OKLAHOMA CITY – Farm bankruptcies remain elevated across the nation as farmers and ranchers struggle with a prolonged economic downturn aggravated by “retaliatory tariffs” on U.S. agriculture and two consecutive years of “adverse planting, growing and harvesting conditions,” the American Farm Bureau Federation reported recently.
Chapter 12 farm bankruptcies in the U.S. were up 24% from the prior year and the highest level in eight years, data from U.S. Courts reflect.
The increase in farm bankruptcies was the highest in Oklahoma at 14, followed by Georgia at 12, California at 11, Iowa and Kansas at 10 each. Oklahoma had the sharpest increase in bankruptcy filings, increasing from two filings last year to 16 during the previous 12 months, the AFBF announced on Oct. 30.
All regions of the U.S. saw higher bankruptcy rates over the preceding 12 months compared to the prior year. More than 40% of the farm bankruptcies were in the 13-state Midwest region (which includes Kansas and
Nebraska); bankruptcies in the Midwest were up 13% compared to prior year levels and were at the highest level in more than a decade.
Chapter 12 bankruptcy filings in the Southwest (Oklahoma, Texas, New Mexico, Colorado, Arizona, and Utah) numbered 51 in the 12-month period ending in September 2019; that represented a 42% increase from the previous 12-month period.
One bright spot amid the gloom: For the third quarter of 2019, Chapter 12 bankruptcies nationwide decreased slightly, down 2% from the second quarter of this year.
Chapter 12 is available only for family farms and family fisheries suffering from serious financial hardship. Family businesses with significant debt and a willingness to repay the debt in the future may file for bankruptcy under Chapter 12.
The U.S. Department of Agriculture projects farm income in 2019 will reach $88 billion – the highest net farm income in five years but still 29% below 2013’s record high. However, nearly 40% of that income – some $33 billion in total – is related to trade assistance, disaster assistance, the farm bill, and insurance indemnities, and has yet to be fully received by farmers and ranchers.
Moreover, farm debt in 2019 is projected to climb to a record $416 billion, with $257 billion in real estate debt and $159 billion in non-real estate debt.
The repayment terms on this debt, according to data from the Kansas City Federal Reserve, reached all-time highs for a variety of categories. All non-real estate loans saw an average maturity of 15.4 months, feeder livestock had an average maturity period of 13 months, other livestock had a maturity period of 18 months, and other operating expenses, i.e., loans primarily for crop production expenses and the care of feeding livestock, had an average maturity period of 11.5 months – all record highs.
Put simply, farmers are taking longer to service their debt – a trend made easier due to historically low interest rates.
Annual average loan delinquency rates had increased for 24 consecutive quarters – six years – Farm Bureau Chief Economist John Newton wrote on July 31.
While average loan delinquency rates are well below levels experienced after the recession, “they are above the historical average and trending in the wrong direction due to several years of poor farm income exacerbated by extreme weather events and ongoing trade disruptions,” Newton wrote.