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Farm debt is also expected to reach its highest ever level in 2019.
Across the country, farmers are struggling with particularly difficult financial realities. The past year has seen extreme flooding in the Midwest and drought in the West, a tariff war that resulted in commodity prices plummeting, and falling land value.
That combination of factors has left some wondering about the health of America’s farming economy, and worrying that the country may be headed toward a farm crisis like the one seen in the 1980s, when farmers experienced mass foreclosures. Testifying before the House Agriculture Committee in February, U.S. Agriculture Secretary Sonny Perdue sounded the alarm on debt. “Farm debt has been rising more rapidly over the last five years, increasing by 30 percent since 2013—up from $315 billion to $409 billion, according to USDA data, and up from $385 billion in just the last year—to levels seen in the 1980s,” Perdue said.
Now, new figures from the American Farm Bureau Federation are also sparking concern. From October 2018 to September 2019, Chapter 12 farm bankruptcies rose 24% from the prior year and reached the highest level since 2011. Twenty-seven states saw a rise in bankruptcies compared to the previous year. The report also estimates that farm debt will rise to $416 billion by the end of 2019.
“Farmers are amassing more debt as the cost of farming continues to increase,” said John Newton, the chief economist at the AFBF and the author of the report. As a result, farmers are taking out operating and real estate loans, and resorting to bankruptcy when they can’t pay them back.
Chapter 12 bankruptcies are only open to family farmers and family fishermen, allowing them to restructure their finances to avoid foreclosure. Farmers must propose a plan to pay creditors within three to five years. This year, President Trump signed into law the Family Farmer Relief Act of 2019, which increased the debt limit for Chapter 12 bankruptcy eligibility from $4.4 million to $10 million. Farm debt is largely held by commercial banks and the nationwide Farm Credit System, a network of lending cooperatives.
Farms in the Midwest were particularly hard hit by bankruptcies in the past year, which Newton said is the result of persistently low commodity prices on corn, soybean and wheat, all staples of the region. More than 40% of the 580 farm bankruptcies happened in the heartland, and the region filled the top ten list for states with the highest numbers of bankruptcies. Wisconsin came in first, with 48 filings. Nebraska, Kansas, Iowa, and Minnesota were also in the top ten. Much of the Midwest experience bankruptcy filings at or above ten-year highs.
Those numbers are ringing alarm bells in a region where direct agriculture jobs—including farming and ranching—make up around 8% or more of a state’s total jobs.
But in writing about farm bankruptcies in 2018, researchers Robert Dinterman and Ani Katchova from the Ohio State University said that it is important to note that bankruptcies are only one indicator of the agricultural industry’s health. When looking at incomes, the picture is equally bleak. The researchers wrote that “it is a testament to farmers’ resiliency that there have not been more chapter 12s filed over the past five years of declining net farm incomes.”
Farmers in some states have seen steeper income declines than others. In 2018, the median income for a farmer in Minnesota was $26,055, a drop of 8% from the year before. Farmers in the bottom quintile reported losing nearly $72,000. Those numbers, compiled by the Center for Farm Financial Management at the University of Minnesota, paint a grim picture for farmers, said professor Dale Norquist in a statement. “We don’t have consistent numbers that go back that far, but it is very likely that 2018 was the lowest income year for Minnesota farms since the early 1980s,” he said. “That said, the previous five years were not much better, so many Minnesota farms have had a string of low-income years and that has both financial and emotional impacts.”
The AFBF report did note that overall farm income in 2019 is expected to hit a five-year high, at $88 billion. But nearly 40% of that, around $33 billion, is not money made by farmers from selling their wares. Instead, a large share comes from state and federal disaster relief, trade assistance and the Farm Bill.
Newton said that $19.5 billion of that $33 billion is from federal aid. “That’s not typical,” he said. “We’ve had two years of adverse weather with flooding in the Midwest and two Category 5 hurricanes (Hurricanes Michael and Dorian), and the impact of tariffs. A normal federal outlay would provide relief to farmers based on price fluxuations.”
Part of the reason for the low income outside of government aid has to do with the U.S.-China tariff standoff. In response to tariffs on Chinese products imposed by the Trump administration, China instituted a 25% tariff on U.S. agricultural goods. As a result, from January to August 2019, China purchased only $8 billion in U.S. agricultural goods—compared to $19.5 billion in 2017.
The trade war and the onslaught of natural disasters that destroyed farmland in the past few months have led some states to consider mental health services directed toward farmers who may be struggling to handle a tough situation. Wisconsin this year funded a voucher program for farmers who can’t afford mental health counseling, and several states offer rural crisis hotlines, which function similarly to suicide hotlines while also connecting farmers to long term mental health resources.
One milk processing cooperative in New England made headlines last year when it started sending out suicide hotline information to farmers along with their checks—which were often not enough for farmers to break even on production. "Farm families are incredibly resilient, but some members may want to take advantage of helpful programs where they can talk with experts about work and financial stress, depression and anxiety, grief counseling, substance abuse and family relationship issues,” the insert read.
The AFBF report ended on a cautionary note. “While [bankruptcy] filings remain well below the historical highs experienced in the 1980s, the trend is a concern,” the report reads. “The support provided to farmers in 2018 and 2019 is expected to alleviate some of the financial stress, however, not all farmers will benefit from trade assistance, farm bill programs, crop insurance or disaster aid. As a result, it could take some time for the financial relief to manifest in the farm bankruptcy trends.”
Newton said it was important to keep perspective on the issue. “There are more than 2 million farmers across the country, and 500 bankruptcies is a small percentage of those,” he said. “But make no doubt, each one of these farms is a key component of their rural communities. They provide critical jobs and commodities.”
Emma Coleman is the assistant editor for Route Fifty.