Agricultural Economics
Farm Bankruptcies in the United States Declining farm income and farmland values are creating financial pressures for US farmers especially for farmers who have high debt-to-asset ratios. These pressures could lead to an increase in the number of US farmers being delinquent on their loans and farmers filing for bankruptcy.
Bankruptcy rates seem to be a lagging indicator of financial stress after debt levels rise and delinquencies on agricultural loans for land, equipment and supplies increase. According to the USDA’s Economic Research Service, the national debt-to-income ratio is projected to be 14 percent this year, a rate that has risen steadily since 2012.
Farm bankruptcy rates (chapter 12 filings) have remained relatively low during the last decade. The rate rose from 1.93 bankruptcies per 10,000 farms in 2015 to 2.15 bankruptcies per 10,000 farms in 2016. The agricultural downturn during the last three years has resulted in a small uptick in farm bankruptcy rates.
While there is a considerable variation across the US, farm bankruptcy rates remain low and stable for several Midwest states. According to Katchova and Dinterman say that if we experience another two to three years of flat or declining income levels, it will be much harder to farmers to service debts, putting them in a vulnerable position.
They add that there are steps farmers can take today to address vulnerability which include reducing costs, renegotiating land rents, and restructuring. If farmers are facing severe financial stress, they can utilize Chapter 12 that allows farmers to continue farming while their debt is restructured.
Katchova presented the farm bankruptcies research at the Federal Reserve Bank of Chicago Ag Conference on Nov. 29, 2016, and at the USDA’s Agricultural Outlook Forum on Feb. 23, 2017.
View Katchova and Dinterman’s USDA Ag Outlook Forum presentation and read their April 2017 Farm Bankruptcies Policy Brief. Learn more about research conducted by Ohio State’s Farm Income Enhancement Program by visiting go.osu.edu/farmincome.
Key Highlights: · Farmers have a variety of chapters to file for bankruptcy with Chapter 12 being specifically designed for farmers and fishermen to reduce their financial burden while continuing operations. · Farm bankruptcy rates (chapter 12 filings) have remained relatively low during the last decade, but the agricultural downturn during the last three years has resulted in a small uptick in farm bankruptcy rates. · While there is a considerable variation across the US, farm bankruptcy rates remain low and stable for several Midwest states.
