Good year for agriculture decreases number of mediated farm debts

The effect of a good year for Minnesota agriculture is evident in the University of Minnesota Extension Farmer-Lender Mediation Program’s annual report.  The number of lenders sending notices requesting mediation of troubled Minnesota farm debts dropped by 24 percent during the fiscal year ending Sept. 30, 2010.

This is the first time in four years the activity in the program decreased, according to Dick Senese, Extension senior associate dean.

“In recent years, farmer-lender mediation has given farm operations the chance to stay in business until better times,” Senese said. “These are better times for agriculture, but there are still situations where farmers and their lenders rely on this program to help them work together to renegotiate, restructure or resolve their debts.

The report showed there were 494 cases in which farm enterprises used mediation to reach agreement with lenders about debts. In 1,718 additional cases, the right to use mediation to resolve debt was waived by the farmers involved.  The amount of debt addressed in mediation dropped by almost 65 percent from $624 million in fiscal year 2010 to $221 million in fiscal 2011.

Farming is a cyclical business and most farm enterprises had a good year in 2012, according to Brian Buhr, Extension economist and head of the university’s applied economics department. That increase in farm profitability made it easier for farmers to pay their bills on time and avoid troublesome situations with lenders. Most remarkably, livestock profitability has returned as moderating crop prices and rising livestock prices have increased margins, he added.

Our Take:
It’s no accident that farm debt and the heart-ache it can bring is easing–markets for crops are as strong as any one can remember, and there are several important factors maintaining that market strength.

First, world demand for food is climbing, and that growth outlook appears solid for the next forty years. Just as important is the kind of food this growing world population wants–protein. Soybeans and corn are the foundation for providing the world with the animal protein people want, and in increasing numbers, can afford. The third element of these strong markets is value-added biofuels. These are an all-important feedback mechanism in the market–when fuel prices are rising and affecting all sectors, including farmers, the ability to turn a fraction of the corn crop into ethanol and the soybean crop into biodiesel functions as a hedge against increased energy and fertilizer costs.

While prices have retreated from peaks seen in the past 24 months, they remain strong and that puts money in the pockets of farmers and injects dollars into the rural economy. It is so important that people notice that livestock producers can enjoy profitability even while crop prices remain strong. It is not a zero sum game. When corn’s customers are doing well, that helps corn farmers, too.

These fundamentals can’t prevent market volatility. There will be ups and downs. We are confident, however, that a strong safety net based on widespread, well-utilized crop insurance complements these fundamentals and allow farmers and the financial and business service companies they depend on, to take the kind of reasonable risks that will keep agriculture, biofuels and rural America growing.

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