March 29, 2024

Halderman exec says ag collapse unlikely

WABASH, Ind. — Are we headed back to the ‘80s, the time of sky-high interest rates and farm bankruptcies?

Some massive catastrophic events would have to happen first — and Pat Karst doesn’t see any or all of those happening anytime soon.

“I don’t see anything on the horizon that’s going to make us have a huge collapse like we had in the early ‘80s,” said Karst, vice president of Halderman Real Estate and Farm Management.

As prices and values for U.S. farmland, particularly throughout the Midwest, continue to remain strong, fears that those prices are in a “bubble,” that may be close to bursting, haunt conversations.

“I’m not positive it’s in a bubble. I think there are people trying to compare this situation that we are in now to the early 1980s, the late 1970s. I’ve heard people say we are right about at 1977 or 1978 right now and we’ve got two or three more good years and then it’s just going to collapse,” Karst said.

In comparing the current times to the farm crisis of the 1980s, Karst outlined two events that would have to happen.

Interest Rates

While interest rate increases have farmers understandably uneasy, Karst said rates today aren’t close to what borrowers had to deal with in the 1980s.

“I started this job in 1984. In 1982, interest rates were 16%, 17%, 18%, 20% for mortgages,” he said.

With rates that have been so low for so long, any increase now can create panic.

“We have had such a low interest rate for so long and people got used to that, that borrowing money has been so cheap. Now it’s back to more of a long-term typical rate. And that would have to change. Interest rates would have to go up substantially to match what we saw in the 1970s and 1980s,” Karst said.

Grain Market Disruption

While the Russian invasion of Ukraine has created and continues to create chaos in the global grain markets, with echoes of the 1980s, it was the loss of Russia as a major customer that created chaos for U.S. farmers in the 1980s.

In 1980, President Jimmy Carter imposed an embargo on the Soviet Union for its invasion of Afghanistan. Carter imposed the embargo in January 1980.

In April 1981, President Ronald Reagan, who defeated Carter in the 1980 presidential election, lifted the embargo.

The embargo forced the Soviet Union to increase its own grain production, including in Ukraine, and to turn to other countries, including Argentina and Brazil, for its grain supplies.

“We would have to lose a major customer for the ag markets, for our corn and soybeans. In 1980s, there was an embargo against Russia, so where was no place to sell our crops. The bottom dropped out of the corn market, the bean market and the wheat market. Input costs stayed the same to all of a sudden you went from making money to losing a bunch of money on every acre you farmed,” Karst said.

“Interest rates were high and you had to borrow money to stay in business. Your working capital evaporated overnight. There is just a lot that has to happen before it gets that bad.”

Karst said it is not out of the question that the land market could see a substantial drop in the next few years without an ensuing farm crisis.

“We didn’t have any kind of a major meltdown in 2013 and 2014 when the land market dipped 25%. It was nothing major. It was just a few little things. In that timeline, prices went down 20% to 25%,” Karst said. “Can we see that happen again? We could.”

But even with a substantial drop, he said farmland prices would stay healthy.

“If land that two years ago was $8,500 an acre and today it’s $14,000, we come off 20% of $14,000, that’s down $2,800 an acre. So, now that puts us at $11,200. We are still substantially higher than we were two years ago,” Karst said.

Jeannine Otto

Jeannine Otto

Field Editor