Farmers are borrowing against next year’s crop before they have finished harvesting this one. At Land O’Lakes’ financing business, reserve loans have gone from about $100 million last year to more than $1 billion this year, Beth Ford said Tuesday. That is at least a tenfold jump, and she called it an early warning about how far this year’s cost squeeze has pushed operating balance sheets.
Ford spoke at an on-the-record fireside chat in New York, moderated by Sam Jacobs, editor-in-chief of Time. She walked through the pressure points in order: input costs, diesel, interest rates, land values and trade. Farm bankruptcies are up 19% year to date versus last year, she said, and the decisions that decide who stays solvent are being made now.
Costs rose $15 billion while the harvest clock kept running
Ford cited a USDA statistic that farmers’ input costs are up $15 billion from the February report to the September one. The timing is the problem.
“It’s harvest time. They’re in the fields,” she said. “I was on a farm last week. And they have to get the crop out of the field. They don’t have an alternative. And the question is, can they absorb that additional expense?”
Diesel is the sharpest line item. Ford has been asking farmers how many gallons per acre they burn. The answers vary with whether the grain cart and the haul to the elevator are counted.
“I think it’s okay to say it’s probably double the cost,” she said.
The effect travels beyond the farm gate. Ford noted that diesel expenses add up to delivered and retail prices, and that individual owner-operators in trucking are parking their trucks because they can’t afford to fill up. That reduces freight capacity for every company trying to move goods.
Credit demand is the early warning
Farm credit is built so that costs hit first and revenue arrives last. Operating loans are taken in winter and early spring, so “they’re buying all the inputs up front,” Ford said, before weather, markets and geopolitics play out. She referenced how farms who grow of corn, beans and cotton have lost money for three to four years running.
“Their ability to absorb the cost is lacking … they’re eating into their equity,” Ford said.
That is the backdrop for what Ford heard on her team’s regular Tuesday call. The financing business is already looking at next crop year.
“Last year we probably had $100 million in reserve loans. And this year it’s over a billion,” she said. “I said, Ooh, boy, that’s telling me something about the financial position of the farmer. About how they need operating loans to invest in their business.” She stressed that it is “very early.”
Interest rates are rising, which makes certainty valuable. Land O’Lakes’ lending uses fixed rates: “we have, of course, fixed interest rates, so it’s not as variable. That’s important.”
Higher corn and soybean prices will help some operations, Ford said, but only those that have not already forward sold their crop. She pointed to how
“some of them get in front of it,” while others face bankers pressing them to show their business can cash flow.
Land values prop up borrowing and change who owns the ground
Farmland has been the cushion. Land prices are up about 45% over the last number of years, Ford estimated, and that gives operators collateral.
“They’ve got the collateral, they can get an operating loan. But some of them will look at it and say, I’m eating into the equity now,” she said.
The generational math is tight. Ford said there are more farmers over 75 than under 35, and she expects “44 million acres will change hands” over the next number of years referencing research from Farm Journal Intelligence.
Transition is hard because of the basis and the difficulty of financing it. Who is buying is changing too.
Ford relayed a colleague’s account of an auction near her family’s farm in northern Iowa: “there were 400 bidders. Only two were local farmers. The rest were financial buyers.” She estimated that 25% of farmland is now run by farmland managers. Rising values have supported lending, she said, but “the downside or the continued risk is that dramatic change that is occurring with ownership of farmland.”
Exports steady the farm economy, but the tracking is opaque
Farmers are already thinking about next year’s planting.
“They’re looking at the trade lanes, trying to understand what’s going to happen in terms of export volumes, which are critical,” Ford said. About 20% of ag production is exported, which “stabilizes the economics for the farmer.”
Ford credited the administration with an active trade agenda and noted there was no active ag trade agenda in the previous administration. But she said the specifics are hard to follow, especially with China.
“It feels like we’ve got a couple guys with visors down in the basement tracking this stuff because it’s pretty opaque,” she said.
What the industry wants is cargo-level tracking against the announced agreements.
Competitors are building capacity. Brazil’s climate “allows them to triple crop, not just double crop,” and the country is investing in ports, rails and ag research, she said. China holds more than 70% of gene-editing patents in the food space and is becoming more food self-sufficient, which matters for a critical export destination. Ford said US government ag research funding is at 1970s levels. Corn demand is also tied to energy: 30% of US corn acres go to ethanol, and Brazil is shifting toward corn to raise its own blend rates.
What to watch this winter
Ford’s data points suggest where the pressure will show first: operating-loan requests when planting financing is arranged, bankruptcy filings, diesel and interest costs, the detail behind trade agreements, and who is buying farmland.
She still sees reasons for confidence, and put them in operational terms. Dairy production is up 39% on a 2% rise in cow numbers, which she credited to genetics and feed rations.
“We do have the most productive farmers in the world,” she said.
The open question for operators is whether their balance sheets and the policy environment let them keep that edge through the next planting season.
