As the price of land rose, so did the Kuhns' ability to borrow, although the small country bank where Keith's father' had done most of his business told the son that his borrowing needs were getting larger than the bank could handle. The Kuhns took their business to the Sioux City PCA and found the vault doors open. Keith was asked to sit on the board of directors. The farm's revenues rose 329% from 1975 to 1980, to $4.3 million, but the Kuhn's began to see that they weren't making much more money. And in the bad years they were losing a lot.
Debt reached a peak of $2.9 million the year their youngest child was a year old. And four-fifths of the Kuhns' outstanding obligations were short-term. Keith's mother had lived through the Depression, and she told her son she thought he was flying pretty high. But Keith didn't think the problems were that serious. "Everybody was doing it," he says.
The star producers of the county had mortgaged their land to get the capital to take advantage of new improved cultivators, tractors, and a market that was encouraging them to plant from fence post to fence post. Then, when they were extended as far as the value of their assets would allow them to borrow, interest rates nearly doubled, the bottom dropped out of the land market, a two-year drought reduced their crop yields, and hog prices hit a five-year low.
"There were a lot of tears around here," says Keith.
The local banks and credit associations began to realize that nearly half of their largest borrowers were in trouble and that the land, their primary collateral, was dropping in value and taking months or even longer to be sold. Fewer and fewer farmers anywhere were making money, and sociologists were starting to question the future of the family farm. Nearly every dollar the local banks and the PCA had lent was tied to the family farm somehow. So when the farmers were the most strapped for cash, the lenders forced the borrowers to cut back. They told farmers to sell their land, their cattle (even if it wasn't market weight), their hog breeding stock, and their fancy tractors, and they told them to do it in a hurry.
The Kuhns didn't particularly care for the idea of selling land that had been in the family for generations. They didn't see how they would ever make it if they were forced to sell their stock of breeding hogs. For a time, Keith says, he wasn't sure it was worth getting up in the morning to check hogs he was losing money on and to plant seeds for a crop priced at less than it cost him to grow. He didn't know exactly what the problem was or how to fix it, but he did know that if a Kuhn was going to fritter away the family farm, he would rather it be a later generation.
Keith Kuhn doesn't remember the ad in Beef magazine that convinced him he ought to fly out to Denver to hear a couple of consultants he didn't know speak about the farm of the future, but he went. He didn't like a lot of things he heard, such as that land ownership was too expensive at current interest rates for most family farms to afford. And although Van Dusen seemed friendly enough, Ferguson made him feel as if he were "2 cents waiting for change." Still, if these men weren't exactly optimistic about the row most farmers were hoeing, they at least saw alternatives for the few producers who were willing to take stock of their operations and choose a more profitable course for the future. They knew their ratios and what lenders wanted, and Keith knew Kuhn Farms had to make changes. He flew home, talked things over with Dorothy for about 24 hours, and called Ferguson. He told them that what Kuhn Farms required was an "operations review," a detailed analysis of their current financial position and where their practices were taking them.
Dorothy says she "about had a heart failure" when she heard what kind of information the two consultants were going to need. The Kuhns had always considered Dorothy's record keeping a strong point of their operation, and compared with most farm businesses, it was. But Ferguson and Van Dusen were asking for a greater level of precision and detail than Keith and Dorothy imagined possible -- balance sheets and cash-flow statements and profit-and-loss statements for the previous five years, down to the last dollar. They wanted pro forma data for the next three years. They wanted to know what the crop projections were, how much would be spent on seed, how much on fertilizer, how many pounds of corn the cattle ate and when, whether the corn would be ready when the cattle needed to eat it, or whether they might have to buy feed from the local elevator. They wanted to know how much the salaries of the hired men were going to increase.
Dorothy spent day and night, week after week in the office. "My family suffered," she says. "My house suffered." Her children asked why she was in the office so much. One daughter, then six, asked her mother if she was "ever going to get that cash flow straightened out."
As Ferguson worked his way through the numbers Dorothy and Keith provided, he began to see that the Kuhns' situation was more serious than anyone had thought. Although the agricultural part of their operation was a model of efficiency, the financial trends were disturbing, if not frightening. The Kuhns discovered they had been technically insolvent for the previous two years. (They are not alone. Some 75% to 80% of the farmers Ferguson sees are technically insolvent.) Although revenues had increased 329% from 1975 to 1980, expenses rose 316%. Interest expenses were nearly 20 times greater, increasing from $24,000 in 1975 to $450,000 in 1980. If the Kuhns were to continue on the path they were on, interest costs for 1980 would reach a staggering $623,000, or more than 20% of total production expenses. For each $1.46 of new debt they had incurred in the previous six years, they were producing only $1 of sales. The good news was that unlike some of their less fortunate neighbors, they still had a positive net worth.
