Robert Donald from Moravia, New York has a question regarding farm bankruptcies.
“The Chapter 12 law designed for family farm bankruptcy has a cap of $4,153,150. Farmers filing bankruptcy over that dollar amount do so [usually] using Chapter 11. These bankruptcies are not included in that list of 500 or so of Chapter 12 Farm bankruptcies reported on TV. If this is the case what would the real story of the farm economy be to include these mega farm bankruptcies with the Chapter 12 Bankruptcies?”
Robert, thanks for writing, and much of your question was answered last week in Tyne’s report. Larger farm bankruptcies are impossible to sort out from other Chapter 11 cases, but as a rule they create their own publicity in the ag media, and have been relatively rare. The bigger question for me is if tracking farm bankruptcies is a good way to judge the farm economy. To begin with, the small numbers exaggerate changes and trends. Bankruptcies are a lagging indicator with a long delay, so by the time we see any sharp change, the economic conditions could be obvious or completely different.
What I watch is equipment sales (both new and used), land rents, and farm show attendance. All these are areas where farmers make cutbacks relatively early. I recommend following Machinery Pete for those equipment markets. AgWeb and other farm media have a steady stream of rent info, although those numbers are always incomplete and questionably representative. And when looking at farm show attendance, compare to previous years and be careful to sort out producers from other industry attendees.
You will notice I do not list net farm income - predictions or actual - or land prices. This not because they don’t provide important data, but because they are slower to change, and muddied by non-farm income and outside investment respectively. For instance, farms with enough off-farm income to meet living expenses can struggle on for years with a money-losing farm operation.
But there is another aspect about farm bankruptcies that troubles me – basically whether making them easier is a good idea. One farmer’s fresh start is another farmer’s cost increase. I’ll explain my thinking on this next week.