Lincoln Journal Star: As ag economy continues to struggle, farm bankruptcies rise

As ag economy continues to struggle, farm bankruptcies rise

MATT OLBERDING Lincoln Journal Star

December 1, 2018

Farmers are filing for bankruptcy in Nebraska in numbers not seen in quite some time.

Through October, there had been 25 Chapter 12 bankruptcy filings in in the state, already more than the 20 cases filed all of last year.

Chapter 12 is the bankruptcy category most often used by agricultural producers hoping to reorganize their finances because it is easier to file than a true business bankruptcy but allows higher debt limits than what’s allowed with an individual bankruptcy filing.

While 25 is a relatively small number, it’s double the number of Chapter 12 filings in the state in 2016 and triple the number in 2015.

The Nebraska numbers are in contrast to the rest of the nation, which saw Chapter 12 filings fall in the most recent federal fiscal year.

According to data compiled by Farm Bureau Chief Economist John Newton, there were 468 Chapter 12 filings in the 12 months that ended Sept. 30, down 8 percent from the previous 12 months, although the number was still higher than every other year since 2012.

However, farm bankruptcy filings increased 45 percent in the seven-state region of Nebraska, North and South Dakota, Minnesota, Iowa, Missouri and Arkansas that’s covered by the 8th Circuit court district.

A recent analysis from the Federal Reserve Bank of Minneapolis also showed that farm bankruptcies in Minnesota, Montana, North and South Dakota and Wisconsin have more than doubled since 2013.

The big driver putting pressure on farm finances is declining farm incomes.

Creighton Economist Ernie Goss said net farm earnings are projected to be lower in the first half of 2019 than they were in the first half of 2018 (which were lower than the same period in 2017).

"This is very likely to push bankruptcies, foreclosures and loan restructuring to the highest level in decades," Goss said in an email.

Corn prices have hovered below $4 a bushel for the past four years, while soybean prices dropped to their lowest level in a decade earlier this year, largely due to a trade fight with China that has led to a huge drop in exports to that country.

Trade issues and low crop prices are two of the main reasons ag producers’ finances are suffering. Two others, according to Goss, are rising interest rates, which make loan repayments more difficult, especially for loans tied to short-term and flexible interest rates, and, especially in Nebraska, increasing property taxes.

Goss said that from 2013-2017, farm income in the state dropped 45 percent while ag property tax valuations went up nearly 64 percent.

"High and rising property taxes are having major impacts on farmers, especially those in Nebraska," he said. "For corn alone, property taxes per bushel amount to approximately 25 percent of the price of the corn."

The Federal Reserve Bank of Kansas City said in its most recent Ag Credit Survey that the sharpest drop in farm incomes in the third quarter occurred in states heavily dependent on corn and soybeans, including Nebraska, where 60 percent of bankers reported a drop in income among their ag clients compared with last year.

The Kansas City Fed said that while overall ag loan repayment rates have remained steady this year, those for loans linked to corn and soybean producers, as well as hog and dairy producers, have declined faster than in 2017.

That’s leading to more loans being put on a "watch" list, meaning they are being closely monitored for potential problems. According to the Ag Credit Survey, nearly 20 percent of agricultural bank loans in Nebraska were on a watch list, the most of any state in the Kansas City Fed’s district.

In a Wednesday hearing at the Lincoln-Lancaster County Planning Commission about a potential wind farm, Nebraska Farmers Union President John Hansen predicted about 10 percent of farmers will go out of business this year, largely because banks will not renew operating loans.

Nebraska Farm Bureau Senior Economist Jay Rempe offered a similar forecast, saying about 10-15 percent of agricultural producers are "going to have to make some tough decisions with their bankers next year."

That could include selling assets. The Kansas City Fed reported that the share of bankers with ag borrowers planning to sell mid- to long-term assets increased from around 75 percent a year ago to nearly 85 percent.

Those who intend to sell land could find a tough market. In March, the University of Nebraska-Lincoln’s Department of Agricultural Economics released its 2018 Trends in Nebraska Farmland Values and Rental Rates, which showed that average farmland values in the state were down 3 percent from last year and 14 percent since 2014.

Rempe said the hope is that farm income will start stabilizing next year and turn to growth after that. A lot of that will be dependent on the global economy, particularly trade issues, he said.

However, he said that if things don’t start getting better in the next year or so, especially on the crop side, the number of ag producers in distress will grow.