Farm Bankruptcy Rates Are Sure to Rise, Says Analyst
The sharp decline in farm income and erosion in farmland values since commodity prices collapsed in 2013 are early signs that the farm bankruptcy rate, now a low 2 per 10,000 farms, is on the rise, says economist Ani Katchova of Ohio State University. “Bankruptcy rates will probably continue to go up in 2017 and beyond if current conditions continue,” the associate professor said at USDA’s Outlook Forum.
The rise will be constrained by the strong equity position of many farmers and the fact that many operators have off-farm income, said Katchova. At present, indicators of financial stress, such as the debt-to-asset ratio, are at benign levels, although inching upward. The bankruptcy rate is a lagging indicator, registering movement after debt ratios increase and loan delinquencies accumulate.
Loan delinquencies are modest considering the plunge in farm income, says economist Nathan Kaufman of the Kansas City Federal Reserve Bank. “Farmland values … by and large, have remained relatively strong,” he says. “There are still options (for lenders) to work with borrowers.”
Joseph Deufel, chief credit officer of AgStar Financial Services in Mankato, Minnesota, says a written plan covering a three- to five-year period helps farmers and lenders navigate uncertain conditions. Tools such as benchmarks of average costs may “accelerate the rate of change that a producer is willing to make,” he says.
This article was produced in collaboration with the Food & Environment Reporting Network, an independent, nonprofit news organization producing investigative reporting on food, agriculture, and environmental health.