A small printer tucked into a corner of Chris Hurt’s cluttered, busy office hums with rhythmic precision, spitting out page after page of the U.S. Department of Agriculture’s grain crop production report. Hurt snatches each sheet and scans the hundreds of rows of tiny numbers packed as tightly as corn stalks in a fertile field.
One of the nation’s leading agricultural economists, Hurt knows exactly what to look for in the dense block of data—specifically, which numbers will move the market up or down. For hundreds of farm families, a swing of a few cents in the price of a bushel of corn or soybeans can mean the difference between putting money away for a child’s education and keeping food on the table. The line between success and subsistence can be painfully thin.
After he performs a few mental calculations, Hurt’s expression softens into a warm grin.
“There’s not a major change here, but it is generally positive for producers,” he says.
The numbers indicate that grain prices might be stabilizing, a signal that the worst of the current downturn in the corn and soybean markets could be over. Grain prices have been slumping since 2014, due mostly to near-record supplies and weakening global demand. Conditions have been especially tough for smaller-scale farmers caught between shrinking income and rising production costs.
The College of Agriculture is helping producers manage through the downturn with a series of workshops, webinars, and other outreach efforts.
For Hurt, who grew up on his family’s farm in southern Illinois, the stakes are personal. He understands the financial pressures producers face even in good years. “It’s a difficult balancing act,” he says. “If you’re a farmer, you must be as productive as possible, but that can lead to global oversupply, which is the situation we’ve had for the past couple of years. It can take time for things to balance out.”
Agricultural market cycles typically last five years; the current downturn is in its third year.
Due to overproduction, grain prices are off about 30 percent since their peak in 2014—but they may be stabilizing.
Associate Dean Jason Henderson, director of Purdue Extension and one of the nation’s foremost experts in agricultural market cycles, sees an almost reassuring predictability in current market conditions.
“There is some sense of comfort in that we’ve seen it before,” Henderson says. “Agricultural markets go through cycles. Periods of accelerated production create oversupply, which drives down prices and can create a liquidity crisis.”
The worst downturn in memory came in the 1980s. After the Soviet Union agreed to buy American grain in 1972, prices skyrocketed, and United States farmers borrowed money to expand production. Prices collapsed in 1980 after the United States cut off grain shipments to the U.S.S.R. in the wake of the Soviet invasion of Afghanistan. When interest rates soared in the early 1980s, many farmers faced debts they could not pay. In the 1930s, there were 6.8 million farms in the United States—but by 1985, only 2.2 million were left.
“Many farmers found themselves overextended after investments in the 1970s and high interest rates in the 1980s, didn’t make adjustments soon enough, and found themselves struggling to keep their family farms,” Henderson says.
creating a farm management plan
Surviving the current downturn in the agricultural economy requires planning and discipline, says Associate Dean Jason Henderson. Henderson offers five tips to help farmers solidify their bottom line:
Analyze your cost structure. Cutting production costs is vital when revenues are shrinking.
Look at your debt structure. If possible, lock in lower long-term interest rates when borrowing money for capital expenses.
Develop a risk management plan. Try to minimize downside risk while maximizing upside opportunities.
Create a practical financial management plan. Know how to read and interpret your own balance sheets.
Remember that the goal is to survive the short-term downturn and position yourself to take advantage of the market when it recovers.
“The biggest thing is don’t borrow a lot of money to get through this,” Henderson says. “You have to make some adjustments, but it can be done.”
Renewed emphasis on outreach
Lessons learned in those dark days helped shape Purdue’s response to the current decline. The focus now is on helping farmers cut costs and manage their finances to avoid a crushing debt load.
“This is the largest downturn we’ve experienced since the 1980s, with grain prices off about 30 percent from their peak in 2014,” says Michael Langemeier, professor of agricultural economics and associate director of the Center for Commercial Agriculture. “We have been working with farmers on financial management for a long time, but there is definitely a renewed emphasis on outreach.”
Last year, in partnership with the Center for Commercial Agriculture and the Department of Agronomy, Purdue Extension launched a series of workshops on “Managing an Environment of Tight Margins.” Nearly 25 sessions have been held throughout the state, and more are planned.
“We really want to get people thinking outside the box about ways to save money in this environment of tight margins,” said Jenna Nees, Purdue Extension-Putnam County educator and one of the workshop organizers. “We’ve had farmers, crop advisors, and bankers attending our sessions. It is really a community-wide response.”
Nees describes the workshops as informative and upbeat. “A lot of the farmers say they are there to learn, to be prepared just in case things get worse,” she says.
Broad range of guidance
Workshop presenters include both crop specialists and agricultural economists, giving participants a broad range of guidance on topics such as costeffective nutrient application, optimal seeding rates, evaluating soil fertility, and long-term cash rent negotiation.
“Each individual farm must make its own strategic plan,” Langemeier says. “That’s why it is important for any producer feeling financial stress to reach out. Peer groups are important because they give you ideas of what you can do better. You can come to a workshop to learn financial skills, but you will not lose any of your independence. We don’t look at your financial records; we teach you how to do it on your own.”
Workshop participants also learn more about crop insurance options available from the federal government.
“Our objective is to make sure people don’t forget about the importance of the farm safety net,” Langemeier says. “We’ve been talking a lot about it to give people an idea of what to expect. The crop insurance provisions of the last farm bill were especially useful with the 2014 to 2015 crops, and they remain a very important program to protect against downside risk.”
“The majority of farm and agricultural businesses are family-controlled, from Cargill to the smallest family farm,” says Maria Marshall, professor of agriculture economics and PIFF director. “That could make dealing with the financial stress even more difficult. We provide financial management and business planning to help the family business become more competitive, but we also have resources available to help deal with family dynamics in business.”
Typically, market cycles last about five years. The current downturn is in its third year, and promising signs, such as stabilizing grain prices, have buoyed hopes that recovery could begin as soon as 2019. The Purdue/CME Ag Economy Barometer, which measures producer sentiment on a monthly basis, set new highs in December and January.
“Right now there is optimism,” Henderson says. “We’re seeing solidification in grain prices. There are expectations that 2017 will be stronger than 2016.”
Whatever lies ahead, Langemeier says, farmers facing financial pressure should not feel alone, because help is available. “What’s important is that they understand this is not an isolated situation on their farm.”