Amid strong farm economy, some dire signs

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According to the U.S. Department of Agriculture, farm business debt is expected to reach $228 billion by the end of this year, an $8 billion increase from last year and a new record for the fourth consecutive year.

The government said much of the debt is driven by the need for new machinery, equipment and grain storage, as farmers strive to keep up with the increasing demand for grain.

Debt for land is expected to rise to nearly $121 billion this year, a 2.8 percent increase.

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And the USDA said from the beginning of 2003 to the end of 2008, total farm debt will have increased by about $52.8 billion, or more than 30 percent.

Recent reports filed by agricultural lenders shows the government's expectations are playing out in reality.

Farm Credit Services of Mid-America, which provided $12 billion in agricultural loans for farmers in Indiana, Ohio, Tennessee, and Kentucky last year, noted in its annual report for 2007 that high crop prices "have created a much more risky and volatile agriculture economy."

The group's lending was up 15.2 percent over the loan volume of the year before.

Omaha-based Farm Credit Services of America, which served 70,000 farmers in Iowa, Nebraska, South Dakota and Wyoming last year, reflected similar increases in farm lending.

Harl said the current farm economy reminds him of about 1974 or 1975 — several years before the boom went bust.

In the 1980s, changing government policies, including a grain embargo against the Soviet Union after the invasion of Afghanistan, drastically cut farm exports. Farm productivity remained high, government surpluses soared and the resulting oversupply drove commodity prices and land values down dramatically.

In addition, efforts to control inflation drove interest rates higher and caused land values to plummet. Farmers, who had bought land in hopes of benefiting from the strong commodity prices, were left holding debt on property that was worth less than they owed.

Farm foreclosures exploded across the countryside, hurting not only farmers but the companies that supplied them, such as farm implement manufacturers and seed distributors.

It all seems familiar to the Rev. David Ostendorf of Chicago, a United Church of Christ minister who once led PrairieFire Rural Action, a group that tried to save family farms during the 1980s crisis.

"With the price of land going as it is through the ceiling once again, the debt load's going up. I think all the signals are there for a potential repeat of the late '70s-early '80s and it's critical that we not forget the lessons of our recent and long-term history out there," he said.