The number of Minnesota farmers defaulting on agricultural loans has swelled dramatically since 2008, reaching levels not seen since the 1980s, reports the Star Tribune.
Pork producer Joe Malecek, Redwood Falls, Minn., sold all his pigs when his bank called in his $1.4 million loan. The 73-year-old still owed $500,000, according to the report.
Producers such as Malecek have been caught in the vise grip. "Everyone in the hog industry took a big bath," said Malecek, who has been raising hogs for half a century, the last 20 years on his farm with a twisting creek and woods filled with oak trees above the Minnesota River. He grew Mor-Pork Inc. into a multimillion-dollar operation.
The local bank worked with him in recent years when operating costs rose, pork prices tanked and Mor-Pork was losing money. His $1.4 million loan was extended several times.
In all, lenders have sent Minnesota farmers more than 3,670 default notices in the past 12 months, according to the University of Minnesota's Farmer-Lender Mediation Program. That's up 83 percent in just two years.
The defaults involve all types and sizes of farms, in every part of the state, said Mary Nell Preisler, who directs the University program, which helps farmers find ways to stay in business. It's not only small family farms, she said: "It's everything."
Nationally, farm loan delinquencies have been edging up and have hit a 17-year high. For instance, 2.3 percent of all agricultural production loans made by commercial banks were past due, up from 1.3 percent a year ago, according to the Federal Deposit Insurance Corp. (In the depths of the 1980s farm crisis, those delinquencies reached 8 percent.)
Lenders are under pressure from regulators to add cash to their books and shed underperforming loans. Jim Anderson, a farm financial analyst in Rochester, Minn., who works with the mediation program, said he doesn't think banks are the bad guys. Many rural banks have really worked with farmers in trouble. But in an age of intense bank scrutiny, some loans just smell too sour, he said.
Pork and dairy producers have been squeezed particularly hard. A bumper grain crop may eventually drive down feed prices, but it won't solve the problems.