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News Farmers Face Challenging Ag Economy

Farmers Face Challenging Ag Economy

Farmers Face Challenging Ag Economy
February 21, 2022 |

By Marlee Moore

Skyrocketing interest rates, ballooning inflation and the worst crop of his life strapped Ed White in 1980.

“I cashed in my retirement so my kids could eat and go to school,” said White, 85, who taught 17 years before farming full time.

Decades later, farmers again face rising inflation, coupled with supply chain issues. Farmers report fertilizer and crop protection prices have doubled, tripled or even quadrupled — when available.

White farms with his son, Jason, and grandson, Ryan Rippey. The three generations are adjusting management techniques to survive shifting expenses.

“Yes, input prices are higher,” White said. “But peanut and cotton prices are higher, too. We’re not making any more than we made with lower prices, but we can still cash flow it. There’s no comparison to the ‘80s. Nowadays, the interest is cheap, and money is still available.”

Easy money policy emerged in the ‘70s. Commodity prices boomed, and farmland values ballooned, he recalled.

Pop!

In some parts of the U.S., farmland values fell by half in the early 1980s. Alabama wasn’t hit to that level but still saw declining land values. Commodity prices plummeted, too.

Hundreds of miles separate White from Perry County farmer Jim Brady. White’s native Henry County is in Alabama’s Wiregrass, while Brady farms in the Black Belt Region. Both long-time leaders in the Alabama Farmers Federation survived the last farm crisis through shrewd investments and grit.

“The cost of everything was going up,” Brady said. “What we were selling was either stagnant or going down. We were caught in the vice.”

High sustained inflation reigned. Items that cost $1 in 1972 cost about $2.32 a decade later.

“Mentally, you tighten your belt so tight your belt buckle is touching your backbone,” White said.

Smart farm management and carefully cultivated relationships with lenders meant White and Brady’s interest rates never topped the mid-teens, while some contemporaries’ rates reached 20% or higher.

Today, interest is less than 5%.

“I don’t think we’re in a crisis,” White said. “I think prices are ridiculous, but I don’t feel the pressure. You can’t imagine waking up every morning wondering if you’ll survive that day financially.”

Diversification helps. White’s family raises poultry, cattle, cotton, corn and peanuts, while the Bradys have catfish, cattle and timber.

“You have to have another enterprise,” Brady said. “If you have one that bogs down or becomes unprofitable, you need another enterprise that can take up some of the slack.”

Investments Brady made during the successful ‘70s — constructing a state-of-the-art milking parlor, adding acreage and building grain bins — paid off when times were tight.

The next decade, Brady saw farmers mortgage their homes to purchase cattle. When prices dropped, some farmers lost their land — and homes.

“We can offset expenses through the appreciation of land value,” Brady said. “But as a farmer, who wants to sell a farm just to break even?”

Brady farms near Marion with his son Brad. The American dream fuels their love of farming, but tightening or nonexistent profit margins take a toll. 

“At the end of the year, there may not be money left for improvement,” said Brad, 55. “When you do that, you’re just treading water.”

Federation President Jimmy Parnell is hearing similar stories during county Farmers Federation meetings. Some retirement-age farmers are selling out while others are investing farm equity into the upcoming crop.

Younger generations didn’t feel the effects of, or learn from, the last farm crisis. It’s concerning, Parnell said.

“In the ‘70s, things were amazing in agriculture,” Parnell said. “People said cattle were never going to be cheap again. Then the bottom fell out. It looks like what I remember in the late ‘70s. Are we headed in that direction?” 

Auburn University Emeritus Professor Patricia Duffy said it’s too early to predict whether a period of sustained inflation is budding or if farmers are experiencing pandemic-related spikes and stresses.

“We saw fairly high inflation last year, and we may see it again this year; beyond that, I’m not sure there are good predictions yet,” said Duffy, who began studying the ag economy in 1980. “We are seeing a confluence of demand pull (easy money policy plus economic stimulus) and cost-push (caused by supply chain problems). What I don’t know is how long it will last.”

Debt-to-asset ratios are lower than in the ‘70s, which protects against economic downturns. That and other risk-management strategies help farmers survive economic shifts.

“Like any other business, farming benefits from good record keeping, sound financial analysis and good forward planning,” Duffy said. “What is different about farming, compared to many other businesses, is the high level of risk exposure, even in ‘normal’ periods of time.”

While input costs are increasing, commodity prices aren’t in a major decline. That’s encouraging, White said.

“I lived through the late ‘70s and ‘80s,” he said. “I know what hard times are in farming. We’re not there yet.” 

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