Agriculture's good times crumbled

File Several hundred farmers came out to a sale of farm machinery and equipment at an implement dealership near Aledo in March 1986. The equipment for sale all had been repossessed by the National Bank of Aledo when farmers forfeited loans in 1985. Officials at the auction estimated that the bank would get a return of 75 cents on the dollar.

It was an era when land prices rose, making many farmers millionaires based on land holdings alone. Money flowed freely and it was cheaper to borrow money than to save it.

Farm equipment sales skyrocketed and factory workers worked overtime. Nearly everyone's life was good.

Then it crumbled. It didn't hit like Black Monday in 1929, which marked the beginning of the Depression. It was more gradual, but nearly as devastating to thousands of farmers forced to liquidate.

It also affected thousands of Quad-Citians who were among the 286,100 Illinois workers who lost jobs in manufacturing from 1979 to 1984. Those jobs largely came from agriculture-related fields, like John Deere where employee numbers dropped from 67,000 to 36,000 between 1979 and 1987.

Farmers weren't buying; they couldn't afford to. The number of combines manufactured industrywide dropped from 40,000 in 1979 to 8,000 in 1987.

While the number of combines sold in 1998 reached 12,500, it is highly doubtful sales will reach the 1979 figure again, according to Deere & Co. spokesman Ken Golden.

``There was downsizing and significant cuts,'' Mr. Golden said. ``But Deere remained intact. We're the only company that did not merge or go out of business, and I think that says a lot for us.''

Most of the mergers came about in the mid-1980s. One of the more significant was the 1985 merger of J.I. Case, owned by Tenneco and International Harvester. Steiger joined the mix, with the new company becoming Case IH.

The second most significant merger was that of Allis Chalmers and several small companies who formed Agco in 1985. Massey Ferguson and White joined Agco, as did several other minor players.

A less significant merger was Sperry, New Holland and Ford in 1986.

Farmers weren't buying new equipment and many were unable to pay for what they had bought. Farm auctions became the order of the day as lenders foreclosed on outstanding loans.

In March 1986, former American Farm Bureau president Dean Kleckner said, ``It will take years and years before the trauma years are forgotten. They will still be painful memories for today's farmers, similar to the Depression years of their fathers and grandfathers.''

Farmers who survived the 1980s intact are slow to borrow today, Dana Frye of Amcore Bank in Aledo, said. Lenders who remain in the business have become more cautious, better lenders, he said.

``The motif of the day is `Let us not forget,'|'' Mr. Frye said. ``About 80 percent of the lenders in place today have never had a bad ag credit. In the 80s I saw a lot of seasoned people leave the industry. Some loan officers weren't comfortable and couldn't look the farmer in the eye. We went through about five years of it.''

While it is a general belief there was a massive exodus off the farm during that time, Dave Lins, University of Illinois professor of financial management, said figures show it was less than 4 percent each year, which is not extreme.

Several factors are to blame, according to lending experts. One is interest rates. The federal policy was to hold down interest rates regardless of inflation, Mr. Lins said.

During the 1970s, interest rates were at 8 to 10 percent while inflation was at 12 percent, Mr. Lins said. Instead of saving money, people were borrowing.

At the same time, land values were going up.

While commodity prices weren't showing the same growth, government supports, low interest rates and the belief that with more land, more grain could be raised and sold, gave everyone a false sense of security.

``Those were the three key factors,'' Mr. Frye said. ``The government got very aggressive, creating cash flow supports at a higher level with politicians promising they were going to be there; bankers had an excellent availability of low price credit; rapid growth in exports assured farmers they could sell more grain.

``During the expansion you couldn't make a mistake,'' Mr. Frye said. ``It was a fun time, always saying yes.''

In 1979, however, the Federal Reserve Board made a drastic change in policy. It allowed interest rates to go where they would, Mr. Lins said. Farmers with variable interest rate loans were hit hard as interest rates rose past 16 and 17 percent.

Exports decreased, commodity prices dropped and the bottom fell out of land prices. ``It was a black hat time,'' Mr. Frye said. ``We saw 20 years of equity consumed in two years.''