2017 may be 'tipping year' in tightening farm economy

Mike Petefish already has the planter hooked up to his tractor in his farm yard, staged next to field cultivators and semis that can haul massive fertilizer tanks and large bins with conveyor belts called seed tenders.

Crates of corn and soybean seeds are stacked floor to ceiling in the machine shed nearby.

Petefish, who farms 5,000 acres near Claremont in south-central Minnesota, is ready to plant.

But mixed with excitement as a new growing season approaches is anxiety about whether he will end up in the red at the end of the year. Soybean prices have dropped by one-third since 2013 and corn prices are down by nearly half, well below the cost of ­production.

"People can withstand a year or two of losses, but this could be the third year in a row for some farmers," Petefish said. "I see this as the tipping year."

No one is saying that farmers are headed for a repeat of the 1980s, when high interest rates, inflation and huge debt forced thousands of producers out of business. But the tougher agriculture market and weakened farm economy of the past few years is steadily taking its toll, and cracks are beginning to show.

University of Minnesota Extension researchers reported recently that more than 30 percent of Minnesota crop and livestock producers lost money in 2016. Federal estimates show that average net farm incomes have fallen by nearly half since their peak in 2013, the largest four-year drop in 40 years.

February was the busiest month in 10 years for filings at the Farmer-Lender Mediation Program at the University of Minnesota Extension, which helps producers work through financial roadblocks with their bankers.

"It's clear that everybody that's in farming is worried about this year and what's going to happen," said U.S. Rep. ­Collin Peterson of western Minnesota, the ranking Democrat on the House Agriculture Committee. "If they have an average year and the prices keep trending down, that's going to be a significant problem."

Peterson said he expected serious financial difficulties would surface last winter for many farmers, but record yields in 2016 helped to offset the low crop prices and cushion the losses.

Petefish, vice president of the Minnesota Soybean Growers Association, said current corn and soybean prices are below the cost of production for probably 90 percent of producers. Those not affected, he said, are primarily growers who own most of the land they farm and use older equipment that's been paid off.

Tighter credit also has brought subtle changes in the real estate market, he said, with fewer farmers able or willing to purchase farmland from retiring producers. "A few years ago, every piece of land capable of producing a crop was long gone before you even heard it was available," Petefish said. "Now there's rental ground available and some land for sale."

Not many farmers have been forced out of business yet, but increasing numbers of producers have needed to rebalance their debts and stretch out loan payments, said Mark Greenwood of AgStar Financial Services, which lends to growers across Minnesota and ­Wisconsin.

Greenwood said those in greatest jeopardy are beginning farmers who own very little land and have not had time to build equity, and may be paying too much to rent. Also at risk are producers who spent cash for new machinery and farmland when times were good five years ago, but now have lots of short-term debt that hurts cash flow.

In times of low prices, Greenwood advises producers to trim their costs of production, take advantage of any market opportunities if they arise and use sound risk management strategies.

That may include selling corn or soybeans on the futures market when prices are barely above the cost of production, he said. "It's a more defensive strategy, but unfortunately that might be as good as prices get, and producers need to execute so they can live to fight another day."

The majority of farmers have been able to figure out financing for this cropping season, said Tom Slunecka, CEO of the Minnesota Soybean Research & Promotion Council, but it hasn't been easy.

"Things are really getting tough out there," he said. "If the prices for commodities stay stagnant, we'll see a lot of farms go under next year. This year there are a few, and it's extremely disheartening."

To be sure, grain prices depend on several factors, including weather, yields, strength of the dollar, export markets, crop abundance in such competing countries as Brazil and Argentina, and how much surplus grain in the U.S. remains in storage from last year that still needs to be sold.

Of the factors that are within their control, many producers have restructured debt, renegotiated deals for renting land, and trimmed costs for seed, fertilizer and other expenses.

For Kirby Hettver, who grows corn, soybeans and alfalfa on 2,000 acres in Swift and Chippewa counties in west-central Minnesota, that has meant modifying his planter to reduce fertilizer costs. Instead of applying nutrients broadly across a field, he'll apply it in narrow bands that are closer to seeds so they can use it more efficiently. He has also purchased a different variety of corn seed with fewer genetic traits that is less expensive.

Hettver said that his farming operation was marginal last year as far as profits, but a couple of side businesses helped him stay in the black. He sells seeds and precision planting equipment that can help farmers cut costs.

The U Extension has also noticed the financial stress. Its Farmer-Lender Mediation Program has seen a significant uptick in creditors who send notices to initiate a process that may end in mediation.

"It's a realization that prices are down, incomes are down, debt needs to be paid, and creditors are sending these notices saying that we need to talk," said associate dean Kent Olson, who supervises the program. "Compared to where we were in 2012, trouble paying debt has gone up and notices of nonpayment have gone up."

To try to prevent farmers from getting to the stage of mediation, Extension also recently announced a new program to provide struggling producers with free one-on-one financial counseling in several locations across the state.

Hettver, who is also first vice president of the Minnesota Corn Growers Association, said that farmers are always eager to get back into the fields each spring, and this year is no different. Even entering a fourth year of declining prices, he said, they are optimistic that the market will rally, the weather will be favorable enough to produce high yields and profits will be there at the end of the year.

"You plan for a great crop, and you just put everything in place to try to make that happen," he said.

Tom Meersman • 612-673-7388