Fall’s sun drapes across the sky in Nokomis, Ill., as Skip Klinefelter admires another season’s crop. Through four and a half decades of turbulence and tribulation, he continues to pursue his purpose at the helm of his ever-evolving operation.
“I started off at the top and worked my way to the bottom,” Klinefelter smirks. “Then I started farming.”
With plans to build race cars that later found him running a tire shop, in 1977 he returned home to farm with his father. A 50/50 split on 456 original acres, the Klinefelters went to work.
“I always hated hogs and loved cattle, but I couldn’t afford to get into cattle,” Klinefelter explains. “So, we built a 250-sow specific pathogen free seedstock operation and grew the farm to 3,200 acres along with doing custom work.”
Then the 1980s hit, hard.
“There was no light at the end of the tunnel, and nobody had any reason to believe it was going to get better,” Klinefelter recalls.
In 1983 his crops were wiped out by serious drought. By 1988, another drought arrived, but he had insurance and hogs to help with cash flow.
“We were robbing Peter to pay Paul to get through it,” Klinefelter explains. “I guess we could have gone broke and out of business, and some people said that’s what we should do because it would be less painful, but I refused to take that route.”
Klinefelter’s wife, Barbara, had off-farm jobs that provided health insurance, which was a big help. She first worked at the local ASCS office (known as the Farm Service Agency today) then went back to school for her masters while teaching English and dual credit college courses at the local high school.
It took Klinefelter 10 years to overcome the 80s. Then the late 90s came knocking. Another short crop and hog prices falling to 7¢ per cwt forced him to rethink his future.
“I thought in four to five years the hog market was going to see serious consolidation,” Klinefelter explains. “I was wrong. It took 18 months.”
Not willing to take on a mountain of new debt after spending the last two decades paying off loans, Klinefelter made the decision to exit the hog business and focus on precision farming.
“I watched a local equipment dealer service our seed meters, and I didn’t think they did a very good job,” Klinefelter laughs.
That moment kicked-started a passion for ag equipment and 20 years of investment. He now owns and runs the largest independent precision ag business in Illinois. While he knows the current ag market is in a downturn, he’ll take today over the 1980s every time.
“I’ve definitely made mistakes and decisions that were expensive,” Klinefelter says. “So far, I’ve been able to get through to the other side of them.”
State of the Economy
Following record highs in 2022, the latest projections from USDA-Economic Research Service (ERS) shows overall farm sector income is forecast to fall once again in 2024 but at a slower rate than it did a year ago. Economists now project a drop of $6.5 billion. That’s down 4.4% from 2023 but much better than the February projections that suggested a decline of 26%.
Essentially, better livestock margins are helping improve the overall picture of the ag economy with cash receipts expected to end the year close to $267 billion. That’s up more than 7% year over year.
The major grains, however, continue to struggle. USDA-ERS economist Carrie Litkowski says the value of crop production is forecast to decrease $25.6 billion versus 2023 with the largest decline from corn and soybeans.
USDA–ERS stresses the importance of looking at the numbers with the past 20 years in mind.
“The farm sector balance sheet is projected to remain strong,” Litkowski says. “Net farm income fell 22% from 2022 to 2023, and in 2024 net farm income is forecast to fall nearly 7% [when adjusted for inflation]. Even with these expected declines, both sectors in 2024 are forecast to remain above their 20-year-average.”
The Food and Agriculture Policy Research Institute (FAPRI) at the University of Missouri updated its baseline projections in mid-August. It stretched $4 corn through the end of the decade along with $9 to $10 soybeans and sub-$6 wheat.
“In the absence of new shocks to the weather, the macroeconomy or policy, projected prices generally remain near current levels over the next five years,” according to FAPRI’s report.
The biggest challenge remains the cost of production. Without some sort of adjustment to either side of the balance sheet, the finance community says breakevens could turn negative in 2025.
“If you look at input prices, they’re about 40% higher than they were in 2014,” says Tony Jesina, senior vice president of insurance and consumer lending at Farm Credit Services of America. “That’s a lot more pressure on margins, and producers really, in effect, have more dollars at risk than they’ve ever had before.”
Lending in the ’80s
The farm crisis of the ‘80s left a mark on all those who experienced and lived through the inferno of scorched balance sheets and farmstead graveyards — the angst and anguish coloring their outlook for every season henceforth.
Retired Indiana ag lender Joe Kessie was one of them. He graduated from Purdue University in 1983 with a degree in ag finance — during the height of the 1980s farm crisis.
Thrown in the fire but without a lifetime of professional baggage, Kessie says his biggest challenge was balance sheet visibility.
“The problem was balance sheet lending, and lenders did not have a system to calculate earnings from operations,” Kessie explains. “By using accrual earnings and earned net worth calculations, I was able to grow with the operations actually making money.”
That window helped him build relationships and find ways to help customers survive or even thrive.
“In the late ‘80s, early ‘90s, there were tremendous opportunities to take advantage of,” Kessie says. “Ground was $1,000 an acre or less in our area.”
Despite the pressure from falling prices and high input inflation, Kessie doesn’t expect a repeat of the 1980s for three reasons.
“Back in the ‘70s or early ‘80s, all the farm rates were variable. When rates skyrocketed, basically all the debt on the balance sheet went up,” he says. “Today, about any kind of term debt is fixed at pretty attractive rates. These higher interest rates do affect operating loans or if a farmer makes a new equipment purchase, but the other debt on the balance sheet is not affected.”
He also believes overall farm finances and management prowess is much improved.
“The farm balance sheet was pretty leveraged back then versus now,” Kessie says. “Plus, the management of farms is definitely better today than it would have been in the ‘70s and ‘80s. A lot of the inefficient operations, unfortunately, didn’t make it.”
Additionally, new investment funds are helping to support land values by providing demand.
“There are plenty of farmers still holding cash, and there’s a strong interest from investors and investor funds,” Kessie says. “None of that was there in the ‘80s to support the market.”
From weathered brow, cracked hands and faded caps, the hard-learned lessons of thin margins and financial potholes are worth heeding. Klinefelter has absorbed years of uninvited turbulence and kept moving forward. He offers these six tips for surviving tough times.
1. Communicate, Communicate
If your farm is facing financial hardship, be honest with your lender, landlords and family. Klinefelter believes that’s one of the reasons he survived the 1980s.
“We had a negative net worth in 1987, and I think the only reason they let us survive is because of our communication,” Klinefelter says. “They knew where I was, what was happening, what our plans were, and they even helped to design some of our plans.”
2. Pay Your People
Sometimes how the money gets spent requires a choice. Klinefelter says making payroll the first option is a good investment.
“I’ve heard stories of people not being able to pay their help or not paying employees to instead pay someone else,” he says. “We’ve always been open about what we’re doing.”
3. Rethink or Redefine Success
Take a hard look at career and business goals.
“I spend more time thinking about unwinding my businesses and what is going to survive after me,” Klinefelter says. “My kids are successful and not coming back to the farm. My biggest success is three good kids and eight good grandkids.”
4. Focus on the Bottom, Not the Top
Farmers tend to focus on the best yielding genetics or selling at the highest point in the market. Instead, they should put more emphasis on cutting off the bottom.
“Raise your average by cutting off the worst performers or bottom 20%,” Klinefelter suggests. “People spend so much time trying to hit a home run, they forget about the singles and doubles.”
5. Chase Real ROI
Farmers are known to slam the checkbook shut when markets head south. You don’t have to adopt every new technology, but pay attention to what works and make decisions that fit a need and have a good ROI.
“Take the Keeton seed firmer,” Klinefelter says. “At $5 corn, there’s a 1,200% return on that product in the first year, and it lasts for three to four years. Getting a finger meter checked can cost $35, but it provides the same return. Don’t be blind to a real opportunity.”
6. Know Your Plan, Adjust Your Plan
Making a plan is important for your business, but it doesn’t mean it shouldn’t be flexible.
“Every plan ought to be a living plan, no matter what it is,” Klinefelter suggests. “You can’t lock in and just go tunnel vision. Some things you need to see to the end, but there are other times you need to step back and say: Okay, is this working or not?”
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