Agricultural loan arrears and bankruptcies increase

After several years of low farm income and rising debt levels, a review of data from the Federal Deposit Insurance Corporation’s Quarterly Call Report reveals that commercial agricultural loan default rates across the real estate and non-real estate lending industries are at a six-year level. high.

For the first quarter of 2019, 2.5% of commercial real estate loans in agriculture were more than 30 days past due, up from 2.1% in the previous quarter and above the historical average of 2.1%. Similarly, 2.3% of non-real estate agriculture loans held by commercial lenders were more than 30 days past due, down from 1.5% in the prior quarter and above the historical average of 1.7% . The first quarter of 2013 was the last time default rates were this high for commercial lenders. Figure 1 highlights the default rate of real estate and non-real estate loans held by commercial lenders.

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Although crime rates are well below post-recession levels, they are above the historical average and trending in the wrong direction due to several years of low farm incomes exasperated by extreme weather events and continued business disruptions ( USDA’s Early Look at 2019 Farm Income).

While average annual delinquency rates have increased for 24 consecutive quarters, farm bankruptcies have also increased in the previous 12 months. Through June 2019 and in the previous 12 months, there were a total of 535 Chapter 12 bankruptcy filings, up 13%, or 60 bankruptcies. The number of Chapter 12 filings in the past 12 months is the highest since 2012’s 582 filings. The increase in bankruptcy filings is a notable change given that bankruptcy levels have fallen over the past year. calendar year 2018 versus 2017, for example, Farm Bankruptcies in 2018 – The Truth is Out There.

Chapter 12 Bankruptcies by State

The total number of bankruptcies filed by state varies widely, ranging from no bankruptcies in some states to as many as 45 filings in others, as shown in Figure 2. Oregon, Nevada, New Mexico, New Jersey, Rhode Island and Delaware had no Chapter 12 bankruptcies last year, based on US court data. These states have consistently had a low number of bankruptcies over the past decade. In contrast, Wisconsin, Kansas and Minnesota led the nation in Chapter 12 filings; bankruptcy filings in Kansas and Minnesota have increased so significantly over the past year that they have reached the highest levels in a decade.

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As shown in Figure 3, in some states the total number of bankruptcies filed was down, but those that have seen an increase have seen a significant increase over the past year. Kansas has had 13 more Chapter 12 bankruptcies in the past year, up 50% from the 12 months ending June 2018. Oklahoma also saw a significant increase in bankruptcies. agriculture, with deposits more than doubling from the previous year. However, southeastern states, such as Tennessee, Mississippi, Georgia, and Florida, saw smaller numbers of filings, though those changes weren’t as drastic.

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Chapter 12 Bankruptcies by Region

In the year ending June 2019, Chapter 12 farm bankruptcies increased in every region of the United States except the Southeast. However, there were still a significant number of bankruptcies filed in this region (Figure 4). The Midwest and Southeast saw the most filings, 240 and 100 bankruptcies over the past year, respectively. The Midwest grew from 215 filings over the prior year to 240 filings, an increase of 12%. The largest increase in bankruptcies, 50%, occurred in the Northwest, which includes Washington, Oregon, Idaho, Montana and Wyoming.

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Summary

In the United States, agricultural loan arrears and Chapter 12 bankruptcies are on the rise. Deteriorating financial conditions for farmers and ranchers are the direct result of several years of low farm incomes, poor returns on farm assets, growing debt, more natural disasters, and the second year of tariffs. retaliation on many American agricultural products.

The administration and Congress have done a lot to help farmers and ranchers, including passing the 2018 Farm Bill, passing a disaster relief package, and providing a second round of relief payments. to the trade of the market facilitation program, for example, what to expect in the New disaster relief package, USDA announces the details of the new trade relief package and the estimate of the payments of aid to the dairy trade.

In addition to these financial assistance programs, the House of Representatives recently passed the Family Farmer Relief Act, which updates Chapter 12 bankruptcy eligibility. Chapter 12 bankruptcies offer a seasonal repayment schedule on a period of three to five years and lower costs compared to other chapters.

Currently, there is a debt limit of $4.1 million, preventing many family farmers from filing Chapter 12 bankruptcies. The Family Farmer Relief Act raises this limit to $10 million, allowing more farmers from qualifying under Chapter 12. It also gives producers and their creditors a better chance to reorganize and avoid mass liquidation, ultimately preventing further consolidation in the agricultural industry.

Combined, these administration and congressional efforts, along with the approval of the United States-Mexico-Canada agreement and the opening of new markets around the world, will help American agriculture reverse the negative trend of rising bankruptcies, low farm income and growing difficulty in maintaining records. – high agricultural debt.

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