Farm bankruptcies hit nine-year high; impact of higher debt cap remains unclear

Chapter 12 family farm bankruptcy filings soared in 2019 to their highest level since 2010 as unusually brutal weather heaped more stress on an agriculture sector already reeling from the trade war with China and multiple years of low commodity prices, according to court filings, an economist and a farmer.
 
Year-to-date through 30 December, the total number of Chapter 12 family farm bankruptcy filings jumped to 567, well above the 469 seen in all of 2018, according to court filings posted via the Pacer federal court filing service. That is the highest number of annual filings since 2010’s total of 646, and a notch above the 565 filing made in 2011.
 
“It’s hard to predict when this thing is going to slow down,” said John Newton, chief economist with the American Farm Bureau Federation. Bad weather including flooding in the Midwest hurt some farmer’s profits this year along with uncertainty around trade. “Folks are anxious to see us get back to normal trade relations [with China],” Newton said.
 
Many say the distress is even greater than the bankruptcy numbers suggest because — unlike during the 1980s farm crisis — land values have largely held up, allowing troubled farmers to tap their equity for more debt or sell and get out of farming altogether.
 
“The real question for Chapter 12 is, will anything happen to reduce asset values?” said Roger Johnson, president of the National Farmers Union. “As long as that doesn’t happen [many farmers] are just going to quit before they file a Chapter 12.”
 
It’s not yet clear how many of the new filings are coming from larger farms following an August change in bankruptcy laws that raised the operating debt cap to USD 10m from USD 4.2m.
 
A 25 March Debtwire Investigations report, "Bitter Harvest: Debt and the Bankrupting of the American Family Farm," found that the increase in farm distress had reignited calls for changes to Chapter 12 to increase the number of eligible debtors by raising the operating debt cap. Joe Peiffer, an Iowa attorney who specializes in farm bankruptcies, said he has not yet seen a surge of filings from larger farms and expects it will take more time for troubled larger farms to decide whether to take advantage of the new law.
 
Independent Community Bankers of America — which was opposed to the higher cap — also has not seen signs of an onslaught of larger farm bankruptcies, according to Mark Scanlan, senior vice president of agriculture and rural policy.
 
Still, distress remains a concern for bankers, according to Steven Handke, regional president of First Option Bank which serves Kansas and Missouri. On 11 December, Handke testified before the House Agriculture Committee that market facilitation payments from the Trump administration have been one of the keys to keeping farmers paying their bills.
 
“We may be witnessing the beginning of an uptick in the number of farm loans being considered sub-standard,” Handke said. Flooding in the Midwest and other weather calamities are taking a toll, he added. “Banks have been able to lend using real estate as collateral,” he said. “But the impact of catastrophic weather conditions in several states may reduce real estate values locally making it more difficult to restructure debt or inject working capital into the operation.”
 
Long-time farmer Carol Clement, who raises grass-fed beef cows and chickens on Heather Ridge Farm in upstate New York, is not surprised to hear of the rise in family farm bankruptcies. Although her farm has survived and evolved over the decades, each year is a “nail-biter” — in part because so much infrastructure was lost during the 1980s farm crisis when many farms shut down. For example, there are very few meat processing plants left near her farm so travel to them raises the cost of the meat, she said.
 
“I have to make appointments for animals to get slaughtered before they’re even born,” Clement said. “That’s crazy and it takes experience. All of us small farmers have to find a way to build up infrastructure and services again.”