Harvest Public Media: As Farm Economy Continues Slump, Some Farmers Face A Credit Crunch

by Grant Gerlock, NET News/Harvest Public Media | January 19, 2018

Farmers are talking to their bankers to find out if they’ll receive loans for the next growing season. While most farms are still on solid financial ground, some will be out of credit, just like one Nebraska family who’s struggling to save the farm.

Winter is a time of year when farmers are visiting banks to learn whether they have credit for the next growing season. Farmers commonly rely on borrowed money to buy seed, fertilizer and chemicals to raise their next crop.

But the farm economy has been lagging. Prices for corn, soybeans and wheat are low enough that some producers will have a hard time turning a profit. Financial analysts expect some farmers to be told that their credit has run out.

The headquarters of the Delaney farm near Fremont, in eastern Nebraska, is an office inside a steel machine shed. It’s where the family made plans to grow the farm as crop prices surged several years ago.

But it’s also the place where Tom Delaney says his family’s farm went into a financial tailspin. That happened about two years ago in a meeting with their bank, Farm Credit Services.

Tom Delaney farms near Fremont, Nebraska with his daughter-in-law Jody (right) and son, Tim. Their bank, Farm Credit Services, will no longer offer them credit, leaving them scrambling to avoid foreclosure. “We don’t know if we’ll be here a month from now,” Tom said. (Photo by Grant Gerlock, NET News/Harvest Public Media)

Hogs on the Delaney farm enjoy some sunshine on a cold January day. In addition to pigs, the family raises cattle and sheep while also growing corn, soybeans and hay. (Photo by Grant Gerlock, NET News/Harvest Public Media)

“Two of their lenders came out and basically said we’re not going to back you up anymore and you need to sell out,” Delaney said.

At one point the farm covered 2,500 acres, more land than most farms in the area, but when grain prices fell it was more than they could afford. The family couldn’t cut costs enough to convince the bank that they could pay back their $1.8 million debt.

Delaney says it felt like the end of the world.

“We don’t know what the outcome of tomorrow is going to be,” he said. “We don’t know if we’ll be here a month from now.”

The majority of farms in the U.S. are not in as much financial trouble as the Delaneys. Farms that own their land, for instance, tend to be faring better because they don’t have the cost of paying rent and the land’s value gives them more borrowing power.

Yet, the U.S. Department of Agriculture estimates about 12 percent of crop farms are highly leveraged. That could include new farms that haven’t built up assets or farms that grew too fast, like the Delaneys. Their level of debt makes them vulnerable as banks tighten their credit.

While the financial pain may be limited across the industry, every day is a crisis for the individual farms that lose their credit. For Jody Delaney, Tom’s daughter-in-law, the days have been consumed with efforts to fight off foreclosure and save both the farm and her family.

“There were a couple months when they called our loans that we had nothing,” she said. “If it wasn’t for some odd jobs, our family would have gone hungry and our animals would have too.” Jody says she and her husband considered divorce “because we were fighting, because of the stress. We’re all fighting for the same cause: to save the family farm, to save the family business.”

“It’s hard for those from a generational farm, feeling a sense that they’re the generation that could be losing the farm,” said Michelle Soll director of the Nebraska Rural Response Hotline. The hotline was established during the 1980’s farm crisis to provide financial and legal advice and family counseling. Surrounding states offer similar services such as Iowa Concern and the Kansas Rural Family Helpline.

Soll says she warns farmers to be detailed and honest when meeting with their lenders about their business plans because refinancing with a new bank can be a tall task. When one bank says no, it’s not as easy as going to the next bank on Main Street.

“Most of these banks have been bought out by larger banks,” Soll said. “They just have a guideline and that’s your guideline and that’s it.”

The Farm Service Agency, part of the U.S. Department of Agriculture, can help producers secure credit by guaranteeing bank loans. But FSA guarantees have a limit of $1.4 million.

That may seem like a lot, but it doesn’t go as far as it used to when one acre of cropland in the U.S. is worth $4,000 on average. Big loans are leaving farmers with fewer options.

“When debt rises to that point it does limit your pool of lenders,” said Tina Barrett, a financial analyst with Nebraska Farm Business, Inc. “It might be time to liquidate some assets, pulling that debt down, so that you are more marketable to different banks,” Barrett said.

The Delaneys have downsized and revamped their farm since losing their loan. They’ve shrunk from 2,500 acres of farmland to about 500. They switched to growing non-GMO crops and started raising Berkshire breed hogs for Heritage Foods which supplies the upscale grocer, Whole Foods.

In the hog pen, pink and red pigs root around the dirt, lifting and dropping the flaps on their feeder bins. The plan is to sell around 2,000 pigs each year.

The farm has always had sheep and cattle, but this is the first time for pigs. Jody Delaney says her father-in-law was not on board.

“But now I don’t think he’d change it for the world,” she said. “He’s with these hogs every day, sometimes five or six times a day, checking on them to make sure they’ve got food, water and heat.”

“If that’s what it takes to pay the bills, it’s what we’re going to do,” Tom said.

The bank could still foreclose, but for now the farm is earning a profit again. The Delaneys say this is their chance to save the family farm, if they can find a bank that feels the same way.