2020 Farm Bankruptcies

Recent increases in commodity prices continued ad-hoc financial assistance to combat natural catastrophes, retaliatory Tariffs, and coronavirus losses have been too late for some farmers across the United States. 

2020 Farm Profitability: False Positive. New caseload statistics released by the United States Courts show the impact of multiple years with low commodity prices, delayed disaster relief distribution, and a subsequent global pandemic. 

They show that Chapter 12 bankruptcy filings for family farms and family fisheries totaled 552 in 2020. This is down 43 filings or 7% from 2019, but still the third-highest in the past decade.

District Court Bankruptcies

According to data from District Courts, Chapter 12 bankruptcy filings were most common in Wisconsin (39 filings), followed by Kansas (35) and Nebraska (32), respectively. Eastern Wisconsin had 30 filings. The ten District courts made Forty-eight percent of all Chapter 12 bankruptcy filings, with the most filings in 2020. 

In 17 districts, the number of Chapter 12 agricultural bankruptcy filings has surpassed or exceeded decade-high levels. These areas include Iowa, South Dakota, and Montana, as well as Eastern Wisconsin. Many of these industries have been affected by low commodity prices for maize, soybeans, and wheat over the years.

In 33 of the 94 districts, Chapter 12 bankruptcy filings increased over the previous year. The largest increase in Chapter 12 filings was seen in Eastern Wisconsin, which had 15 files. 

Vermont, however, had 13 filings. Forty-four In addition,  districts saw a drop in Chapter 12 filings compared to previous years. The largest drops were seen in central Georgia with ten fewer filings and western Pennsylvania with nine fewer.

In the last decade, there have been nearly 5,000 farm bankruptcy filings. This represents less than one-fourth of all American agricultural businesses. The Association of Chapter 12 Trustees found that more than half of these cases would end in a Chapter 12 reorganization or a mutually acceptable resolution. 

This could lead to the case being dismissed or converted to Chapter 7. (Farm Bankruptcies slow, more aid needed).

Western Wisconsin made the most submissions in the last decade with 255. Next came Puerto Rico (not displayed), Kansas with 209, and eastern California with203. Middle Georgia had 192 filings. The ten most filed districts accounted for nearly 38% of the total national total over the last decade.

Summary

In recent years, many farmers have been plagued by low commodity prices, high production costs, rising agricultural land value, rising cash rents, and rising labor costs. Many farmers rely on off-farm income, but COVID-19 and insufficient internet connectivity have limited this. Many heavily indebted farmers, particularly new or beginning farmers, couldn’t afford to pay high crop prices and high input expenses.

According to the Kansas City Federal Reserve, commercial bank default rates continue to rise. As a result, the USDA temporarily stopped debt collection, foreclosures, and other agricultural loan operations to assist farmers in need. According to the USDA, the new debt suspension measures will benefit more than 12,000 farmer borrowers.

Although the number of Chapter 12 bankruptcy filings has declined from last year, this should not mean that the agricultural sector has improved. Due to the difficulties of working remotely during pandemics, the decline in Chapter 12 bankruptcy filings may not reflect actual economic conditions on the farm. 

For example, in 2020, there were nearly 230,000 fewer bankruptcy filings than in 2019. (774,940 files in 2019 compared to 544.463 filings for 2020). To remain eligible for the Paycheck Protection Program loans, many small agricultural businesses may delay filing bankruptcy.

Many farmers have taken steps with their lenders to reduce operating expenses, sell assets or transfer their business to avoid bankruptcy. Unfortunately, chapter 12 bankruptcy is often the last option. A farm’s multiyear descent toward insolvency is unlikely to be reversed by a single year worth of good agricultural income.

The USDA will release its first Farm Income Forecast 2021 on February 5. Many expect increased cash revenue from livestock and agricultural sales. However, some costs will rise, and ad-hoc government assistance will decrease. The net effect of 2021 will be a decrease in net farm income but an increase above the average.

The key to transforming the farm economy is a COVID-19 rebound, increased demand for biofuels, higher U.S. agricultural exports, and new sources of income such as climate-smart practices or ecosystem services markets.

 

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