Minnesota farmers still making loan payments, but trouble lies ahead

The number of notices for mediation of problem farm loans in Minnesota rose only slightly over the past year, a sign that the state's farmers are so far weathering tougher times.

The state requires lenders to offer mediation to a struggling farmer before moving into foreclosure or repossessing assets. Mediation steps may include things like extending the repayment window, lowering interest rates, or writing down the value of the loan.

For the year ending Sept. 30, total mediation notices rose only 1 percent from the previous fiscal year. But the numbers for both years are the lowest since the program was established nearly three decades ago, and the amount of debt involved dropped by nearly one quarter to $70 million.

David Werner, chief financial officer of the University of Minnesota Extension, which administers the mediation program, said the mediation numbers are at historic lows in part because the livestock and dairy sectors of the farm economy have had a mostly profitable year.

Also, even though grain prices have declined to below the break-even point for many farmers, record profits realized before the downturn may be giving farmers a financial cushion to pay off their loans, he said.

But Werner says there are signs recently that Minnesota farmers are feeling more financial stress.

"The November [mediation] numbers for this year are the highest monthly number of mediations that we have seen in the past 26 months," he said.

While livestock and dairy farmers had a mostly profitable year, crop farmers are struggling. Many crop farmers likely will lose money on their corn harvest this year because of low prices.

Farmers are making their financial plans for next year now, and the low grain prices will be a major factor in their choices. Farm management data from the state colleges and the University of Minnesota shows that the state's least economically efficient farmers need corn prices near $7 a bushel to make money. Current prices are under $4 a bushel, Wells Fargo agricultural economist Michael Swanson said.

"If you're losing three dollars a bushel, and you don't have a lot of cash on hand, you're going to run into a lot of financing issues really quickly," he said.

Swanson says that sort of stress likely will lead to more troubled loans and more mediation notices. There also are signs that another major sector of the state's farm economy is looking at less profitable days ahead. Milk prices paid to the state's dairy farms are expected to decline by about a quarter over the next year.

Werner said farmers should carefully plan for the future.

"The new farm bill is going to play a major role in farmers' cash flow," he said. "The decisions that producers make, they will be locked into those for a number of years."