Agriculture Bankruptcies Increasing, Chapter 12 Changes Providing Relief

(WASHINGTON, DC) Following several years of low farm income and rising debt levels, a review of Federal Deposit Insurance Corporation (FDIC) quarterly call report data reveals that the delinquency rates for commercial agricultural loans in both the real estate and non-real estate lending sectors are at a six-year high. For the first quarter of 2019, 2.5 percent of commercial real estate loans in agriculture was more than 30 days past due, up from 2.1 percent in the prior quarter and above the long-run average of 2.1 percent. According to an analysis by the American Farm Bureau Federation (AFBF), the last time delinquency rates were this high for commercial lenders was the first quarter of 2013. Now, Chapter 12 farm bankruptcies are increasing in every region of the United States, except for the Southeast. The deteriorating financial conditions for farmers and ranchers are a direct result of several years of low farm income, a low return on farm assets, mounting debt, more natural disasters and the second year of retaliatory tariffs on many U.S. agricultural products. The administration and Congress have done a good deal to assist farmers and ranchers, including passing the 2018 farm bill, as well as a disaster aid package, and providing a second round of Market Facilitation Program trade assistance payments. In addition to these financial assistance packages, the House of Representatives recently passed the Family Farmer Relief Act, which updates Chapter 12 bankruptcy eligibility. Chapter 12 bankruptcies provide a seasonal repayment schedule over a three- to five-year period and lower costs relative to other chapters. Currently, the Family Farmer Relief Act raises the cap to $10 million, allowing more farmers the opportunity to qualify under Chapter 12. This also gives producers and their creditors a better chance to reorganize and avoid mass liquidation, ultimately preventing further consolidation in the agriculture industry.