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Anticipated increase in farm bankruptcies didn’t materialize

Despite a cavalcade of precursors and dire predictions, Chapter 12 bankruptcy filings in the U.S. were down 8 percent in fiscal year 2018.

The predictions were based on a low net farm income, rising ag debt and interest rates, dragging commodity prices and rising debt-to-asset ratios. Those factors were still present, and while the 468 Chapter 12 filings in fiscal year 2018 were lower than the 508 filings in fiscal year 2017 (which ends each Sept. 30), the number was still 25 percent higher than the filings in 2014.

Experts also point out that more than half the filings were in areas of the country that concentrate on traditional row crops, livestock and dairy – ag businesses that have been hit hard in recent years. In these areas, Chapter 12 filings rose as much as 45 percent.

Problems still exist

In addition to the problems listed above, the USDA predicts the debt-service ratio is expected to rise by nearly 28 percent this year – the highest level in 30 years. Meanwhile, the debt-to-asset ratio is expected to climb to 13 percent, the sixth consecutive year of hikes.

The University of Missouri Food and Agricultural Policy Research institute offers these assumptions for upcoming production:

  • China’s tariffs will reduce the price of soybeans to their lowest level since 2006. Soybean acreage will drop by about 5 million acres
  • China’s tariffs will also slow hog prices while increased production will cause cattle and poultry prices to decline
  • A smaller corn harvest in South America and smaller wheat crops in Europe and Australia will cause corn and wheat prices to rise in the U.S. Each crop will increase by about 2 million acres to replace the soybean crop
  • Milk prices will drop as production increases and the international market weakens
  • Cotton and rice prices will remain flat

Chapter 12 is an indicator of farm health

Chapter 12 bankruptcies help family farmers restructure their debt into a repayment plan that allows them to keep land and equipment away from liquidation and foreclosure. Chapter 12 also allows for seasonal payments to accommodate the harvest schedule of farmers and ranchers.

Climbing debt-to-asset ratios, higher interest rates and fluctuating commodity markets are cause for concern among family farms. Although differences remain between today’s agriculture situation and the meltdown in the early 1980s – today’s debt-to-asset ratio is 13.4 percent while it was at 19.1 percent in 1982 – farmers and ranchers remain in the knife’s edge of solvency.

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