Midwest farm bankruptcies on the rise, with Wisconsin leading the way
MADISON – The financial pain of farmers in the Midwest has gotten the attention of the national media as farm income dropped in 2018 and farm bankruptcies rose.
The Wall Street Journal reviewed federal bankruptcy court data and reported that bankruptcies in three regions that include major farm states rose to the highest level in at least 10 years.
Reporters Jesse Newman and Jacob Bunge wrote that farmers filed for Chapter 12 bankruptcies in the Seventh Circuit Court of Appeals – Illinois, Indiana and Wisconsin – at double the rate in 2018 as compared to 2008. In the Eighth Circuit, including states from North Dakota to Minnesota to Arkansas, bankruptcies rose 96 percent. The Tenth Circuit had 59 percent more bankruptcies than a decade earlier.
States in those circuit court districts accounted for 48 percent of all U.S. Chapter 12 filings.
Conditions driving farmers to the protection of bankruptcy court include a slump in prices for their commodities, including corn, soybeans, milk and even cranberries. Exports, which could have helped bolster prices for farmers in many commodity categories have dropped dramatically in the wake of the Trump administration’s trade wars with large trading partners like China and Mexico.
A report from CoBank, the nation’s lender for cooperatives, noted that “unresolved trade disputes with Mexico, Canada, Europe and China are the greatest collective threat to the U.S. economy in 2019.” If the trade war isn’t ended, the CoBank analysis said that the value of U.S. agricultural exports this year is expected to be down $1.9 billion.
Continuing low prices, which seem to be immune to the price cycles farmers had been used to in previous decades, contributed to mounting debt as farmers either expanded at the wrong time and have to deal with those expenses, or borrowed on and eroded their equity as the bad years wore on.
The USDA has estimated that the median farm income was a negative 1,548 in 2018.
Paul Mitchell, professor of Agricultural and Applied Economics at the University of Wisconsin-Madison notes that Wisconsin has the dubious distinction of leading the nation in these farm bankruptcy filings – with 49. The next highest state was Kansas with 35; Nebraska had 27; Minnesota and Georgia each had 26. Texas had 25 and New York had 24.
Wisconsin’s rate is the highest it has been in over a decade and the filings were more than double the level experienced in 2009.
“The current Wisconsin farm bankruptcy rate is unusually high,” he said. “People are dealing with some serious troubles.” The state had a record number of farmer suicides in 2017 and has seen a 49 percent decrease in the number of dairy farms over the past 15 years. As of January 2019, the state had 8,110 dairy farms still in operation.
The farm owners who have filed for bankruptcy protection are all over the state and encompass a wide range of types of farms, Mitchell said, including small and large, organic and conventional, commodity and specialty crop producers. “It was all kinds of farms,” he said. “We couldn’t come up with a reason why Wisconsin has higher bankruptcies than our neighboring states. It’s frustrating.”
Chapter 12 of the federal bankruptcy code was created in the big “farm crisis” of the 1980s. It allows family farmers (and fishermen) to come up with a plan to repay their creditors over a course of three to five years. These provisions are only available to farmers who have debts less than $4.1 million.
According to USDA estimates, U.S. farm debt reached $309 billion in 2018, which is the highest level in 40 years, bringing back memories of the 1980s for those who were involved in agriculture then and lived through those years.
Farm income down
Net cash farm income for U.S. farmers was $93.4 billion in 2018, a drop of 8 percent from year-earlier levels and overall net farm income was 66.3 billion -- a drop of 12 percent from 2017. (Data came from the USDA’s Economic Research Service.)
That developed after farmers had a better year in general in 2017 than they had in 2016. The slight uptick two years ago followed a downward trend in farm income that has persisted since highs in cash farm income and net farm income in 2013-2014.
After hitting those highs in 2014, dairy cash receipts across the United States are down 7.1 percent through 2018 and beef cash receipts are down 1.4 percent.
As farmers know very well, expenses including interest, fuel, feed and labor, continue to rise even as income drops. Mitchell says expenses were up 4.2 percent in 2018.
In Wisconsin, net farm income over the last eight years showed a high in 2011 at over $3.5 billion but dropped sharply in 2012. It rose slightly to over $3 billion in 2013 and dropped again through 2016 to its lowest point since 2010. Last year, Wisconsin net farm income was $1.69 billion.
Meanwhile, Mitchell notes that government payments to U.S. farmers are up 17.9 percent, mostly due to $4.7 billion in payments in the Market Facilitation Program, designed to help farmers hurt by the retaliatory tariffs brought by our trading partners as a result of the Trump administration’s steel and aluminum tariffs.
All of that paints a picture, he notes, to show why Wisconsin led the nation in Chapter 12 bankruptcy filings from the period of October 2017 through September 2018, far surpassing neighboring states. Averaged over nearly 20 years (1997 through 2016) Mitchell said Wisconsin’s farm bankruptcies are 2.98 per 10,000 farms, which is the same as neighboring Michigan. However, last year that figure was 6.86 per 10,000 farms. It was nearly that high in 2017 and only slightly lower in 2016.
According to The Wall Street Journal reporting, another factor that is driving farm bankruptcies is tighter lending standards. Regulators are reportedly pressuring agricultural banks to use greater caution in their farm lending.
They also report that some farm-country bankruptcy attorneys have had to turn away clients because they don’t have enough staff to handle farm bankruptcies quickly enough.
Not everyone agreed with the report in The Wall Street Journal. John Newton, chief economist with the American Farm Bureau Federation, did his own review of caseload statistics from U.S. courts and noted that there were 498 Chapter 12 bankruptcy filings in 2018, which was down by three filings (or 1 percent) from 2017. Newton commented that Chapter 12 provides a “flexible and seasonal repayment schedule and at times may provide lower interest rates and reduce the overall debt burden.”
He commented that the Chapter 12 filings in 2018 were down slightly from the 10-year average of 504 bankruptcies per year.
Newton did agree that Chapter 12 filings were higher than year-earlier levels in 19 states. In the Midwest, bankruptcies totaled 223 filings and were up 19 percent from prior-year levels. The Midwestern bankruptcies were also double what they were in 2008 and stand at the highest level in more than a decade.
“So farm bankruptcies are both up and down,” he said.
Newton noted that there are fewer farms in 2018 than there were in 2017 so that while the total number of farm bankruptcies was lower in 2018, it’s possible the number of farm bankruptcies as a share of total farm operations was higher.