American farmers are currently struggling with $409 billion in debts, the highest level since the farm crisis of the 1980’s. The only worse crisis came during the Great Depression. Debts carried by farmers is up $24 billion since the same point in 2018.
On Wednesday, Department of Agriculture Secretary Sonny Perdue said that despite the current debt farmers are shouldering, demand for loans remains “historically high.”
The farm crisis in the 1980’s was largely caused by three factors:
- Production per acre hit new records.
- The United States enacted a grain embargo against the Soviet Union under President Jimmy Carter that continued until President Reagan ended it in 1981.
- The dollar was very strong, oil was very expensive, and interest rates were very high.
These factors resulted in a perfect storm. Overproduction led to plunging prices. The trade embargo and the strong dollar limited exports and made American farm products more expensive in the global marketplace. High interest rates led to a record number of foreclosures, dramatically increased borrowing costs for equipment purchases, and the surge in oil prices made equipment more expensive to operate.
This time around, stable land values, low interest rates, and low oil prices have helped farmers while continued low prices when bringing crops to market and unreimbursed storm damage are contributing to losses.
The primary cause of the farmers’ struggles though is the loss of China as an export market due to President Trump’s trade tariffs.
The chief economist for the United States Department of Agriculture expressed concern last week about a potential but as yet unrealized nightmare scenario in farm real estate prices. As farm incomes continue to decline, and increasing debts make acquiring credit more difficult (and more expensive), more farmers might opt to sell their land and exit the business. But if too many opt to sell at once, land prices could plunge, sort of like the housing bubble a decade ago but in reverse.
When the damaging effects of the tariffs began being felt by farmers in 2018, the Trump administration pledged $12 billion in aid to farmers to mitigate their losses.
In November, the New York Times reported that only $838 million had been distributed so far. In mid-December, Secretary Purdue announced that $2.3 billion had been distributed. He claimed this week that number had risen to $8 billion.
There are hopes the Trump administration will reach a trade deal in March that would end (or at least, scale back) tariffs on American agricultural products.
Farmers better hope so, as the Department of Agriculture has announced there will be no aid package in 2019.