For generations, American farmers have tilled and planted the soil and then passed the fertile earth down to their children. But many analysts say that the strains in the rural economy may bring the return of the tenant farmer.
Low income and high debt in the corn belt are increasing the possibility that many more farmers will lose their land and resort to renting to stay close to the soil, analysts say.
The past three years have brought a harvest of troubles to the American farm family: declining incomes, lower land values, high interest costs, a glut of farm products on world markets, a high dollar that has made U.S. commodities expensive abroad, and a credit squeeze that has led to farm foreclosures and desperation -- even murder and suicide in the heartland.
Government and private economists said they don't expect any improvement in that harsh picture this year, although conditions may stabilize.
As a result of poor incomes and cash flow and the tightest credit squeeze since the Depression, more families will leave their farms next year, according to the Department of Agriculture. A recent survey of 1.7 million farms showed that about 214,000 are under financial stress because of high debt loads and an inability to earn enough cash to repay principal and interest on loans, meet production expenses and provide for their families. About 38,000 farms are technically insolvent, with debts exceeding the value of their assets, the government said.
Some of those farmers who have to give up their land will return to it as renters, the government said. "Since some farm operators will be unable to own the land they farm, the tenant farmer may re-emerge with an improved social and economic image from the low-income tenant farmer image of the '30s," according to a recent USDA staff report.
"It is unfortunate, but it's probably true that more of our individual owner-operators, the kind of farm family that's been the backbone of our agriculture for years, will lose their farms and be forced to become tenants or lose their livelihood," said Charles L. Frazier, a spokesman for the National Farmers Organization.
"What has happened is the emergence of the idea that it's not feasible to own all the land that you farm," said Ross Korves, an economist with the American Farm Bureau. "There is no social stigmatism to renting land."
"In the 1980s there's more of a realizaton that unless the land has been built up over generations, it's not practical to own a lot of farm land," Korves said.
Better times will depend on whether the dollar continues its decline of the past 11 months; the effects of government policies such as the new farm bill and legally mandated budget cuts; interest rates; worldwide crop production and consumption; the weather, and the availability of credit.
One of the toughest rows the farmers must hoe will be trying to pay off old debts while the availability of new farm credit is declining, economists said.
"The continuing difficulties of the nation's farmers, now spreading into the financial system, will lead to closer scrutiny of farm operations, additional caution and conservatism with respect to approval of new loans and requirements of more complete documentation as a basis for lending," said John R. Brake, a professor at Cornell University. "Lenders are scared about the financial condition of agriculture."
According to a recent report by the Farm Credit Administration, the poor performance of commercial agricultural banks in the second quarter of 1985 led them to be more cautious in lending to farmers, a situation that Agriculture Department officials said probably won't improve this year.
Net write-offs of farm production loans at commercial banks were $520 million in the first half of 1985, up 80 percent over the first half of 1984, the FCA said. "Historically, the fourth quarter is the most active period for bank charge-offs, so total charge-offs for the year will easily exceed $1 billion, compared to $900 million in 1984," the FCA said.
Loan delinquency rates at agricultural banks continue to rise, suggesting that loan write-offs will remain high, the FCA said. At the end of the second quarter, total nonperforming loans -- ones in which the borrower has not kept up the contractual agreement -- were 7.3 percent of the total portfolio at agricultural banks, compared with 5.7 percent during the same period in 1984, the FCA said.
Nonaccrural loans, which are the worst in the delinquent category of nonperforming loans, were 5.2 percent of all loans at agricultural banks, compared with 3.8 percent a year earlier, the FCA said.
In 1984, 12 percent of agricultural banks had net losses compared with an average of 1 percent in the 1970s, the FCA said. Agricultural banks now account for 37 percent of all banks on the Federal Deposit Insurance Corp.'s problem bank list, although they make up only 28 percent of commercial banks.
As of Sept. 24, 82 commercial banks failed in 1985, of which 49 were considered to be agricultural banks. Of 78 banks that failed in 1984, 32 were agricultural, the FCA said.
One reflection of the credit problem is the precarious state of the Farm Credit System, a cooperative owned by the farmers and others who borrow from it and which holds about one-third of the nation's $214 million agricultural debt.
During the third quarter, the 37 banks in the Farm Credit System lost $593 million. Production credit associations, which borrow money from 12 Federal Intermediate Credit Banks to relend to farmers, had third-quarter losses of $143.1 million.
Nonperforming loans reported by the farm credit banks were $10.6 billion on Sept. 30, compared with $9.8 billion on June 30, the FCA said. The portion of those loans that were nonaccrual increased from $2.02 billion on June 30 to $3.5 billion on Sept. 30.
Last month, Congress passed a rescue package for the Farm Credit System, calling for a reorganization and giving the federal Farm Credit Administration more regulatory power. It also would open the way for federal aid to prop up the FCS.
Still, as many as 35 to 45 percent of commercial farming operations will need major restructuring of their debt and an additional 10 to 15 percent of them won't be able to continue farming as a result of falling crop prices and a steep drop in the value of farm land.
Other economists said that the farm sector may have defaults of about $20 billion worth of loans in the next three years.
To exacerbate the dismal credit problems, the Farmers Home Administration said that soon it may begin notifying farmers that if they are delinquent on federal loans they must take steps to repay or restructure those loans, or face foreclosure.
The notices will be mailed to all farmers who were at least $100 behind in loan payments at the end of last month -- about 90,000 farmers, or one third of all those who took out FHA loans.
One reason the credit problem for farmers is not expected to improve is that their incomes are not expected to rise as their world-wide market shares shrink, economists said. Many parts of the world have had bumper harvests, particularly the Soviet Union, China and India, which were big grain importers, economists said.
Although consumption of crops is rising, it's not increasing as fast as production. "Intense competition from other exporters will cause further shrinkage in the U.S. share of world farm trade in 1985/1986," according to USDA staff reports. "Thus U.S. farm exports, after dropping sharply in 1984/1985 to $31 billion, are likely to drop even further in the coming year."