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Another Farm Crisis? Not Likely, Say Financial Veterans

While the global financial meltdown of the past two years humbled many industries, agriculture largely made it through the crisis unscathed. And while risks remain, a panel of financial experts last week said another 1980s-style farm crisis may be unlikely.

The group helped draft the original accounting standards that gained widespread usage in agriculture over the past 20 years. They spoke at the annual meeting of the Farm Financial Standards Council in St. Louis.

"Can it happen again? Yes, as soon as you see more and more outside money coming in" said John Crowgey, a Virginia banker who worked for the Farm Credit system during the crisis. Non-farm investors might buy farmland expecting a fast turnaround, causing the type of excesses seen on Wall Street.

But so far, at least, that scenario shows no signs of developing, because most farmland is being purchased by farmers

Land values remain one of the three keys to avoiding a collapse, said Danny Klinefelter, an ag economist at Texas A&M. Persistent low net farm income, high interest rates or a 30% drop in farmland values could trigger another crisis.  Land prices have dropped, but the market has escaped the type of forced sales that could cause land prices to drop the way they did in the 1980s, he said.

Low income or soaring interest rates could force farmers to liquidate, but income has stabilized and interest rates also have stayed lower than Klinefelter expected as recently as this winter. "I don't think interest rates will go up quickly unless foreign investors pull out," he said.

While farmers generally have had much better access to loans than other industries during the financial crisis, getting credit depends on good financial performance – and having good records to prove it. But few banks have staffs any more to help farmers prepare those records, said Stan Forbes, a Virginia lender, putting an increased burden on farmers and their accountants.

Another problem could come from the new banking reform law, Forbes said, if it reduces commercial banks' ability to make loans. Farmers do best when they have access to a variety of lending sources, including commercial banks, government-backed loans and Farm Credit, Forbes said.