The following commentary by Paul Neiffer, The Farm CPA, does not necessarily reflect the views of AgPro or Farm Journal Media. The opinions expressed below are the author's own. Paul is now part of the fourth generation in America that is involved in farming and hopes the next generation will be involved also. Through his blog he provides analysis and insight to farmer tax questions.
Reuters Investigates just published an article on how the "go go" farmers of the past few years are facing extreme financial difficulties. The key definition of a "go go" farmer is a farm operation that expanded aggressively with debt during the good farm years (2005-2013) and are now in financial difficulties. Some of the facts in the article are as follows:
•The total dollar amount of nonperforming bank farm loans in the three key "I" Ag states (Iowa, Illinois and Indiana) shot up to $288.2 million in the second quarter of 2016 from $132.5 million in the second quarter of 2013.
•Chapter 12 bankruptcy filings (special farm bankruptcy filing) are up 51 percent during the same period and for Iowa, the increase is over 125 percent.
•Extremely leveraged grain and other row crop operations (debts totaling more than 71% of assets) doubled to 2.4% between 2012 and 2015 and is likely higher this year.
It is estimated that one in three farm operations are classified as highly leveraged or very highly leveraged, meaning their debts are at least 41% of assets. Many of the "go go" farmers were younger and had not seen a downturn in the farm economy (like their parents saw during the 1980s). It was very easy to borrow money when times were good and the banks were very cooperative (they knew if they did not make the loan, another bank would).
Although interest rates are low compared to the 1980s, when current farmers start missing payments, the rates start to increase and in some cases, the rates can be very high as the article points out in one situation (an annual rate over 2,000%).
Most of the farm economy still has substantial liquidity and net worth, but this may not apply to the "go go" farmers.