Every decade or so, a farm crisis rips America. Small town banks fail. Tens of thousands of families are forced from their land with nothing to show for their labor. Families disintegrate.
Now the crisis has come again. Yet somehow, some of those who are in the worst trouble will survive. And they'll do it by convincing their lenders that they're willing to end the practices that got them in trouble.
To see how it can be done, step back and look at survivors of the 1980s crash.
"My credit sources told me all I could do was file for bankruptcy," says Tim Bahr, who faced the loss of the Iowa corn and soybean farm he bought on his return from Vietnam. Then a neighbor suggested he get help from Dan Alms of Alms Capital Corp., Palatine, IL.
Alms helped him cut costs, raise cash and work out new terms with lenders. A livestock operation was liquidated to pay down debt. Eighty acres of farmland were also sold. Loans were restructured with longer terms and better interest rates. FmHA (now FSA) agreed to a 90% loan guarantee, and Bahr boosted his income with an in-town job. By day he sold Ford trucks to farmers; by night he farmed.
"I was able to pay everybody," says Bahr. "That isn't possible in every situation, but it was in mine."
He held on to the farmhouse that he still lives in and his land that he now leases out while running a real estate business. These assets, which he could easily have lost, essentially make up his life savings. Many of his neighbors emerged from the 1980s with nothing - and two took their own lives.
There are two basic steps to survival. First, says Alms, "Communicate with your lender. If you communicate, your lender will generally work with you. It's when communications break down that lenders generally foreclose."
Second, come up with a plan to end the practices that led to trouble.
"Something wasn't working to get you to that point," he says. "You've got to be willing to change to get the lender to work with you. You can't go on doing the same things you did all those years."
Lenders may go along because they want to make money. If letting you keep your farm is cheaper than taking your farm and trying to resell it, you have a chance to get your banker's attention.
During the 1980s, for instance, banks took huge hits as they liquidated repossessed farmland and equipment at fire-sale prices.
"In North Dakota, we had a lot of write-downs where the bank settled for 75cents on the dollar or 50cents on the dollar," says Harlan Hughes, extension economist at North Dakota State University.
Bankers haven't forgotten, and that gives producers a starting point for negotiations.
"You've got a bargaining chip," says Hughes. "The last thing the bank wants to do is foreclose. So go in with a plan that will solve the farm's problem and the banker's problem. The banker will go along with anything that's feasible. The problem is that people wait until it's too late."
Of course, the bank isn't going to string along if you have no idea how you got into trouble or how to get out. Unfortunately, Hughes says, many farmers haven't learned from the financial bloodletting of the 1980s and still can't manage their books.
"It's the same thing - just new actors. The source of the problem is different, but once again producers are being let down by their own record keeping."
Even though computers and specialized software have eased the bookkeeping, Hughes says farmers still don't keep the records they need to spot trouble.
"Very few people can tell you what it costs to produce a pound of calf or a bushel of corn," he says. "If you can't do that, you can't tell whether you're losing money. You don't know you have a problem until someone else tells you that youdo.
"The producer should have the same signals that the banker has. He should be trained to see the same thing the banker sees. But we haven't done that. Sometimes it's a shock when the banker says, 'I don't think you can make it through the next year.' We haven't learned from the '80s."
For many corn and soybean farmers, the crisis will begin when they attempt to renew their operating loans. "You should get your game plan set and then sit down with the lender and figure out how to handle it," says Alms.
Beyond that, says North Dakota's Hughes, producers need to plan, not just for the crisis at hand, but for the long run.
"Farmers are living from year to year, counting on government programs to come through when times are tough, rather than having contingency plans," he says.
Instead, Hughes says, farmers should ask, "What am I going to do next year, or the next five years? It's not only getting through this crisis. We've got to start training people to get through the next one."