History and economics teach farmers that there will be ups and downs.
In agriculture, the downs seem to come about every 30 years or so, according to Iowa State University Extension ag economist Chad Hart.
He points to the 1920s as a time when the general economy was booming but agriculture was not. The 1930s were just bad for everyone. In the 1940s agriculture did well but the ’50s were not so good.
The 1960s weren’t bad and the 1970s were a boom time, but the 1980s were a crisis. The 1990s and early 2000s were so-so but were followed with a skyrocketing ag economy from about 2008 to 2013.
Then came the inevitable drop.
“That (2008-13) was a true golden age,” Hart said. “Right now seems bad, but we’re still looking at historically good revenue.”
The situations around each cycle are different, according to University of Illinois Extension ag economist Gary Schnitkey. In the 1970s, inflation was high and international markets were opening up. Farmers were encouraged to borrow and buy.
Then came the Soviet grain embargo in the 1980s and the federal government’s push to lower inflation. That made the ’80s crisis one of debt.
The present downturn is different. Interest rates are low and many farmers took advantage of the boom time to pay down debt. The problem now is one of cash flow and high input costs. Schnitkey said some of those being hit especially hard are those paying high cash rents.
Hart said another problem at the moment is that government programs pumping money into agriculture (crop insurance and the Market Facilitation Program) aren’t encouraging farmers to self-correct in any meaningful way. Logically, the United States should be responding by reducing crop acreage, but that macroeconomic idea doesn’t translate to the farmer level.
What makes sense for the country as a whole doesn’t necessarily make sense for individual farmers, he said.
Still, agriculture is cyclical, and Hart said it is likely that at some point the pendulum will swing again. The challenge for farmers is to figure out the lessons of the present downturn because they are different from the lessons of the 1980s.
If there is a similarity, it is that management and close attention to break-even costs are becoming even more important, he said. And creativity is also important.