Low prices, floods and trade wars plague American farmers, putting their survival at risk

And then came the rain.

American farmers already plagued by a near biblical parade of misfortune that includes years of low prices and a trade war with China are now grappling with record Midwest rain that will likely prevent a large portion of this year’s crop from even getting planted.

The troubles have created the worst farm crisis since the 1980s, when oversupplies and a U.S. grain embargo against the Soviet Union forced thousands of farmers into bankruptcy, experts say.

“It’s not the 1980s, but it’s as close as we’ve been,” says John Newton, chief economist of the American Farm Bureau.

While some farmers have been shutting down or selling to larger competitors for years amid thinner profits, analysts say 2019 will bring a more dramatic shakeout.

“This is more than a cyclical thing,” says Gary Schnitkey, an agricultural economist at the University of Illinois. “It’s a series of events that we’ve never seen come together. … It’s going to be a blow to everyone’s financial position.”

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Agriculture makes up less than 1% of U.S. gross domestic product, down from about 8% in the late 1940s, according to JPMorgan Chase. Still, a downturn in the sector could trim economic growth – projected at about 2.2% this year – by up to two-tenths of a percentage point, says Nathan Kauffman, lead economist at the Federal Reserve Bank of Kansas City.

Planting delays

Rain and flooding that began in March have kept farmers from planting a major portion of their crops during the normal mid-April to mid-May season in states like Illinois, Indiana, Iowa, Ohio and Michigan. As of Sunday, 39% of soybean acres have been planted in the 18 largest producing states, compared with an average 79% over the past five years, Agriculture Department figures show. Sixty-seven percent of corn acres are in the ground, vs. an average 96%. Such delays are unprecedented, Newton says.

Projected yield shortages have provided at least some boost to long-depressed prices. Contract corn prices for July delivery have risen from $3.57 a bushel in late April to about $4.15. Soybean futures have edged up from $8.41 to about $8.70. Meanwhile, the Agriculture Department has announced it will provide $16 billion in aid to farmers this year to partly offset the price shortfall resulting from the China trade fight.

The developments have presented farmers with wrenching dilemmas that are coming to a head this week, the last viable period to plant corn: Forgo planting on certain fields and file an insurance claim for “prevented planting” that would net slightly less than half their normal proceeds. Or go ahead and plant as much as possible, relying on the government payouts and perhaps some crop insurance to cushion the blow. But the late plantings could spell poor yields that curtail revenue and limit future insurance payments.

Megan Dwyer, 30, who co-owns a 700-acre farm with her father in Coal Valley, Illinois, got a few days of dry weather this week and decided to roll the dice and scramble to plant most of her corn in just a few days.

“You always want to produce,” says Dwyer, a fourth-generation farmer. “If you produce less, then you’re failing. … It’s hard to change that mindset.”

She says she may still file some prevented planting claims, depending on the weather in coming days and weeks.

One of Dwyer’s fields near a river is still under water. Other parcels couldn’t be tilled for weeks because tractors couldn’t grind through the mud.

A litany of troubles

The wet weather is just the latest calamity to buffet America’s farmers.

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The industry reaped healthy profits after renewable fuel standards in the mid-2000s opened vast markets for corn, which is used to produce ethanol. A 2012 drought hammered output, driving up grain prices even while insurance covered lost output. Higher prices for corn and wheat – feedstock for cattle, hogs and chickens – forced farmers to thin their herds, driving meat prices up as well. The higher crop and livestock prices meant even fatter profits.

But they spurred record production in the U.S. and globally, halving commodity prices. Prices have remained low the past five years as net farm income fell from $123.8 billion in 2013 to $69 billion last year, according to the Farm Bureau. Meanwhile, costs for fertilizer, seeds and other materials have risen.

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Then, last summer, China, which buys nearly a third of U.S. soybeans, slapped a 25% tariff on the crop in retaliation for U.S. tariffs on Chinese imports. That dampened demand and pushed prices below the break-even level of just under $10 a bushel. Some soybean farmers went bankrupt.  

Chapter 12 farm bankruptcies have increased from 360 in 2014 to 498 last year, according to the Kansas City Fed. Although they’re still well below record levels, the filings totaled 130 the first three months of 2019, the highest first-quarter total in nearly seven years. Farms on average have been marginally profitable the past few years, but they’ll likely be in the red in 2019, Schnitkey says.

China began buying some American soybeans again early this year as talks between the two countries resumed. But Chinese officials recently announced they would halt all purchases after President Donald Trump stepped up tariffs against the country last month.

There's more. An African swine fever virus could suppress the production of Chinese pigs – which feed on soybeans – for years. And Trump last week threatened tariffs on all Mexican imports to prod the country into curtailing illegal immigration from Central America. Mexico vowed retaliation that could mean duties on U.S. exports such as corn, dairy and beef.

That would further batter the profits of Dwyer and her husband, Todd, who also have a herd of 60 cows.

“It’s constantly one thing after another,” she says. “We can’t seem to catch a break.”

While most economists believe the United States and China will likely resolve their dispute later this year, Dwyer worries the standoff will prompt Chinese customers to permanently switch to other soybean-producing countries. 

That’s what happened in the early 1970s when President Richard Nixon ceased soybean exports to Japan to temper inflation, leading Japan to invest heavily in soybean production in Brazil and reduce U.S. imports, says Jonathan Coppess, an agricultural economist at the University of Illinois. Brazil now rivals the U.S. as a soybean producer.

“We have no idea how these decisions will impact China long-term,” Coppess says.

Farm income, meanwhile, is expected to remain pressured by low prices the next few years amid abundant supplies and slowing global demand, says Kauffman of the Federal Reserve Bank of Kansas City. 

The Dwyers have scuttled plans to buy ­­a $20,000 trailer to transport goods. They’re pinching pennies at the grocery store and thinking of forgoing swimming lessons for their three kids this summer.

Like many millennial farmers, Dwyer holds several part-time jobs to supplement her income – selling seed, advising farmers and technical writing. Her husband, Todd, works in product development for farm equipment maker John Deere.

Now, Dwyer is considering getting a full-time job. But she can't imagine giving up farming.

"It's never the same every day," she says. "Planting a seed and waiting for it to grow, seeing a newborn calf. That's something you're never going to see sitting in a cubicle."

Wisconsin farmers hit especially hard

In Wisconsin, the planting delays are compounding a dairy crisis fueled by global overproduction of milk and prices that have dropped 40% since late 2014. Wisconsin lost almost 700 dairy farms in 2018.

As of Feb. 1, Wisconsin had 8,046 dairy herds, down 40% from 10 years earlier, according to state data. 

At the same time, foreign markets for American dairy products have dwindled in response to tariffs that Trump slapped on foreign steel and aluminum. Cheese shipments to China have fallen almost 65%, and exports to Mexico are down more than 10%. 

Mexico and Canada have targeted rural America as a way to punish Trump, and the economic harm could be felt for years, said Laurie Fischer, CEO of the American Dairy Coalition.

This spring, farmers face crucial decisions. Some are running out of feed for their cattle. Do they seek operating loans to plant crops for livestock rations? Or do they quit and cut their losses that can add up to thousands of dollars a month? 

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In Shell Lake, dairy farmers Sue and Chuck Spaulding are hanging on, milking about 60 cows on their 300-acre farm that Chuck bought when he was only 17. 

Seven years ago, they borrowed heavily to modernize it. Nearly every dollar the Spauldings have earned from their milk the last few years has gone toward their debts and farm insurance, leaving them with little income except for Chuck's Social Security check and selling some livestock and hay.  

The Spauldings' youngest daughter and son-in-law, Christy and Jeremy Spexet, also rely on the farm for their livelihood. They live in a mobile home nearby and put in long hours to keep the milking operation going. 

But Chuck and Sue can't afford to pay them much. Like other farmers, Sue has started a GoFundMe campaign to get some help from the public.

"We set a $30,000 goal for our campaign because we didn't want to scare people away,” Sue said. “But we probably owe about a quarter of a million dollars."

Contributing: Rick Barrett, Milwaukee Journal Sentinel