Farmers are digging deep to deal with collapsing farm economy, but don’t call it a crisis | Illinois Public Media News
Farm income has suffered a long, hard fall, dropping 50% since peaking in 2013. Add to that near-record levels of farm debt, and you have a recipe for financial stress.
But while economists say they can see storm clouds forming, it’s not a full-blown crisis. That’s because relatively few farms have been pushed beyond the breaking point into Chapter 12 bankruptcy — or, worse, complete farm loss.
Nebraska farmer Ben Steffen felt the worst with milk prices last year. Sales at his 150-cow dairy fell 20% as the U.S. trade dispute with Canada and Mexico dragged on and exports lagged.
“We went through 2018 with nothing on the horizon for better markets,” said Steffen, who also grows corn, soybeans and wheat near Humboldt in southeast Nebraska. “Sad to say, 2018 was a tough year, but 2019 is where we will lack the ability to manage this cash flow crisis.”
Like many farmers, Steffen postponed her purchases in an effort to save money. Normally, he keeps a year’s worth of hay on hand to feed his dairy herd, but he didn’t fill that supply last year.
“(C) this bill is coming and it is watching us. This has happened throughout agriculture. We are eating our capital,” he said.
It’s like walking a financial tightrope, he added, as if one misstep could be catastrophic: “It’s quite difficult to look around the community and say that some of us will survive and some don’t.”
“Check engine lights”, but no crisis
More farms filed for bankruptcy in many states in 2018, raising fears that the downturn in the farm economy is reaching a new level. But looking at loan repayment rates and comparing debt levels with farm assets shows that the agricultural sector is doing well, at least on paper.
Take Chapter 12 bankruptcy, which was designed specifically during the farm crisis of the 1980s to allow farmers and fishers to restructure their debts without selling the entire business.
Last year, nearly 500 farms filed for Chapter 12, and several states have seen their numbers rise for three consecutive years, including Nebraska and Kansas. Wisconsin led the nation with 49 filings in 2018.
As the prospect of growing bankruptcies conjures up memories of farms that went bankrupt by the dozens, U.S. Department of Agriculture chief economist Robert Johannsson said last month that the rate is low even compared to the boom in the agricultural economy from 2010 to 2012 and “well below the rates of the 1980s”.
“There are a lot of check engine lights on with the dashboard,” said David Widmar, the website’s economist. Agricultural Economic Prospects. “The measures we are all talking about are moving in the wrong direction.”
Farm income is emerging as a red flag among financial statistics, said Nathan Kauffman, Omaha branch manager at the Federal Reserve Bank of Kansas City.
Not only have the tariffs hurt dairies, they have also reduced exports of major crops like soybeans. As a result, grains have accumulated, driving down commodity prices to the point where they are at or below break-even. Even if tariffs are lifted in the near future, it will take time for the industry to overcome the glut.
“Whatever happens with trade policy, I think these supplies are likely to continue to weigh on commodity prices for the foreseeable future,” Kauffman said. He’s looking to see if that trickles down to other key indicators of long-term financial stress like loan repayment rates and land values.
But the story with these statistics is the same as with the rest of the agricultural economy: progressively worse, but not bad by historical standards.
“You know, it may still linger for a little while, but it certainly hasn’t gotten to the point where we would call it the kind of crisis like the 1980s,” Kauffman said.
A warning from Chapter 12
There’s a catch when it comes to Chapter 12, the farmer-friendly bankruptcy code: you can’t have more than about $4 million in debt.
That may seem like a lot of money, but today’s farmers have near-record levels of debt, around $410 billion according to the USDA. But much of it is needed because of the high cost of land and machinery; a new combine harvester, for example, will cost a farmer about $400,000.
From his office in downtown Denver, Guy Humphries, a longtime bankrupt, peered down at the United States Bankruptcy Court building below. Humphries, who specializes in farm bankruptcies, said he spotted a trend.
“I had several farm deals over the past two years where their debts were too high,” he said.
And that puts farmers at a serious disadvantage, he explained.
When filing under Chapter 12, the court takes into consideration the seasonal nature of a farmer’s livelihood. Payments to creditors are adjusted to meet a farmer’s cash flow, which varies depending on the commodity market. Certain types of debt can even be canceled.
It’s a safety net in the event of another agricultural crisis and it keeps the barn doors open.
But there are certain criteria to be eligible. To begin with, more than 50% of the annual income must come from farming and the farmer’s debt cannot exceed $4,153,150.
These are the details that tripped up Colorado-based meat company Boulder Enterprises when it went bankrupt.
Unlike a Chapter 12, the court ordered that the company’s assets be frozen and it immediately halted its operations. That’s according to company owner Chad Anderson, who told Harvest Public Media that he has 70,000 chickens left on his farm, BeeBee Farms LLC, and only three days worth of feed.
More than half of the chickens were taken to the slaughterhouse and processed, Anderson said, but the remaining 30,000 had to be donated. The company even contacted local zoos to ask if they could feed the birds their carnivores.
Volunteers from the Luvin Arms Animal Sanctuary in Colorado collected 610 of the birds.
“Some of the birds we brought in had wounds on their bodies and they were literally being eaten alive,” said sanctuary worker Crissy Denardo.
Volunteer Peter McKosky helped find new homes for nearly all of the rescued chickens.
“When we’re talking about animal agriculture, bankruptcy presents this really unique problem because we’re not talking about strawberries or cucumber cases,” he said.
Raising the debt ceiling
While most family farms are still eligible for Chapter 12, the USDA shows that the share of those with too much debt has slowly increased over the past decade. And what defined a family farm in the 1980s is no longer relevant in today’s economy, said John Newton, economist at the American Farm Bureau Federation.
“Raising the debt ceiling really needs to reflect the modernity of agriculture, the way it has changed so much over the past 20 to 30 years,” he said.
It’s a problem that US Senator Chuck Grassley, a Republican from Iowa, wants to solve by raising the debt ceiling from $4 million to $10 million. He introduced bipartisanship legislation last year and plans to bring it back to this Congress.
Of course, the average American might wonder why family farms — 3% of which exceed $1 million a year — get special treatment over other businesses. Newton said agriculture is essential to our country’s rural economies and food supply. Moreover, it is an industry rooted in volatility.
“Agriculture is the only sector of the American economy where Mother Nature is your business partner,” said Newton, whose organization is not pushing for Grassley’s legislation.
Farmers who produce chickens or operate dairies, such as Steffen in Nebraska, are particularly vulnerable because they have incurred the most debt. According to the USDA, low profit margins have forced them to scale up operations, buying more animals and equipment in order to make a profit.
Meanwhile, the vast majority of farmers in the United States are making it through the current downturn by spending savings, borrowing on land and cutting costs. On paper, it still seems manageable.
But Steffen said it was scary to face reality.
“We live on the reservations we have,” he said. “Farming can be a fun business if you don’t mind losing sleep and borrowing a lot of money.”