Increase continues in number of farmers, lenders using debt mediation
Even though farm prices rebounded during 2010, the lingering effects of low livestock prices, high feed costs and a lagging economy are evident in the University of Minnesota Extension Farmer-Lender Mediation Program's annual report.
For the third straight year, activity in the program showed increases during the fiscal year ending September 30, 2010, according to Richard Senese, Extension associate dean for community vitality and public engagement.
"Farmers and their lenders continue to rely on the program to help them work together to renegotiate, restructure or resolve their debts," Senese said. "Farmer-lender mediation gives farm operations the chance to stay in business until better times."
The report showed there were 545 cases where farm enterprises used mediation to reach agreement with lenders about debts. In 1002 additional cases, the right to use mediation to resolve debt was waived by the farmers involved.
The amount of debt addressed in mediation nearly doubled from $322 million in fiscal year 2009 to $624 million in fiscal 2010. The number of notices sent by lenders to farmers offering mediation increased by 9 percent during fiscal 2010.
Many well-managed operations are experiencing financial stress due to dramatic volatility in feed costs and market values, according to Brian Buhr, Extension economist and head of the university's applied economics department. It's likely this volatility will remain until there is greater overall economic certainty, he added.
"Low livestock profits and ripple effects from the general economy are contributing to the increase in the number of farm enterprises seeking mediation," said Buhr. "Pork and dairy profitability only recently began rebounding after extended losses due to high feed costs and lower product demand. And just as things started to improve, crop price increases have again led to higher feed costs."
Minnesota law requires that creditors with a secured debt of more than $5,000 against an agricultural property offer farmer-lender mediation before proceeding with foreclosure, repossession, cancellation of contract or collection of a judgment.
Farmers offered mediation can take advantage of a 90-day period to work with lenders to renegotiate, restructure or resolve their debts. A team of mediators, financial analysts and other University of Minnesota Extension professionals manage the program as neutral parties.
Mediation is an informal and confidential process that generally requires less cost and time than adversarial court litigation. To be eligible for farmer-lender mediation, a debtor must own or lease more than 60 acres and earn more than $20,000 in gross agricultural products the preceding year.
Extension's Farmer-Lender Mediation Program, part of USDA's Certified State Agricultural Mediation Program, tracks the number of notices offering mediation-not the total number of farms involved in mediation. The number of notices received is far more than the number of farms involved in mediation. Most Minnesota farm businesses involve multiple family members, and each family member or entity whose name appears on a debt obligation may receive a notice offering mediation.
For more information on University of Minnesota Extension's Farmer-Lender Mediation Program or to access the annual report, visit www.extension.umn.edu/community/mediation.