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Duffy: Optimism is justified

By Staff | Sep 11, 2016

MIKE DUFFY, left, professor emeritus of economics at Iowa State University, joins James Gaukel, center, of Mapleton, and Gregg Cruickshank, of Sidney, as they discuss the current farm picture during the Security National Bank farmland values event Aug. 25 in Sioux City.

SIOUX CITY – An Iowa-based farm economist often considered the oracle of the farm picture said last week he is remaining an optimist rather than a pessimist in the future of Iowa’s agriculture economic picture.

“It seems that we presently have two camps looking at the current situation,” Mike Duffy, professor emeritus of economics at Iowa State University, said as he prepared to take the podium at a farmland values meeting Aug. 25 in Sioux City, hosted by Security National Bank. “Some people think we’re settling out and into a flat situation. Others think we’re heading back into the ’80s and everything will get much worse.”

“My personal feeling is that while we’re probably be moving down a bit (on land prices) we’ve already factored in a lot of the farm income drop, so while I don’t see a raise in land values, I’m somewhat optimistic at this time.”

There are those, the middle-aged farmers, likely to be impacted by the lower farmland prices, Duffy said.

“These individuals were those earlier referred to as the young tigers, very aggressive in what they did in 2006 and 2007 when everything was blooming,” he said. “These individuals expanded a lot and took on a lot of debt, especially machinery debt.”

“We do see a lot of these producers, and these I think are going to feel the situation,” Duffy added. “Our younger farmers, in the 30 and under category, didn’t really have the opportunity to buy land because they hadn’t yet built up credit and a capital base. And while some may have problems due to machinery purchases they’ve not the land debt of the older individuals.”

He conceded, however, that the current situation brings with it a softening of enthusiasm for buying more land or making additional machinery purchases, the latter affecting equipment manufacturers as well as agricultural service suppliers. This can, in time, continue to affect an overall rural economy in a state such as Iowa with a dependence on the ag sector.

Duffy offered this advice for producers seen possibly facing the consequences of their earlier farm management decisions.

“When I was with the Beginning Farmers program, our goal was to always not look just at tomorrow, but to make their decisions on a more long-time point of view,” he said. “The same advice still holds true.”

Current crop prices for corn and soybeans, as with possible $2 corn projected by some, can also be one side of the equation in relation to producer decisions, according to Duffy.

“Counter balancing this on the other hand is that most producers are looking at some pretty good yields as well as a drop in production costs,” he said. “While this is not going to totally eliminate the uncertainty, we must also consider that it wasn’t all that long ago we had $4.50 corn.”

He re-emphasized that any lending decisions depend on individual situations and circumstances so as to have a realistic assessment of where individual stands.

“This is particularly true when lenders are involved,” he said. “Lenders don’t want (or like) surprises so it’s a matter of being straightforward with lenders with everyone having an understanding of the situation.”

“There must also be the development of a plan that allows borrowers to work themselves out of a situation – perhaps consolidation or liquidation – in order to get a better handle on things,” he added. “There’s the need for an honest assessment of each situation. Not everyone is always able to do this themselves with the need for another set of eyes to clarify the picture.”

Duffy, looking at the reality of today’s producer-lender relationship, emphasized his feelings this way.

“I think definitely when you consider it (the agricultural situation) we see lenders having to be more prudent in extending a loan, the question the borrower must answer for himself is can I repay it?”

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