Farm bankruptcies across the U.S. rose again in 2019, as a prolonged slump in commodity prices, poor weather and the ongoing trade war with China squeezed farmers.
Farm bankruptcies rose 20% nationally in 2019 and 16% in the Upper Midwest, according to data released by the federal court system.
While the absolute numbers are small, they have been rising steadily since 2013, a year after the most recent peak in farm profits. Farm bankruptcies in Minnesota, Wisconsin, Iowa, South Dakota and North Dakota were three times greater last year than in 2013. Small dairy farms have led the way.
Chapter 12 filings are the tip of the iceberg when it comes to farm financial troubles. Some farmers file for Chapter 7 bankruptcy and liquidate their holdings. Farmers with more than $4.2 million in debt cannot file for Chapter 12, and corporations or partnerships in which no single farmer owns more than 50% of the farm more often file for Chapter 11 bankruptcy.
The extended downcycle since the 2012 peak has led farmers to take on more debt and lenders to demand more collateral. Alternative lenders fill some gaps.
“The situation is just kind of dragging out and wearing people down,” said Kevin Klair, director of the Center for Farm Financial Management at the University of Minnesota Extension. “The big difference between this and the 1980s is we’re not falling off a cliff. It’s a slow, painful grind.”
Winter is when row crop farmers go to the bank for a new line of credit to pay for seed, fertilizer and other planting expenses for the year. That requires demonstrating to a lender that they can pay back the money.
More than half of Minnesota bankers surveyed by the Federal Reserve Bank of Minneapolis in the fall said fewer farmers were able to repay their loans.
“Maybe 10% to 15%” of farmers are struggling to find a lender right now, said Aaron Brudelie, a farm business management instructor in Welcome, Minn.
“They’re either needing to put up more collateral to get a renewed operating note, or they’re having to sell something,” Brudelie said.
The first thing a farmer will sell is underused farm equipment, Brudelie said. Selling land is “the last resort,” he noted, in part because bankers often demand land as collateral.
Low interest rates, high land prices and the trade war bailout from the U.S. Department of Agriculture helped farmers withstand a poor year in 2019 brought on by the trade war and wet spring. But the downward trend is unmistakable and without an elusive rebound in corn and soybean prices it will continue.
“We have fewer farmers now than we did five years ago that can self-fund their operation,” said Keith Olander, a farm business management instructor in Staples, Minn.
Off-farm jobs have been a financial lifeline for thousands of Minnesota farmers, Olander said.
Median farm income in the state was $26,000 in 2019, and Olander said when family living expenses and debt service are calculated, that median farm came out $31,000 in the hole for the year. This isn’t an abstraction for Olander. He has a database of 2,600 real farm’s financials.
“Average family off-farm income was over $30,000 so that’s how they make it work,” he said.
