The growing and unprecedented crisis with U.S. cotton is indicative of the plight of all sectors in American production agriculture. More and more, on the turn rows of western and southern Texas, they grasp for a historical crisis by which to gauge cotton’s present situation in which the industry’s fundamentals are stressed. “The early ‘80s” is often muttered, but quickly dismissed, mainly because interest rates aren’t soaring as they were 35 years ago.
But the abrupt dismissal may also be that there aren’t any more haunting words in rural America than “the early ‘80s.”
The early 1980s was American agriculture’s worst crisis since World War I. Historic agriculture crises are marked by three causes: debt acceleration, sharp commodity price declines and misguided federal policy beyond the farmer’s control.
In 1980, then-U.S. President Jimmy Carter embargoed grain shipment agreements to the Soviet Union in response to the Afghanistan invasion, resulting in an across-the-board price collapse. By 1985, farm debt soared to 15 times what it had been in 1950, and farm income dropped 75 percent in the same span of time. From 1976 to 1981, prime lending interest rates soared from 6.5 to 21.5 percent.
“The early 1980s,” then, is a euphemistic way to avoid detailing—or remembering— a fight survived, however narrowly: depreciation and liquidation at the bank; an oscillation of silence and bad news from Capitol Hill; and goodbyes to neighbors in a worst hard time. By the mid-1980’s, the number of American farms tumbled from 6.8 million in 1935 to 2.2 million, the most enduring result of which was a mass exodus from rural America. The industry on which so many primary rural employers were based had collapsed, taking down the mills, storehouses and compresses. And to this day, many of the heartland’s Main Streets are still tinted with a coat of paint last applied in the late 1970s.
“It’s not as bad as the early 1980s, but we’re not in a good place,” says David Langston, a Lubbock lawyer specializing in bankruptcy reorganization and commercial litigation.
Noting that declines in commodity prices constrict both cash flow and bank credit, Langston points to carry-over loans, an extended line of credit for shortfalls from one crop year to the next. He’s not optimistic that carry-overs will be reconciled in 2016.
“We weathered 2014 because we built equity in 2012 and 2013. Those were put-back years,” says a Lubbock-based agriculture lender, implying the years in which cotton prices rose to around $1 per pound as the result of Chinese demand. “But with prices continuing to fall (cotton is hovering around 60 cents), extending credit will be more and more difficult.”
Farmers, especially those who survived the 1980s, know the necessity of putting back in order to manage multi-million dollar operations during leaner future years. (“Expect two-thirds the price next year, and twice the problems,” is a credo of rural America.) However, there wasn’t as much to put back in places like the Texas Plains, due to a historic drought in the years running up to and through 2012.
Randomly selecting one of several reports stacked on his desk, an ag lender sits down and scans his index finger down the cover page.
“Let’s see, $68,000. That ain’t bad … $248,000, $353,000, $281,000.”
He’s reading carry-over numbers. He’s been asked what will happen if cotton sells at 2015 prices.
“If they can’t break even, we won’t be able to do anything [to cover these debts] except sell chunks of land. The market’s been flooded with used machinery, driving down those [collateral] assets by 40 percent or so.”
Won’t that ripple out from agriculture into other sectors?
“Hell yes it will,” he shoots back.
A Midland banker is asked about his exposure in oil and agriculture, and which, given that West Texas Intermediate isn’t worth a whole more than its shipping barrel, is more disconcerting to him. “My farm exposure, by a whole lot,” he says.
Another lender pauses. “Well,” his voice cracks, and then he pauses again.
He’s been asked about the most difficult situation he’s handled of late, and it’s apparent some have been difficult for him personally.
He tells stories of elderly farmers who worked for 50-plus years. They’ve had to refinance their land equity, land they intended to use as retirement. Retirements indefinitely postponed, perhaps into their late 80s. “Lifers don’t have 401k’s.”
Langston, who, coincidentally, was an agriculture assistant to the Texas 19th Congressional District’s first representative, George Mahon, is most concerned about young farmers.
“We’re losing a generation, we’re losing our farmers,” which he emphasizes by pointing to their lack of equity and meager capital resulting in highly leveraged in massive operating expenses. He argues for incentivizing young farmers.
“There needs to be a total re-evaluation of agriculture policy in this country, unless we want to be at the mercy of foreign cartels as we are with energy.” Langston says, an implied criticism of the most misguided agriculture policy since Jimmy Carter: the 2014 Farm Bill.
“We cannot whipsaw farmers in food and fiber and expect stabilization, or that an increasing (foreign) dependence on food will not occur.”
One thinks of generational loss in American manufacturing in these discussions, and one wonders what agriculture will even look like in 20 years, given its present trajectory, given the oscillating silence and bad news from the Potomac.
How the fields could look like the Rust Belt. How so many Main Streets already do.
Read Part 1, here.