More Iowa farmers face trouble securing financing as planting season nears

The Des Moines Register

Dozens of Iowa farmers may be unable to get operating loans to buy seed, pay rent or make tractor payments this year, a sign of the growing cracks in the state's ag economy.

Nearly 3 percent of Iowa farm borrowers will be unable to get renewed financing, the Chicago Federal Reserve said in February, based on a survey of lenders.

"We have a percentage of farmers who are at the end of their credit ropes," said Chad Hart, an Iowa State University agricultural economist.

Farm bankruptcies remain relatively low in Iowa, but some financial data is raising concerns among economists:

Iowa had the most agriculture debt of any other state in the nation last year at $18.5 billion, outpacing even California, the country's largest farm economy, which ranked third with nearly $14 billion in debt. Nationally, debt is projected to reach the highest level since the 1980s farm crisis.
Iowa loan delinquencies nearly quadrupled to $223 million over the past five years, the fourth-largest amount nationally. Despite the increase, Iowa's delinquency rate remains a low 1.2%, ranking 41st in the nation.
Nearly 7% of the farm borrowers in the Chicago Fed district — all of Iowa and most of Illinois, Indiana, Michigan and Wisconsin — were struggling to repay loans, the largest percentage since 1999, based on a 2018 fourth-quarter report.

Higher-than-expected yields for some areas of Iowa last fall — and government payments to offset losses blamed on trade wars with China, Mexico and other countries — helped boost farmers' finances, said Robert Hartwig, the Iowa Bankers Association's agricultural liaison.

"I haven't heard of broad, systemic problems," with farmers struggling to renew loans for the growing season that typically starts this month, Hartwig said. "Bankers are working to keep these guys on the farm.

"But I won't sugar-coat it. It's difficult," he said. "We're not going to be able to restructure debt forever. We're going to have to have an upturn at some point."

The choice: 'Sell the whole dang thing' or just a piece

Some Iowa farmers are selling chunks of land so they can generate enough cash to continue operating, say land brokers, bankruptcy attorneys and finance experts.

Unlike the 1980s farm crisis, farmland values remain relatively strong, though down 17% last year from a 2013 high. U.S. farm income tumbled 44 percent during that same stretch.

"Banks are saying you've got two choices: One, sell the whole dang farm, or two, take and sell a 40 (-acre parcel) — hive off some land to pay down your debt," said Eric Lohmeier, president of NCP Inc., a Des Moines investment firm.

With the lingering downturn, "you're going to see some uptick in distressed sales," said Jim Knuth, a senior vice president at Farm Credit Services of America in Iowa.

But distressed properties aren't a large percentage of sales, said Knuth and others.

Most farmland sales in Iowa last year came from estates — the sons, daughters and grandchildren of farmers selling land because they're no longer involved in raising crops or livestock or live in other states, brokers say.

And often with distressed sales, investors buying farmland may agree to lease it back to the farmers selling it, Knuth said.

The agreement lets farmers continue working the land, while generating cash for their operations or to pay down debt.

"It’s not bankers demanding that they do it," said Ben Hollesen, a broker at Midwest Land Management & Real Estate in Spencer. Banks are saying, "You would feel better, we’ll feel better if you put the farm on the market, and get a lease-back."

Farmers search for ways to cut expenses

Scott Henry, a fourth-generation farmer near Nevada, said his family operation is shopping hard to get the best price it can for seed, chemicals and other supplies.

"For a long time, we used our local co-op for a large portion of our inputs," the 29-year-old said. "But as we’ve had to ... find lower prices, some of those relationships on chemicals and seed have had to change.

"It’s not fun," said Henry, a partner in LongView Farms. "It's tough. We don't like doing it. We try to be loyal as we can, but we have to make money."

The corn, soybean and custom-farming operation also is putting off tractor, combine and other machinery purchases, and buying used equipment when it can no longer wait, he said.

That's common, said Michelle Klocke, the Peoples Bank branch president in Hawarden.

Across Iowa, farmers are cutting farming and living expenses and looking for ways to boost on- and off-farm income, she said.

Lenders are refinancing debt, extending the time needed to repay loans to lower payments, and asking for increased collateral, experts say.

Farmers unable to get traditional financing could get credit from suppliers as well as from new lending companies that charge higher interest rates, using crops planted this year as collateral.

► SURVEY:Rural banks raising farm loan collateral requirements

Henry, a member of a national group pushing for an end to tariffs, worries the struggle for profitability will linger, even with renewed optimism that China and U.S. officials could reach a trade deal.

Soybeans are unlikely to reach pre-tariff prices for four more years, and exports won't recover for seven years, USDA projections show.

That will be tough for all farmers, said John Heisdorffer, a Keota farmer who is chairman of the American Soybean Association.

"If we have to go that long, even those of us who have been around a long time will be in a pretty tough way," said Heisdorffer, who will plant his 47th crop this year.

The cushion built in the good times is dwindling

Last year's drop in prices for soybeans, pork and other commodities pulled many Iowa farmers into the red. Tariffs are costing the Iowa economy an estimated $2 billion, an ISU study shows.

This year isn't looking better. Iowa prices for corn and soybeans are below the cost to produce them, said Hart, the ISU economist. That's a shift from this winter, when corn production appeared to have a small margin for profit.

Trade-damaged prices, combined with flooding along the Missouri River and rain-soaked fields across the state, are amping up farm concerns.

Farm Credit Services of America added 30 loan officers to work with farmers and ranchers who are experiencing the biggest financial challenges, said Mark Jensen, CEO of the Omaha-based financial cooperative.

"The cushion or liquidity that was built in the good times is starting to deplete itself over the last couple of years," he said. "But that's not widespread across our portfolio."

The large ag lender, serving Iowa, Nebraska, South Dakota and Wyoming, reported that delinquent or nonperforming loans reached $205 million last year, more than doubling over the past four years.

Still, the at-risk loans were less than 1 percent of the lender's total $28.4 billion in loans.

For the first time, Farm Credit Services allowed customers last year to pay only the interest on their loans, deferring principal payments totaling $145 million.

The cooperative wanted to free up cash for farming operations. Most of the farmers participating in the program grow grain, Jensen said.

"If we stay at these levels, you’ll see customers with more debt," he said. "You’ll see ... additional challenges and more adjustments, selling assets or making changes to their operations."

'More farmers today want to get out'

Bankruptcy attorneys say they've been swamped, trying to help farmers.

"We’re finding a lot of farmers calling us, saying they don’t have enough money to pay rent," said Joe Peiffer, a Cedar Rapids attorney.

Peiffer and Donald Molstad, a Sioux City attorney, say they're turning farmers away.

Bankruptcies have been low in Iowa, although increasing. Chapter 12 bankruptcies, filings just for farmers, tripled from four in 2011 to 13 in 2018.

Because Chapter 12 limits the amount of debt, farmers can use other chapters to file bankruptcy, masking financial trouble, experts say.

Attorneys try to negotiate deals with lenders in the hope of avoiding bankruptcy.

"More farmers today want to get out," Molstad said. "They go to town and get a good job. They've found they've worked 20 years and have nothing to show from it but debt."

'It's hard to farm if you're anxious or depressed'

The Iowa Farm Bureau Federation and other ag groups and lenders are offering farmers counseling resources, too.

"We’re going through one of the most difficult times financially since the crisis of the 1980s. There are very few bright spots," said Michael Rosmann, an Iowa psychologist who works with farmers across the country.

Iowa's hotlines are getting more calls. But unlike the 1980s, the majority of callers aren't the wives of distressed farmers, he said.

Now, men are calling.

"It’s hard to farm if you're anxious or depressed. You can’t make good decisions," said Rosmann, who also farms in western Iowa.

Three years ago, a Centers for Disease Control study said farming, fishing and forestry workers had the highest suicide rate in the nation, nearly five times that of the general population.

That report was later corrected, ranking the group ninth. But concerns remain high, said Brandi Janssen, executive director of Iowa's Center for Agricultural Safety and Health at the University of Iowa.

"We hear from the broader agricultural community that they're concerned ... that farmers are in crisis," she said.

Even with the corrected federal data, Janssen said growers are at higher risk of suicide, given economic volatility, isolation, feeling a lack of control, and access to firearms, among other factors.

"If someone seems to be in crisis, don’t be afraid to ask them about what’s going on," Janssen said. "You're not putting something in their head. They're already thinking about it."

Getting started is tough for younger generation

Heisdorffer, the American soybean association chairman, worries the downturn could eliminate a generation of farmers too discouraged to enter the industry.

Henry, the Nevada farmer, says the barriers are high for those trying to get started.

"There are a ton of people who would like to go back to family farm, but the reality is that it’s tough to do on a full-time basis. They'll have to work off farm until mom and dad retire, and they can replace somebody," he said.

Chase Pladsen, Marty Beary and Brad Holdgrafer, all members of the Iowa State University farm operations club, are already raising livestock and growing corn and soybeans.

One big help: They've reached agreements with their families to provide labor so they can use their farm equipment, a big cost for beginning growers.

"You have to diversify. It's hard to add another family to the operation if it's just row crops," said Holdgrafer, a 21-year-old who plans to return to his family's operation near Bryant, raising feeder cattle and providing custom baling.

Pladsen, 21, raises hogs near Waukon; and Beary, 20, raises cattle and custom sprays near Albia.

"If you can survive now, you should be able to do even better later on," Beary said.

Chris Grebner, 21, is a little jealous of his friends. He wants to farm but his parents don't have an operation he can join.

Grebner is talking with neighbors near Epworth about "crop-sharing," splitting the expenses, profits and risk with them. "A couple guys in the area have helped younger guys get on their feet," he said.

Cal Daughton, 20, plans to return to his family's operation near Mount Ayr, where they have a cow-calf herd and grow corn and soybeans.

But it won't be full time, at least initially, said Daughton, who is thinking about running a hog barn or getting his broker's license to sell farmland.

For him and the other club members, farming is all they want to do. "I can sit in a tractor all day long. But it's tough sitting at a desk, even a few hours," Daughton said.