The effect of a good year for Minnesota agriculture is evident in the University of Minnesota Extension Farmer-Lender Mediation Program's annual report. The number of lenders sending notices requesting mediation of troubled Minnesota farm debts dropped by 24 percent during the fiscal year ending Sept. 30, 2011.
This is the first time in four years the activity in the program decreased, according to Dick Senese, Extension senior associate dean.
"In recent years, farmer-lender mediation has given farm operations the chance to stay in business until better times," Senese said. "These are better times for agriculture, but there are still situations where farmers and their lenders rely on this program to help them work together to renegotiate, restructure or resolve their debts.
The report showed there were 494 cases in which farm enterprises used mediation to reach agreement with lenders about debts. In 1,718 additional cases, the right to use mediation to resolve debt was waived by the farmers involved. The amount of debt addressed in mediation dropped by almost 65 percent from $624 million in fiscal year 2010 to $221 million in fiscal 2011.
Farming is a cyclical business and most farm enterprises had a good year in 2012, according to Brian Buhr, Extension economist and head of the university's applied economics department. That increase in farm profitability made it easier for farmers to pay their bills on time and avoid troublesome situations with lenders. Most remarkably, livestock profitability has returned as moderating crop prices and rising livestock prices have increased margins, he added.
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 who are 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 Extension's Farmer-Lender Mediation Program or to access the annual report, visit www.extension.umn.edu/community/mediation.