Ever since our Economic Forecast event on Jan. 31, I’ve been asking, poking around and reading about about the health of the ag economy. At the event, I asked a question that stemmed back to a conversation about the struggling ag economy that I had with a panel of bankers about two or three years ago. 

In that discussion, we were talking about the challenges facing farmers as a result of low commodity prices, and I asked when we would really start to see problems emerge. Their answer at the time was that we would see real effects if the slowdown in the ag economy continued to drag on for a few more years. 

Fast-forward to our Economic Forecast, at which I asked the panel if the intensifying trade disputes, coupled with the continued low commodity prices, mean that this has in fact dragged on long enough that we should be concerned. 

NCP Inc. President Eric Lohmeier, who is immersed in this world, offered a grim and urgent take:

“What we have had at least in the last three years, most of these [ag] operators have had operating losses. So where does their money come from? It comes from the equity they have had in their land. They are borrowing and have borrowed against the equity in their land on their operations,” Lohmeier said. “With a third year of operating losses, for a lot of these operators ? and some bankers out here know this, and they know it well ? they cannot roll over their loans. That’s happening right now. You will see farmers lose their land this year. Period. This is happening today. So I think we are actually five years into this thing, and it isn’t getting better, it’s getting worse.”

Then last week the Wall Street Journal took a deep look into the pain of Midwest farmers with a story under the headline “Farm Belt Bankruptcies Soaring,” in which the article revealed that U.S. farmers are filing for Chapter 12 bankruptcy at alarming levels.

“Bankruptcies in three regions covering major farm states last year rose to the highest level in at least 10 years. The Seventh Circuit Court of Appeals, which includes Illinois, Indiana and Wisconsin, had double the bankruptcies in 2018 compared with 2008. In the Eighth Circuit, which includes [Iowa], bankruptcies swelled 96%. The 10th Circuit, which covers Kansas and other states, last year had 59% more bankruptcies than a decade earlier.”

The article goes on to point out that total U.S. farm debt climbed to $409 billion, the highest level since the 1980s. And, lending further credence to Lohmeir’s comments, the article said that nationwide “the volume of loans to fund current operating expenses grew 22 percent in the fourth quarter from year-ago levels, hitting a quarterly record of $58.7 billion.”

And according to the Journal article there are more foreclosures to come by both large-scale farms and small family farms. More from the piece:

“Agricultural lenders, bankruptcy attorneys and farm advisers warn further bankruptcies are in the offing as more farmers shed assets and get deeper in debt, and banks deny the funds needed to plant a crop this spring.”

Then last week, bank CEOs surveyed in the Creighton University Rural Mainstreet Index said weak farm income has pushed almost two-thirds of banks to increase collateral requirements on farm loans (the collateral usually in the form of land), with almost one-third of banks increasing the rate at which they reject farm loans due to anemic farm income.

This all leads to a bigger question about what type of effects the bankruptcies could have on Iowa’s broader economy. How tied into the challenges of rural Iowa are our banking, insurance and manufacturing industries? It’s a topic we’ll be trying to dig into more in the coming weeks. 

What we do know, according to Iowa State University economist Dave Swenson, is that he and a group of economists predicted that the annualized impact of the trade actions will have anywhere from $1 billion to $2 billion of a negative effect on Iowa’s gross state product. But those losses will be disproportionately felt by rural Iowa, which is already on its heels and at a disadvantage.

And despite the struggles in the ag sector, Swenson said, our state’s economy has continued to grow.

“Right now year-over-year incomes from the ag sector are 20 percent down from last year, which was 40 percent down from the year before,” Swenson said.

“The answer is it’s not good. It’s not good for rural areas, but the whole bigger economy seems to be able, so far, to absorb those losses and continue to grow.”

We’ll continue exploring the topic in future stories, but in the meantime, here is the Wall Street Journal article and a link to the full video from our Economic Forecast.