The Backstory on Bankruptcies

Sunset ( Margie Alsbrook )

With 2018 in the rearview mirror, Chapter 12 bankruptcies for the year totaled 498. As a whole, that number is down 1%, or three filings, from 2017, according to the U.S. Courts and American Farm Bureau Federation (AFBF) analysis. However, bankruptcies as an aggregate don’t tell the full story.

“While we have fewer filings as a whole, we also have fewer operations, so bankruptcy rates per 10,000 farms is actually higher than last year,” says John Newton, chief economist, AFBF.

In 2017, there were 2.04 million farms in the U.S. with a bankruptcy rate of 2.46 per 10,000 farms. Based on the average loss of 1% of farms annually during the past decade, the 2018 estimate for farm numbers sits at 2.025 million. Put that number up against the 498 farm bankruptcy filings and the bankruptcy rate per 10,000 farms is estimated to have climbed slightly to 2.49.

“That’s not a huge jump or statistically significant from an economist’s perspective, but nonetheless it does point to higher farm bankruptcies as a percent or ratio of the total farm population,” Newton explains.

On a state and regional level, bankruptcy filings in 19 states were higher than 2017. “The Midwest saw farm bankruptcies accelerate in 2018, coming in about 19% higher than last year and about double what they were 10 years ago,” Newton says.

The 223 filings in the Midwest in 2018, the most in that region in the past decade, is 60% higher than the 10-year average of 141 filings. Bankruptcy numbers were also higher in the Rockies, Southwest and Northeast. In the Pacific, bankruptcies were the lowest in 10 years, and in the Southeast they were the lowest since 2013.

The concentration of farm bankruptcies in the Midwest aligns with wheat, corn and dairy producing states. Cash receipts have fallen by 45% since 2013 for wheat and 33% for corn from 2012. For dairy farms, cash receipts fell by nearly 30% from 2014 to 2015 and have remained well below the 10-year average.

“Add to that the tariff situation with some key markets, which has certainly created headwinds for farmers and ranchers,” Newton says.

The Backstory on Bankruptcies