The mood around the coffee shop in England Liquid Fertilizer Co. is serious, says owner Don Compton. “Farmers are worried. Many bankers are tightening down because they want to see cash flow, and it's hard to make farm operations cash flow. Cotton has done the best. Most of the farmers who got into trouble in 2005 were soybean and rice farmers.”
Last year was much more expensive in agriculture than 2004 because of higher fuel and fertilizer costs, he said. What really hurts, he noted, is that it'll probably cost even more to raise a crop this year.
“We have four or five farmers who have gone out of business,” Compton said.
It's a statewide problem. Some Arkansas farms that have been in families for generations are in dire financial straits, in large part because of high fuel and fertilizer costs.
Farmers should have been patting each other on the back in 2005. They had two back-to-back years of outstanding yields. And yet, farm incomes were stagnant.
It has been estimated that the economic loss to Arkansas in 2005 from problems in agriculture was a staggering $922 million.
The bad news is that 2006 will be as bad or worse, says Rob Hogan, economist with the University of Arkansas Cooperative Extension Service. He's been crunching numbers, and he's estimating fuel and fertilizer costs may be up more than 50 percent.
“Most of 2005 was fairly droughty, and it caused a lot of additional irrigations,” Hogan said. “Arkansas is in substantially better shape in irrigation than many other states. Eighty percent of Arkansas cotton, for instance, is irrigated. But with the enormous energy costs, the cost of irrigation and consequently, the cost of production, skyrocket.”
Arkansas is not the only state in this situation, according to Hogan. It's a problem in agriculture all over the nation. The profit margin in farming is thin. Last year, many farmers went in the hole, and in 2006 they'll sink deeper, he said.
Using UA Extension budgets, Hogan has calculated that net farm income for Arkansas farmers will be down 115 percent from 2005 to 2006. He likened it to a person losing $10,000 in income one year and $22,000 the next year.
“A significant number of farmers didn't pay out in 2005,” he said. “In other words, they weren't able to repay their farm operating loan. They had to go back to their lenders and request that they roll what they owed into their operating loan in 2006.”
Hogan said lenders will have to decide whether they'll be able to provide farmers with an operating loan. “If I'm a lender and a customer comes to me seeking a loan, but he or she didn't pay out and brings numbers indicating it's going to be bad again this year, I have to ask myself do I want to be that much further invested in this customer.
“If you're a lender — regardless of my personal feelings for you — you have to justify a loan to the bank's board of directors and the FDIC. The board is not a friendship thing. They represent the stockholders to whom they're accountable. The days of the handshake arrangement is not enough anymore.”
Hogan said farmers will try to farm just to hold leases and hold their operations together. In the best case scenario, he said, they'll break even. In the worst case scenario, they'll lose more money.
Lamar James is an Extension communications specialist with the University of Arkansas.