Released November 4, 2009

MINNEAPOLIS/ST. PAUL — An increasing number of farmers and lenders are using mediation to resolve farm debt issues, according to the University of Minnesota Extension Farmer-Lender Mediation program’s annual report.

Every measure of activity in the program showed sizeable increases during the fiscal year ending September 30, 2009, said Richard Senese, Extension Associate Dean for Community Vitality and Public Engagement.

For the 12 months prior to Oct. 1, 2009, there was a 55 percent increase in the number of notices filed by lenders for loans eligible for mediation, totaling 3,107 such notices. These notices resulted in 1,192 requests for mediation, a dramatic 86 percent increase over the previous year. The total amount of debt involved in mediation was $322 million, more than double the amount in 2008.

The report showed 422 notices that led farmers and lenders to reach agreement about a debt. For an additional 533 notices, farmers and lenders are currently in mediation in hopes of reaching an agreement.

“This is important because it demonstrates that famers and their lenders are using the program to work together and agree how to renegotiate, restructure or resolve their debts,” Senese said.

A chart comparing program activity between 2008 and 2009 can be accessed at http://www.extension.umn.edu/go/1011 (PDF).

Low livestock prices and ripple effects from the general economy are contributing to the increase in the number of troubled farm loans. Pork and dairy prices have been below the cost of production for more than a year on many farms.

“Many well-managed operations are experiencing financial stress because of large changes in feed costs and market values,” said Brian Buhr, Extension economist and head of the university’s Department of Applied Economics. “Farmer-lender mediation provides a way to restructure debt and give the operation a chance to stay in business until better times. Mediation also helps other related businesses such as feed dealers, veterinarians and equipment suppliers who depend on livestock producers for income as well."

Buhr explains that while losses are expected to continue into 2010, futures prices suggest profitability may return during the second quarter of 2010.

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 their 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 have more than $20,000 in gross of agricultural products the preceding year.

The Minnesota Farmer-Lender Mediation program is part of USDA's Certified State Agricultural Mediation Program. The 2009 annual report is available at http://www.extension.umn.edu/go/1012.

For more information on Extension’s Farmer-Lender Mediation program visit http://www.extension.umn.edu/Community/Mediation.

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http://www.extension.umn.edu/extensionnews/2009/debt_mediation_increase.html

Writer: Ryan Mathre, University News Service, (612) 625-0552, mathre@umn.edu