MEDICINE LODGE ? Farmers who survived years of drought in Kansas are finding it harder to convince their bankers they can hang on another season as soaring fuel prices drive up the costs of running tractors, pumping irrigation water and buying fertilizer.

Many more are turning to the Kansas Ag Mediation Service for help in dealing with their ag lenders as high fuel prices erode profit margins and make it harder to pay back loans.

“It is significant,” agency attorney Forrest Buhler said, of fuel prices. “They are not just talking about it. It is directly affecting them.”

Some farmers are retiring sooner, before their equity is wiped out.

Among them is Medicine Lodge wheat grower Melvin Cunningham. The 73-year-old farmer said this would be his last harvest – and he blamed fuel prices in part for his decision to pass the family farm on to his grandson while he still had some equity left in it.

“You can only cut (expenses) so much. When you get to rock bottom, it becomes a matter of are you going to farm or not farm,” Cunningham said as he pumped $2.07-a-gallon gasoline into his farm truck at the local co-op. Even farm diesel fuel is hovering above $1.80 in town.

By the time Cunningham had finished pumping, he had put in $245 worth of gas into his tank – and was relieved it was far less than the $500 he had expected because there was still some gasoline left in his tank.

“Our fear is we don’t know if it is over yet, the price increase,” he said.

Danville Cooperative Assn. employee Montie Womack fills farm diesel fuel into his delivery truck at the co-op in Danville. Womack, who has been delivering fuel to farmers since 1968, said fuel costs were the highest he has ever seen.

Big budget item

The impact of high fuel prices this growing season was projected in a newly released study by Kansas State University ag economists Kevin Dhuyvetter and Terry Kastens.

Using data supplied by the Kansas Farm Management Assn., economists said farmers in places like drought-plagued northwest Kansas could expect their total fuel-related expenses to increase by $17,000 this season. That includes the cost of running farm vehicles, fueling their irrigation pumps and buying energy-dependent fertilizer.

While their increased fuel-related costs amount to only 7 percent of the typical farm budget, it’s significant because farm profit margins are tight – usually running at 5 percent, Kastens said.

“There is going to be an impact. The positive side is most farmers are in pretty good condition equity-wise. As long as things don’t go on forever, they are OK,” Kastens said. “It is the ones hanging on a thread. … Those are the farmers being pushed over the edge.”

It takes a lot of fuel to run a typical grain farm.

In northwest Kansas, for example, fuel costs for vehicles account for about $15,000 of the farm budget, Kastens said. Irrigation costs add another $20,000 on top of that. Fertilizer costs – which are comprised mostly of energy-dependent nitrogen fertilizer – piles on another $23,000 in expenses.

If diesel prices stay high, it could begin affecting things like rental rates for irrigated cropland in western Kansas when those contracts are renegotiated, Kastens said. If fuel costs stay high long enough, overall farmland values will drop as the real estate market adjusts.

Delayed hit

In the middle of the growing season, some farmers already are going to their lenders for an increase in their operating loans. Lenders say they expect the full impact of fuel prices to hit later this year as farmers run out of operating funds before the fall harvest comes in.

Thad Henry, vice president of The People’s Bank in Pratt, had just gotten off the phone with a Pratt farmer already wanting a bigger operating note to cover his fuel expenses.

“In the middle of a production year a lender doesn’t have a lot of choices, nor does the producer,” Henry said. “If you have two-thirds of your inputs already in a crop, it doesn’t make any sense to let the crop deteriorate.”

The impact of the 2005 fuel prices will not show up in delinquency rates until November at the earliest – when many farm loans come due, he said.

“A huge item that may be overlooked here is energy costs have gone up considerably,” Henry said. “If income went up substantially we could deal with it, but today it would appear grain prices are going to be down 15 percent, maybe more, from a year ago.”

Loan delinquencies at the state’s largest ag lender – the Agriculture Department’s Farm Service Agency – are now at the lowest level in at least 15 years, said Arlyn Stiebe, the agency’s farm loan chief in Kansas.

Delinquencies decline

The nation’s farmers overall have enjoyed back-to-back years of record high farm income after two years of large harvests for major crops and high prices for livestock and milk.

As of May 31, FSA delinquencies in Kansas were running at 5.9 percent of the agency’s roughly 3,000 borrowers. That compares to 10.2 percent a year ago at this time. During drought-stricken 2003, delinquencies shot as high as 15.4 percent. In 2002, they were at 10.3 percent.

But times are still tough for farmers trying to survive in drought areas. While delinquencies are down, foreclosures are up, Stiebe said.

“The thing I am seeing is this is maybe the last straw,” Stiebe said. “I am seeing a lot of financial statements from borrowers that are loaned to the max. … If they don’t have at least a normal year, or better, some of those are definitely going to be in trouble.”

For the fiscal year ending in September 2004, the agency foreclosed on 19 Kansas farms. So far this fiscal year they have already had 11 foreclosures and seven others pending with more than three months left to go.

That compares to 2003 when there were nine FSA foreclosures.

“The big difference I see now – compared to the big farm crisis of the 1980s – is that people are looking at reality and saying the smart decision is to get out while I still have something,” Stiebe said.