Many anticipated an increase in farm bankruptcies in 2018 because of projections for the third-least net farm income in the past decade, record nominal agricultural debt, increasing debt-to-asset ratios and interest rates, and continued headwinds for agricultural-commodity prices. But that’s not currently the case.

Caseload statistics from the U.S. courts indicate that for the 2018 fiscal year, which ended Sept. 30, there were 468 Chapter 12 bankruptcy filings, a decrease of 8 percent or 40 filings from the prior year. Filings in fiscal year 2018 decreased from prior-year levels but were about 25 percent more than in 2014.

Chapter 12 bankruptcies are designed for family farmers or family fishers with “regular annual income.” They provide a framework for financially distressed farmers to repay debt during a three- to five-year period. Chapter 12 bankruptcies allow for seasonal payments to account for harvest and marketing schedules for farmers and ranchers.

While there was a slight decrease from the 2017 fiscal year during which 508 Chapter 12 bankruptcies were filed, the data from fiscal year 2018 highlights the difficult financial conditions across portions of rural America. In four district-court regions Chapter 12 bankruptcy filings increased from year-ago levels. Those districts represented producers in the Northeast, Midwest and Rocky Mountain regions.

Of the 468 filings in the 2018 fiscal year, more than 50 percent or 252 filings were in the 2nd, 7th, 8th and 10th circuit-court districts. Those districts are concentrated with traditional row-crop, livestock and dairy production. In those areas year-over-year increases in Chapter 12 filings ranged from 16 percent to 45 percent.

While bankruptcy levels are decreasing, the U.S. Department of Agriculture does not project improvements in solvency and liquidity ratios. The USDA projects the debt-to-asset ratio to increase in 2018 to 13.4 percent – the greatest level since 2009 and the sixth-consecutive year of increasing debt-to-asset ratios.

In addition to increasing debt and debt-to-asset ratios, the debt-service ratio is projected to increase to 27.8 percent – the greatest level in 30 years. The current ratio is projected at 1.44, the least since the series was first recorded in 2009 by the USDA. Poorer-performing farm-financial indicators suggest some farms may soon be unable to service debt with existing assets.

Summary

There are many different bankruptcy-filing options. But Chapter 12 “family farmer” or “family fisher” bankruptcies are viewed as the best indicator of farm-bankruptcy trends. Those bankruptcies represent financially distressed family farmers who needed to restructure financials and propose a repayment plan to avoid a liquidation of assets or foreclosure. Despite expectations that those bankruptcy levels would increase in 2018, Chapter 12 filings decreased 8 percent during the 2018 fiscal year.

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John Newton is the chief economist with the American Farm Bureau Federation. Visit www.fb.org for more information.