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Minnesota Farm Country Now Part of Housing, Economic Troubles

September 20, 2010 By Lee Egerstrom, Economic Development Fellow

Part One of a Two-Part Series

State, national and global economic problems have spilled over to Minnesota's farm country. Requests for debt mediation services in rural Minnesota now match 1987's level - the first year of a state-mandated mediation program created in response to the Farm Financial Crisis of 1982-1987.

How much of these problems with farm household debt can be directly attributed to agriculture is still unclear. But in this, the first of a two-part series on the rural economy, Minnesota 2020 will look at what is known about the farm economy based on data that are at least partly linked to agriculture.

Until a year ago, steadily increasing farm commodity prices and farm incomes cast an image that agricultural areas of rural Minnesota were almost immune to the job losses and home foreclosure problems of urban areas. Not any more.
In some cases, rising debt mediation requests come from agricultural problems. In other cases, it's an extension of national housing market problems and economic slowdown. In all cases, it clearly shows that the national and state economic ills have reached into the most remote areas of Minnesota.
Mary Nell Preisler, program director of the Farmer-Lender Mediation service, said in late August that her office had received 3,540 notices for mediation. That was nearly equal to the 3,547 such notices in 1987, and there were still five weeks to go in the current (2010) fiscal year.

University of Minnesota's Extension Service operates the program from an office at Bijou, in northwestern Minnesota. Mediation notices were on pace to greatly surpass the worst year in the program's 23-year history.

"It's the economy," said Preisler, who has been with the program since the start and its administrator the past decade.

"Everything is reaching out into the country," she said, citing the nation's and Minnesota's collapsing housing market, job losses, last year's much lower farm income, rising health care costs for farm families, lingering problems for livestock producers and dairy farmers, and tightened credit markets that impact how farmers operate.

Warnings that broader economic problems are spilling over on the countryside came a year ago from St. Paul-based Farmers Legal Action Group, a national organization.  It cited increased demand for the Farmer-Lender Mediation program in Minnesota and other measures of rural economic health from around the country.

In its 2010 summer online newsletter, FLAG noted Minnesota mediation requests increased by 55 percent from 2008 to 2009, and they are well ahead of last year's numbers in the current fiscal year.

Going forward, Minnesota state policy makers, local officials and regional planners will need to carefully study the Extension Service's mediation data to gauge what might be proper responses. What's at stake here is far more than another agricultural down cycle because more than half of Minnesota farmers depend on income other than the farm operation to keep households together.

Let's look at what is happening to agriculture and Minnesota farm income.

Sources: Minnesota State Colleges and Universities (MnSCU),  University of Minnesota Extension Service

The best data on agricultural net income comes from the joint Minnesota State Colleges and Universities (MnSCU) and University of Minnesota Extension Service's farm management program. This data offers a window on farm gross sales, expenses and profits - but only for the commercial farmers who are mostly full-time operators.

Farm expenses rose along with farm income during most of the past decade. However, the 63 percent collapse in 2009 median farm income would be bringing more heavily leveraged farm operators into difficult times, especially if they had added to their land holdings in recent years with financed land purchases and new equipment.

Minnesota 2020 warned about a land market "bubble" forming two years ago when commodity prices were high and farm incomes soared.

Whether that turns out to be a problem for many now seeking debt mediation help remains to be seen. Regardless, farm commodity prices have increased in the past two months, driven up by poor global growing conditions. Minnesota is especially poised to reap a huge harvest this fall, and there should be increased farm income in 2010 to help the rural and farm economy, especially grain farmers.

Preisler, however, makes two important points about the anticipated bounty. Except for wheat and other small grains, most of that anticipated big crop "is in the fields," not the bank, she said. What's more, dairy farmers and hog producers seem to be especially troubled, she added, and the large crop in the fields will only assure farmers of adequate feed supplies, not necessarily lower production costs.

The Federal Reserve Bank of Minneapolis's second quarter survey of agricultural bankers in the Ninth Federal Reserve District supports her observations. In an August report, the Minneapolis Fed's Sung Soo Lim said lenders were pessimistic about agricultural finances despite the good growing season across the district's agricultural region that stretches from Wisconsin to Montana.

The survey found 18 percent of bankers were seeing slower rates of debt repayment while only nine percent saw higher levels of repayment. Only 11 percent of bankers expected improved farm income in the current third quarter while 33 percent expected lower farm income.

In Minnesota, 44 percent of bankers expect lower farm income in the current quarter, and they expect farmers to cope by cutting back farm, family and household spending. Nearly a quarter (24 percent) of Minnesota bankers expect reduced household spending by farm families. Forty-four percent expect reduced capital spending.

These latter two items boost the economy of small towns and regional centers. This spillover effect will hurt, and is hurting, the rural economy now while Preisler and Extension Service mediators work through complicated personal and farm debt problems with lenders and creditors. 




Data Sources for graph: Minnesota State Colleges and Universities (MnSCU), University of Minnesota Extension Service

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