Wendong Zhang, Iowa State University
Wendong Zhang, Iowa State University
    The time is 1978.
    Farmers across the nation are capitalizing on an uptick in commodity prices, and lenders are encouraging further business expansions.
    But as quickly as the golden era of farming arrived, it soon began to dissipate.
    The United States enacted a short-lived grain embargo against the Soviet Union; the Federal Reserve abruptly raised interest rates to curb inflation; and farmers watched their net worth plummet.
    The agricultural industry entered the 1980s Farm Crisis.
     Fast forward nearly 40 years, and the agricultural industry is once again met with difficult times.
    Although farmers are now faced with a similar financial pinch, there are vast differences between the two eras.
    “I’d rather have it this way than in the 1980s,” Lester Banse said.
    Banse milks 200 cows with his wife, Donna, near Caledonia, Minn.
    The differences between the 1980s Farm Crisis and today lie within the years preceding each market swing, as well as how industry alliances prepared and handled the situations.
    “We’re in a time of a downturn, but not a crisis,” Wendong Zhang said. “Today, it takes effort to manage costs and maintain working capital, but it is not impossible.”
    Zhang is an applied economist and extension farm management specialist at Iowa State University.
    In the early 2000s, the industry saw historically low interest rates and a growing demand for exports from China. These factors, among others, led to a net farm income increase of roughly 8 percent every year, while the years leading to the 1980s saw a -3.2 percent decline in net farm income.
    “For the past four years, we’ve seen difficult conditions, but the 10 years prior were very favorable,” Zhang said.
    However, the years that followed both time periods were drastically different. In the 1980s, farmers saw an increase in net farm income, while today, the average net farm income has declined almost 10 percent year over year.
    In 2016, farmers recorded an average net farm income of $60 billion compared to $120 billion in 2013, according to the United States Department of Agriculture (USDA).
    “In the ‘80s we were dealing with an equity crisis. Now, this is a cash flow crisis,” Robert Nigh said.
    Robert and his brother, Randy, milk 130 cows with their nephew, Ryan, near Viroqua, Wis. The Nighs took over their father’s dairy in the mid-60s, and have continued diversifying the farm with dairy cattle genetics, a cow-calf operation and cash crops to weather the industry trends.
    While income is sparse across all sectors of agriculture, the cost of farming continues to rise.
    “That’s the biggest thing … rising input costs are the biggest percentage of the milk check,” Banse said. “Everyone wanted a piece of the pie in 2014, and now they don’t want to lower their costs.”
    Dale Nordquist, associate director with the University of Minnesota Center for Farm Financial Management, agreed.
    “Farms are really struggling right now with ag margins. It all depends on your cost structure and life cycle of the business,” he said, noting the greater volatility in milk prices today. “Back then, it only helped to have livestock as the [milk] price rarely wandered more than a couple dollars.”
    Fortunately, financial assistance is favorable this time around.
    After the 1980s, the federal government established programs and restructured loan regulations to improve lending options for farmers that accurately reflected a cash flow repayment opportunity rather than inflated market values.
    In the mid-1980s, loans were largely distributed through the Farm Credit System and individual lenders, whereas today, a majority of loans are setup through the Farm Credit System and commercial banks, as noted by the USDA.
    “We haven’t seen interest rates like the ‘80s, and land values are not crashing,” said Tom Deming with Foresight Bank. “Land prices are relatively stable and farmers have the ability to restructure their financing while interest rates remain low.”
    When the Banses began farming in October 1976, the farm site had not seen cows in five years. They worked with the bank to fund small improvements, such as within the milkhouse and putting up silos, as they built their herd from 18 to 50 cows.
    “I’ll never forget when I was paying back loans on 19 percent interest,” Banse said. “The bank worked with me as we started out, but wanted one-third of the milk check. It took all but that one-third to pay for that interest and then the other bills.”
    Robert agreed.
    “It was tough,” he said. “You’d watch families lose their farms – and they were great people. When you lost a farm, you lost a part of your community.”
    In time, more than half of farmers are now established and not currently carrying a large debt load, Zhang said. In turn, this may be advantageous for beginning farmers.  
    “There’s access to land,” he said. “In times of change lies opportunity.”
    Historical trends suggest downturns last roughly six years, and Zhang encourages farmers to look at their current operation and how they compare to the national average as the markets begin rebounding.
    “On average, agriculture tends to be a break-even business. Don’t be average, but be at the top 30 percent of the curve,” Zhang said. “Be careful with your management and cost of production, and take advantage of ag marketing and prices when they become available.”
    For the Nighs and Banse, they have been through downturns and crises, and are continually learning how to improve their farm and weather the market storm.
    When Banse first started farming, he worked tirelessly and found ways to minimize costs on the farm without sacrificing the health and production of his growing herd.
    “We didn’t spend much, and we never did anything fancy. You have to be careful about what you spend,” Banse said.
    The Nighs learned a lot about themselves as dairy farm managers when they worked through the 1980s and continue today.
    “These two times are detrimental to prepare for the future, as they’re major financial downers,” Randy said. “But, they undoubtedly prepare you because tough times make for better managers.”
    Robert agreed.
    “We’re making decisions now that we should have made years ago,” he said. “Maybe we didn’t learn as well as we could have the first time through because we’re in a reactive position now.”
    Regardless of the farm structure and management style that differ from dairy to dairy, the Nighs and Banse stress the importance of communication with fellow dairy farmers, as well as family and friends and key stakeholders of the farm, to help make it through this downturn.
    “Take care of the cows and they’ll take care of you,” Banse said. “Times never stay bad and they never stay good. Remain optimistic and know things will get better.”