by Ted Genoways
Some would regard this as the ultimate failure of agriculture, but the emergent industry of consolidated agribusiness flourished during this time. Along with the old grain cartels, such as Cargill and ADM, former defense contractors, including Monsanto and DuPont, aggressively entered the food industry. Cargill grew from $2.2 billion in sales in 1971 to $28.5 billion in sales in 1981 by turning the profits from grain shortages into a diversified portfolio. They moved into value-added operations—milling grain for animal feed, making high-fructose corn syrup for Coke and Pepsi—then expanded and vertically integrated, acquiring feed elevators and meatpacking plants. By the mid-1980s, Cargill was not only the nation’s top grain exporter but also the Number 1 egg producer, the Number 2 beef packer, and the Number 3 miller of corn and wheat.
Meanwhile, the market free fall touched off by the failed grain embargo created a catastrophic decline in consumer confidence that led to a national recession and, as inflation began to rise, eventually set the stage for the Farm Crisis. Prices on key grains stayed low, and overproduction soon drove them even lower. At the same time, the accrual of massive debt in the form of modern tractors, irrigation systems, and grain storage bins left thousands of farmers hopelessly in debt. And this, of all the ways that failure lurks on the American farm, may be the most lethal: raised on Protestant work ethic and a faith in the basic fairness of the system, most farmers firmly believe that the greatest success belongs to the family that works the hardest. The way out of debt is putting in longer days in the field, longer nights at the books.
But it isn’t really so. In fact, at the end of the Farm Crisis, Danny Klinefelter, an ag extension economist at Texas A&M who studied and categorized farm failures during that era, found that the most common causes of the individual bankruptcies that eventually became an industry-wide collapse were: too much ambition, too much accrued debt, and, in Klinefelter’s words, “too much wishful thinking.” He said farmers didn’t consider the cyclical nature of farming. They took on loans for land and equipment during periods of good weather and high prices. And if hard times fell, they expected to simply make up the difference with more work and more yield. It’s rarely so simple.
“Many of the producers who have failed or are in trouble have been considered by the farming community to be top farmers,” Klinefelter wrote, “but attaining the highest yields does not necessarily result in the highest profits.”
That’s a lesson that few farmers can accept. And before long, the cycle was repeating itself. In the decades since the Farm Crisis, grain production has kicked into overdrive. Big producers just got bigger. And small farmers, in an effort to keep pace with the expansion and vertically integrated models of agribusiness, began to take Butz’s motto to heart. With the help of emerging technologies, everything from the GPS-mapped furrows to computer-controlled irrigation systems, they began to plant crops (especially corn) in places no one would have dared waste seed, much less water, a generation earlier. The more they planted, the more they stood to profit. But then, in the last decade, all of those acres and all that overhead started to become a curse.
As the current crisis unfolded, everyone with skin in the game—from the market watchers and commodities traders to the pundits and ag reporters (as well as every farmer at the counter of the café in every small town across the Corn Belt)—had his own explanation for the radical swings in the prices of commodity grains.
Some blamed reckless gambles by farmers themselves, and it’s true that farmers take risks. They plant the shortest-season hybrids they can. They wait as late as possible to irrigate. And when prices were high, they planted every arable inch of soil, tearing out windbreaks along field edges and the brush along creek banks. For a while, the ditches on either side of every country road seemed to be stacked with slash. Farmers took land out of the federal Conservation Reserve Program, a sure payday for doing nothing but letting the ground sit, and they planted it to corn. The more farmers planted, the more they stood to profit, right up until everyone was drowning in surplus and the prices took a dive.
There are some old-timers who take the long view. They say that the consolidation of farms, going back to the Farm Crisis, puts decision-making responsibility into fewer hands, so that foolish risks are amplified. In the 1980s, most cropland was farmed by families with fewer than 600 acres. Today, the average farm is twice that size—and many are much, much larger. For more conservative farmers, wary of risk or simply too small and cash-poor to invest millions of dollars in acreage and equipment, just sitting still and doing nothing can leave you with less and less each year. Megafarms, with lots of resources, can afford to put more inputs on a field, to irrigate and fertilize and spray against pests. So in good years, when everything goes right, their harvest is high and drives down prices, which is fine for big guys with enough volume to profit from narrow margins but hell on the family farms. And in years when prices climb on some disaster, small farmers can still lose out by not having enough acres to capture the gain.
And, of course, there will always be those who blame the government. They say these big-time risks are encouraged by federal crop insurance and farm subsidy programs. It’s true that farmers started taking out more crop insurance when Bill Clinton’s administration made modifications to the Federal Crop Insurance Act and the USDA took over paying premiums. And it’s true that more than $277 billion was allocated for farm subsidies from the expansion of the program in 1995 until 2014—with roughly 75 percent of the money going to the top 10 percent of farmers. So they raked in the majority of profits and set the market prices, while nearly two-thirds of American farmers struggled, collecting no subsidies at all.
All of these things are true, and they feed on each other, but none of this is really what caused the market to peak in 2005–2007—or to crash to its lowest point in decades. The problem was really a side effect of good intentions by the U.S. Environmental Protection Agency (EPA). In an effort to reduce carbon emissions and improve air quality, the EPA imposed the first Renewable Fuel Standard in 2005, requiring the production of at least 7.5 billion gallons of renewable transportation fuels within seven years. The goal was to kick-start the biofuel industry, but the incentive, when combined with soaring gas prices due to the Iraq War, instead triggered runaway demand for ethanol. The number of ethanol plants nearly doubled overnight. At first, that seemed like a good thing. It created a domestic fuel source, and the higher prices profited American farmers and the American companies that support them.
Soon, however, so much corn was diverted into ethanol production that it created a scare on the global commodities markets. Foreign countries dependent on American grain worried that their own farmers wouldn’t be able to afford to feed their livestock, sparking a commodities run. The per-bushel price of corn shot up from $2 to more than $3. Everyone wanted to stockpile grain as a hedge against even higher prices, but American grain reserves were at the lowest on-hand level since the drought years in the Clinton era. After more than three decades of corn prices hovering between the $2 and $3 mark and generally trending downward on improved production since the early 1970s, prices shot up out of control. Depending on whether you were a corn grower or a livestock producer counting on that feed, the New York Times wrote, “you have daydreams—or nightmares—of that $5 mark.”
In fact, from 2005 to 2008, the world price of corn broke past $5 and just kept climbing. And as corn reached unimaginable heights—$6 and $7—demand increased for soybeans as a feed alternative. Soon those prices had doubled too. As great as the run was for American farmers, food shortages and ensuing riots were touched off in parts of Asia, Africa, and Latin America. And the panic was enough to spark a run in commodities speculation. Traders had been looking for somewhere to put their money now that the securities markets, which had been backed by high-risk, low-interest home loans, were in free-fall due to the mortgage crisis. That money now pouring into the grain market created a brief price correction, but then the shortage brought on by the drought of
2011 sent commodities to record levels with corn reaching as much as $8 per bushel and soybeans topping $17 per bushel.
But on the farm, this is failure’s best hiding place—smack in the middle of runaway success. One afternoon, sitting at the workbench in Rick’s barn, he told me that the biggest pitfall you face as a farmer is your own optimism. Everything starts to seem easy, and you think the good times are going to last forever. And the government, in the name of spreading the wealth and stimulating the broader economy, always provides the excuse to take on more debt. In 2010, Congress announced that they would raise short-term rapid-depreciation write-offs for farmers from 50 percent to 100 percent, for one year only, so now, if you bought a new tractor or a new grain bin and spent $100,000, you could put that full amount against your annual farm income, instead of only half.
“People were just buying equipment like crazy because you could take that all right off of your income,” Rick told me. “If you were in the thirty percent bracket making a hundred fifty thousand dollars, you could figure that you were going to give fifty thousand to the government anyway. But if you took a loan for a hundred-thousand-dollar purchase, the tax was offset.” In 2011, across the country, farms suddenly had new trucks and tractors, new barns and outbuildings, but also new houses and new purchases of the kinds of equipment that can cost as much or more than a farmhouse.
“And here’s the trap that farmers fall into and we’re still dealing with. Like that big sprayer,” Rick said, pointing to the vehicle in the corner of the barn, its wheels taller than me. “That was a quarter-million-dollar purchase.” He paused a moment looking at the machine.
“As my banker says, people forget they have to pay the principal,” Rick continued. “Now, during these really shitty times, everybody still has the payments. Yeah, I did benefit from all that tax write-off, and it was a hell of a deal on the interest too—but it’s still an expense.” Too much ambition, too much wishful thinking.
In no time, the factors that had quadrupled grain prices self-corrected. Gas prices stabilized and began to fall, lowering the market price for ethanol with it. Before long, ethanol producers began idling their new plants, because they simply couldn’t produce fuel cheaply enough given the high input price of grain. As EPA tax credits expired, and the agency adjusted the renewable fuel standard downward, the drought also broke, bringing an upsurge of production in the 2013 harvest—just as demand was leveling off. The prices of corn and soybeans crashed, losing half their market value between the planting season and the end of that harvest year. So coming into the 2014 season, every farmer had to make his own market projection.
Rick gambled on another dry year and that the markets would remain down, so he planted mostly soybeans, which have been less volatile than corn, and he planted very short-season hybrids, hoping to get most of his harvest in early, before the markets fell even further. It should have worked—but in the high-stakes, narrow-margin game of commodities farming, a little rain is all it takes to derail everything. With his crops still sitting in the fields and markets continuing to fall, I asked Rick if he was worried—not stressed or anxious, but truly worried for his family. He shook his head. They were more than equipped, he insisted, to weather through a bad year.
“Now, if we see sub-four-dollar corn for two more years,” Rick continued, “yeah, you’ll see some people going broke, especially the young guys who started about five years ago when it was eight-dollar corn. And they thought, ‘Oh, man. There’s nothing to this farming game.’ They bought the $12,000-an-acre ground and took out loans for the bins and the pivots and equipment.
“The Meghans and Kyles of the world,” he said, “they could be in real trouble.”
DARKNESS HAD fallen over eastern Nebraska.
After another day of chipping away, working and then waiting, Rick had decided it was time to call it an evening and sent everyone home. But he wasn’t quite ready for the drive back or giving himself up to sleep. So he had ducked into the empty house on the southeastern corner of the Centennial Hill Farm, the house where his wife Heidi grew up. It’s abandoned now, except as a guesthouse and a place to host occasional potlucks. The refrigerator often holds a random collection of unopened cans and jars—not much, but enough to scavenge for a snack or a stray drink. Tonight, Rick scoured the remnants of the last get-together in search of something to take the edge off before bed.
“This bottle,” he said, holding it up to the fluorescent bulbs overhead, turning it sideways to divine how much wine might be floating at the bottom. “I think it’s been open for . . .” He trailed off, searching the label for a date before giving it a final shake. “Cleaning solution,” he decided. With no other options available, he settled on the last two cans of Pabst Blue Ribbon but not without a few grumbles. He cracked one and took a long sip, then smirked. “I’ve raised hell about these in the past,” he said, “but, you know, it’s funny how you get certain things the right amount of cold, and they all taste pretty good.” He slid into the booth of the kitchen breakfast nook and motioned for me to slide in across from him. He wanted to assure me that, despite everything that had been going wrong, he wasn’t worried about the current crisis.
“I don’t feel like it’s going to be anything like the eighties when everybody was going broke,” Rick said, taking another deep draw of his beer. “That was caused by Reagan and Volker, the Fed chairman. They thought they came in with a mandate to crush inflation—and inflation was out of control—but bankers had been pushing farmers to buy ground every year. It inflated up to about $2,500 an acre for good ground. The interest had been less than the rate of inflation. So when they raised rates, to all of a sudden have interest triple, that’s what caused it. Bankers and farmers couldn’t react fast enough. They went broke, had this huge debt. Bankers were foreclosing on farmers because your collateral was worth a third of what it was when you took out this loan.”
He said that he’d witnessed this sudden decline firsthand. When he met Heidi, while she was a student at the University of Nebraska School of Technical Agriculture in Rick’s hometown of Curtis in the southwest corner of the state, everything had been different. He had been a hotshot horseman in his small town—a skilled rider with a row of purple and blue ribbons in barrel racing and pole bending at the State Fair to prove it and still brash enough to take all comers in bareback sprint races on the ranches around Curtis or the dirt main street of nearby Wellfleet. He seemed to have the world by the tail. But college in Lincoln had been different, harder. After years of classes, he had taken a semester off and gone home, but he found life on the farm getting harder too, especially for a family like his that didn’t own the ground they farmed.
Rick found himself at loose ends, as he took off another semester and then another. He was still technically enrolled at the University of Nebraska but a few credits shy of a degree in Latin American studies and in no hurry to finish up. The degree wasn’t going to do him any good. He knew he wanted to be back farming and ranching, but he could see that the opportunities were drying up in Curtis. So he took odd jobs, while he figured out his next move. “I’d worked on the railroad for three years, steel gangs and tie gangs,” Rick told me. “They’d made me assistant foreman and wanted me to be foreman. I could see then, if I didn’t quit, I never would.” So he left the railroad, but he still couldn’t figure out what he wanted to do. “I just wasn’t finding it,” he said.
That’s when he met Heidi. “Oh, everybody loved her,” he said. “She could drive a tractor, fix engines.” She had grown up in a farming family back in eastern Nebraska with a hard-driving father and three headstrong sisters. Rick’s big-headed swagger didn’t fluster her a bit. “We had a few dates. I even took her to church—very honorable,” Rick deadpanned, then grinned, “but I was still convinced that I could change the world.” He broke off the relationship and signed up for a two-year stint in the Peace Corps. He went off to Ecuador to teach agriculture in a small village, but he soon became disillusioned by the s
hortcomings of trying to apply American know-how to places with no resources or infrastructure. He came home disheartened and more lost than ever.
Rick paused, rattling his empty Pabst.
“Is there something wrong with your can?” I asked. “Some kind of beer deficiency?”
“I’m running low,” Rick said with a smile. He cracked the second can. “And I’m just getting to the best part.”
When Rick returned home from the Peace Corps, he found that everything that had been starting to slip away in Curtis was now utterly gone. Agribusiness was swallowing up small farms. Families had moved away. His hometown wasn’t home anymore. “Dad had quit farming, and my sister and brother-in-law were farming that little rented place,” Rick said. “I had grown up on a small rented farm. I knew there was no future there.” A friend of his named Kevin had sold his farm and equipment and gone to Colorado to open a ski shop. Rick followed him out there and for a while worked a few hours a week and ski-bummed the rest of the time. At some point, he’d had enough. “I said I gotta get back to school and finish my degree.”
And he’d been thinking about Heidi. He called her up to see if she wanted to have Thanksgiving with his family in Curtis. After that, they could drive back to eastern Nebraska together—Rick to get himself reenrolled in school, Heidi to visit her own family. Heidi agreed and drove out to Colorado to pick up Rick, but by the time she arrived it was after dark and snow was swirling.
“That night we had a hell of a storm, about two foot of snow,” Rick remembered. “She was driving a little Fiat.” While he packed up the last of his stuff, his friend went outside to check on Heidi. She had put her farmer coveralls on and was under the Fiat putting chains on the tires. “Kevin came in and said, ‘I think this one’s a keeper. You better marry this gal.’ ” They drove across the state, all the way back to Lincoln through the storm, together. By the time they arrived, Rick had started to fall for Heidi. He worked on his degree, and on weekends, he drove out to York County and wooed her by pitching in on the farm. Eventually, he won her over, just as her father, Tom, was getting ready to retire. Soon, Rick dropped out for good, just a few credits shy of a degree, and started talking about leaving Lincoln, moving in with Heidi, getting married.