45 years of AgriNews: 1970s boom turned into 1980s crisis

Editor’s Note: AgriNews is celebrating its anniversary by reviewing some of the top agricultural issues over the past 45 years.

CHAMPAIGN, Ill. — What began as an agricultural boom in the early 1970s created the perfect storm that led to the 1980s farm crisis that forever changed the rural landscape.

“The 1970s were a very good time in agriculture. It all started in the 1973, 1974 time period with new export markets and the Soviet Union grain deal,” said Gary Schnitkey, University of Illinois Extension farm management specialist.

The Soviet Union entered into a three-year contact and in July and August 1972, the U.S. sold 440 million bushels of wheat to the Soviets, more than the total U.S. commercial wheat exports for the marketing year. The sales represented 30% of the average annual U.S. wheat production during the previous five years.

The demand resulted in nearly tripling wheat prices during the marketing year ending in August 1973 to $4.45 per bushel. Corn prices rose from $1.51 per bushels in August 1972 to $2.68 12 months later, and soybeans increased from $3.36 per bushel to $8.99 during that same time frame. Prices for steers, hogs and broilers rose 55%, 102% and 153%, respectively.

“We had much higher corn and soybean prices that led to good returns in agriculture but mainly what it did as well is led farmers to buy a lot of farmland and use debt to buy that farmland,” Schnitkey said.

“Farmland prices were going up and going up and we got some petty high debt-to-asset ratios on these farms because we’d buy farmland which we always believed was going to keep going up. We had to have it right now, so we bought it and bought it, and got some pretty high debt levels. That set this all up.”

The Bubble

Unfortunately, the perfect storm was about to unleash.

Inflation was also gripping the nation and around 1979, 1980, policymakers wanted to address the issue and bring inflation back in line.

“The way they decided to do that was the Federal Reserve raised interest rates,” Schnitkey said.

“So, we had increases in interest rates (reaching 21.5% in 1981). We had a lot of debt on farms. Those higher interest rates then caused an increase in interest costs and then that led to a lot of financial difficulty, bankruptcies, and everything. That fighting inflation, high interest rates, and lower commodity prices (but not all that much lower) sort of burst this bubble. It was a tough time.”

In January 1984, the Federal Reserve Board issued a report estimating that one-third of all U.S. farmers had nearly two-thirds of the nation’s total farm debt.

Farmland values dropped 60% in some parts of the Midwest from 1981 to 1985. Record crop production combined with a 20% decline in exports between 1981 and 1983 (following the 1979 Soviet Union grain embargo), caused farm debt to hit $215 billion by 1984, double the 1978 debt.

The crisis led to foreclosures and also an exodus from rural America and the number of farms dropped from 3.711 million in 1960 to 2.2 million by the mid-1980s.

The U.S. Congress got involved in developing policies in the mid-1980s to assist farmers.

The 1985 Food Security Act (farm bill) allowed for lower commodity price income supports and created several conservation programs. Then in 1986, Congress introduced Chapter 12 Bankruptcy which allowed family farmers to restructure their finances and avoid liquidation or foreclosure. In 1987, the Agriculture Credit Act authorized a $4 billion financial assistance package for financially vulnerable institutions of the Farm Credit System.

It was said that Congress did too little too late. It took an act of nature to finally solve the farm crisis.

“Ironically the 1987-1988 drought sort of cleared it up. We had higher commodity prices after that,” Schnitkey said.