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When President Trump imposed tariffs on China, Beijing's response included an embargo against US soybeans. Grain prices plunged amid fears of a trade war and bumper world crops. Now the US farm belt faces its toughest slump in a generation. “I understand the uncertainties of weather,” says Richard Schlosser, a farmer in North Dakota. “We live with the uncertainty.” But he calls the tariffs “so frustrating – just no rhyme or reason for us to get whacked with this.” Federal relief aimed at affected farmers doesn’t fully offset the damage. Some face tough adjustments as their debts stack up against a likely decline in land values. This isn’t the first time that a farm slump has coincided with rising trade barriers. And the changes can be lasting. In the 1980s, a US ban on wheat exports to the Soviet Union gave other nations an opening to grow more. The US share of the world's total wheat exports has declined. Referring to that experience, Mr. Schlosser says, “My farming career has been bookended by an embargo.”
Roger Zetocha is ready to harvest soybeans that nobody wants.
It’s not the quality of the brown plants in the field, which is so good it’s expected to produce a record crop nationwide. It’s not the rain that fell overnight, making the black earth still sticky this particular morning.
The trouble is China. In retaliation for US tariffs on many of their goods, the Chinese are no longer buying US soybeans. As a result, crop prices have plunged, squeezing farmers’ already shrinking income, especially here in North Dakota. Given the ominous clouds that are already gathering over agriculture, the soybean embargo has producers worried, especially older ones who remember earlier crop embargoes that turned out badly.
“I’m afraid that we’re seeing the same scenario set up again,” says Mr. Zetocha, near the town of Stirum. “[President] Trump is talking about putting more tariffs on China,” unless a bilateral deal is reached. “Even if they agree tomorrow, it’s going to take a long time to get things back.”
If history is any guide, things may never go back exactly to what they were. In nearly 50 years of food embargoes by and against the United States, American farmers have lost their preeminent role in export markets. While it’s not clear that embargoes trigger the periodic financial squeezes that plague the farm sector – the evidence is mixed – they often occur around the same time.
“My farming career has been bookended by an embargo,” says Richard Schlosser, a farmer in Edgeley, N.D., an hour west of Stirum. “I farmed in the ’80s through the wheat embargo [against the Soviet Union]. And that market never did come back.”
That embargo allowed other countries to compete for global market share with the US. Now, preparing to hand the reins to his son, Mr. Schlosser fears a similar fallout this time. “I understand the uncertainties of weather,” he says. “We live with the uncertainty. But to have the unilateral imposition of tariffs is just so frustrating – just no rhyme or reason for us to get whacked with this.”
Farm income down 40 percent
China’s whack has hit North Dakota farmers especially hard. They have spent the past two decades moving from wheat to soybeans to feed the Chinese market. Trains whisked away their crop to Pacific ports so they could be shipped to Asia. With that outlet closed since the summer, local soybean prices have crashed.
At a grain elevator in Forman, N.D., soybean prices are fetching less than $7 a bushel, down from $9.50 earlier this year. If prices stay low, few farmers will be able to turn a profit with soybeans. Many will switch to wheat, corn, or other types of beans, but the markets have already anticipated that switch. Corn and wheat prices are down everywhere.
“People are nervous about 2019,” says Nathan Kauffman, an agricultural economist at the Omaha branch of the Federal Reserve Bank of Kansas City. “There’s a lot of downside risks there.”
Farmers are used to the occasional down year. But four years of declining farm income, which last year fell 40 percent below the heady highs of 2013, have economists worried. Many farmers who didn’t used to have to borrow to put in a crop are now taking out loans of over $1 million, Mr. Kauffman points out. Also, some operators are selling off land or other assets to pay down debt and stay in business – or they’re getting out of farming altogether.
For grain farmers, the next hurdle comes early next year when they’ll sit down with their bankers to figure out what loans they’ll need to plant in the spring.
Here in southeastern North Dakota, yields have been so good that Jeff Anderson, branch manager of the Sargent County Bank in Forman, is cautious rather than gloomy. Aside from one farmer’s retirement, he doesn’t anticipate any of his customers leaving farming. “We are not in a critical situation, but we are one event away from it,” he says.
Nationally, the picture is more varied. Some 4 percent of farmers have lost money over each of the past four years, says Allen Featherstone, an agricultural economist at Kansas State University in Manhattan. “Those farms are going to be making some major adjustments.” At the same time, a third of farmers made money in each of the past four years.
For younger farmers, new lessons
One differentiating factor is age. Young farmers just starting out have to rent or buy land and machinery, so they often have to borrow from a bank. And if they haven’t been in farming for a decade or two, they’ve only known good times in agriculture, unlike older producers who survived the 1980s.
“These guys that are 25, 30, 40 years old, holy buckets, they haven’t had any crisis problems or been around them,” says Bob Schaefer, a former credit counselor for the US Department of Agriculture for North and South Dakota. “And somebody gives them a line of credit, and a million might be a conservative number for operating, and nobody to check on how he spends it…. They think they’re millionaires.”
Some bought new machinery – a John Deere combine now costs $600,000 before any attachments for harvesting corn or soybeans – or built $500,000 to $1 million homes.
The challenge is that now the trends are all pointing the wrong way: falling income, rising debt, and the prospect of falling land prices. The Trump administration is targeting $12 billion in new farm aid to help mostly soybean and hog farmers as the groups most affected by the Chinese embargo. But even with those payments, farm income is still likely to fall again slightly this year and next, according to the Food and Agricultural Policy Research Institute at the University of Missouri at Columbia. FAPRI also forecasts farmland prices will fall 3 percent over the next three years.
The risks of falling land prices
The last time agriculture encountered that toxic brew was in the 1980s. And, in something akin to the housing crisis of 10 years ago when homeowners had high debts on homes that were losing value, thousands of farmers lost their farms because their debts were too high once farmland values plunged.
The financial stress on the farm is already spreading outward. Many farmers are buying less.
“People have pulled back the throttle a little bit,” says Darin Karlgaard, store manager for a John Deere equipment dealership in Lisbon, N.D.
The stress on farm families is often less visible, but its effects can be wrenching, even deadly. Between 1999 and 2016, North Dakota saw its suicide rate surge 58 percent, the largest among the states and more than double the national increase, according to the federal Centers for Disease Control and Prevention. Through September, this year’s suicide-related calls have already surpassed the total for all of last year, according to Cindy Miller, executive director of FirstLink, which runs North Dakota’s 211 helpline as well as helping to man the national suicide crisis line.
How many suicides are related to farm financial stress is not known. Half the calls are from rural areas, Ms. Miller says. “We’re seeing a significant increase in males over the ages of 60, 65, which is significant.”
The extension service of North Dakota State University, which works with farmers, has begun offering suicide-awareness training to all its local agents.
It’s still unclear how much the present strains will end up echoing the 1980s. Agriculture is such a volatile industry that a crop failure anywhere in the world could send crop prices soaring again. And interest rates, while rising, are nowhere near the double-digit levels of the early 1980s.
Also, during the farm crisis of the 1980s, a whole generation of young farmers learned how to operate their farms with less debt and lower risk. Now, as they pass on their operations to their sons and daughters, they’re bringing those hard-won lessons to the table.
Hope, glimmering on the plains
“One thing I learned from the ’80s – and maybe not a good thing – I became very cautious,” says Schlosser. Like farmers everywhere, he’s expanded the operation he inherited from his father, but as he prepares to pass on the farm to his son, the farm carries far less debt. And his son has a job in town, a diversification of income off the farm – similar to what his wife did in the 1980s when, despite six kids being at home, she went back to work as a nurse.
Most farmers still have time to make similar kinds of adjustments. One of the most visible changes in this part of North Dakota is all the new grain bins that farmers have put up. Rather than selling their crops at fire-sale prices, producers are storing them in anticipation of a higher return. The steel bins are so shiny and new that when the sun comes out, the glimmer can be seen for miles.
It’s a gamble. If prices don’t recover, it means thousands of dollars down the drain. But farmers tend to be an optimistic lot.
“If we get some of our trade issues figured out and then we stop producing such great crops every year, we could see prices rebound and that would help farmers quite a bit,” says Scott Gerlt of FAPRI. “There is nothing preordained about the crisis.”