There is no farm bankruptcy crisis | American Institute of Enterprise
In his March 6 op-ed in The Wall Street Journal, Sen. Michael Bennet (D-CO) wrote that in 2018, sector-wide net farm income was down $9.1 billion from the he previous year, with record farm debt, and that in his home state of Colorado, farm bankruptcies were twice as high as in 2008. All largely attributable to President Trump’s trade policies. He concluded that the number of farm bankruptcies is much higher today than ten years ago during the “Great Recession”. In fact, his story on farm bankruptcies uses hand-picked data and is false. The agricultural sector is not experiencing a financial collapse.
In 2018, of the 2.2 million farms that produce food and fiber nationwide, only 501 farms filed for Chapter 12 bankruptcy (the only metric for which bankruptcy data is available). consistently available since the mid-1980s). It is true that in 2008, a year when maize and wheat prices reached very high levels, only 345 farms filed for bankruptcy. However, the number of farms that filed for Chapter 12 bankruptcy was 544 in 2009, 723 in 2010, 637 in 2011 and 512 in 2012 – all years in which crop and livestock prices were abnormally high. students. The real point is that bankruptcies among farms were exceptionally low in all those years, as they were in 2018. They are also likely to be low in 2019, a year in which farm income is expected to rise. about $7 billion more than it was in 2018 according to forecasts by the United States Department of Agriculture.
The senator is right to say unequivocally that in 2018, as a direct result of the current administration’s trade policies, prices for some agricultural products were significantly lower. On the crop side, these products include soybeans, peas (garbanzo beans and others) and lentils. On the livestock side, pigs are included. Prices for wheat, maize and some other crops have also fallen, but trade-related impacts have been very modest.
Senator Bennet is also correct that farm debt is at an all-time high. Although data is only one side of the industry’s financial ledger, and considered in isolation, an incorrigibly misleading indicator. By historical standards, agricultural assets are also at an exceptionally high level. In fact, the agricultural sector’s current debt ratio of 13.5% – a much more relevant indicator – is close to its twenty-year average level of 13.6%, and only slightly above its 2011 high of 11.3%.
Another important indicator, the rate at which loans to farmers are non-performing, currently hovers around 1.5%. This figure is higher than that of the agricultural commodity price boom years of 2012 and 2013, but remains very modest. There is no evidence of an impending agricultural financial crisis, and relative to most other sectors of what is still a vibrant economy in the United States, the agricultural sector continues to more than hold its own.
So many farmers would be a bit richer in the absence of Trump’s trade war initiatives: yes! Are farm bankruptcies exceptionally high and the US agricultural sector in financial peril? There is no proof of this.