Muscatine-based CBI Bank & Trust, said "profitability has been difficult to come by" over the past five years.

Farmers are working to "right-size" their costs and debt so they can survive the extended downturn, Cox said.

"We're focused on adjustments so they can be profitable, whether it's giving up farms where they're paying too much rent on or selling off some equipment" if their machinery debt is too large, he said. 

"Making changes to return to profitability is the big thing," Cox said. "I believe most farmers can get through this."

Donnelle Eller covers agriculture, the environment and energy for the Register. Reach her at deller@registermedia.com or 515-284-8457. 

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