The number of U.S. farms restructuring debt by filing Chapter 12 were down slightly last year, but the dairy economy likely figured prominently in states where bankruptcy filings were higher.
Natzke dave
Editor / Progressive Dairy

Latest data from U.S. court caseload statistics indicates Chapter 12 bankruptcy filings totaled 498 in the year ending Dec. 31, 2018. National analysis by American Farm Bureau Federation (AFBF) chief economist John Newton (Read: Farm Bankruptcies in 2018 – The Truth is Out There, posted on AFBF’s Market Intel website) shows Chapter 12 filings in 2018 were down three from 2017, and down about six from the 10-year average.

Despite the overall decline, Chapter 12 bankruptcy filings in 19 states were higher than prior-year levels, including some major dairy states.

Cash receipts for dairy farms fell by nearly 30 percent from 2014 to 2015 and have remained at depressed levels, and below the 10-year average, Newton noted. Corn and wheat states also had higher levels of Chapter 12 filings.

Wisconsin recorded the highest number of Chapter 12 filings in 2018 at 49. Although it was up just four from 2017, it was the highest number in over a decade and more than double the level experienced in 2009.


Among other dairy states, highest filing totals were in Kansas (35, up 10 from 2107), Minnesota (26, up seven), New York (24, up 11) and Texas (25, up seven). Other states with decade-high levels included Indiana, Kansas, Minnesota, North Dakota, South Dakota and Utah.

In the Midwest, bankruptcies totaled 223 filings, up 19 percent from prior-year levels and at the highest level in more than a decade. Following the Midwest, bankruptcies were also higher in the Rockies, the Southwest and Northeast. Only the Pacific and Southeast saw fewer bankruptcies in 2018 than in 2017.

Final farm numbers for 2018 have not been released by the USDA, but it’s likely farm numbers were down from the year before, meaning the number of farm bankruptcies as a share of total farm operations was higher.

The situation is likely to worsen in 2019, Newton warned, especially if retaliatory tariffs on U.S. agricultural commodities continue and farm commodity prices do not improve.

“Farm debt is record-high, the debt-to-asset ratio has climbed for six consecutive years, and farm debt as a proportion of annual farm income is at 97 percent – a 32-year high,” Newton said. “In addition, lending standards are tighter, and the cost of credit is rising. There are options before bankruptcy relief, and certainly, many farmers have liquidated assets to discharge debt. How much longer can many others endure remains a question.”

While the trends are concerning, bankruptcy does not mean the loss of the family farm. Designed for family farmers with "regular annual income,” Chapter 12 bankruptcy allows financially distressed farmers to restructure financials and propose a repayment plan – usually over a three- to five-year period – to avoid a liquidation of assets or foreclosure, Newton explained.

“Through a successful Chapter 12 bankruptcy, a farmer may have an opportunity to retain assets and continue the farm operation in some capacity,” Newton said.

Quarterly bank surveys

Several Federal Reserve districts provided updates on credit conditions, reflecting lender surveys at the end of the fourth quarter of 2018:

  • Chicago (district covers all or portions of Illinois, Indiana, Iowa, Michigan and Wisconsin): Repayment rates on non-real-estate farm loans decreased in the fourth quarter of 2018 relative to the same period of 2017, and rates of loan renewals and extensions increased. The same percentage (2.4 percent) of current agricultural borrowers are not likely to qualify for operating credit in 2019 as in 2018. Lenders in the district identified dairy as the sector most under financial stress.

  • Dallas (district covers all of Texas and portions of New Mexico and Louisiana): Lenders said overall demand for agricultural loans decreased in the quarter. Relative to other loan types, dairy loan volume showed the largest decline compared to a year earlier, followed by loans for machinery and feeder cattle.

  • Kansas City (district covers Colorado, Kansas, Nebraska, Oklahoma, Wyoming, the northern half of New Mexico and the western third of Missouri): Demand for loan renewals and extensions remained elevated, and the rate of repayment on agricultural loans was lower than a year ago, but appeared to be stabilizing.

  • Minneapolis (district covers all or portions of Minnesota, Montana, North Dakota, South Dakota and Wisconsin): Economic stress is rising across the district, reflected in decreased loan repayment rates, while loan demand, renewals and extensions increased. Low or falling commodity prices are a big worry for the year ahead, especially if recent historically high harvests return to normal.  end mark
Dave Natzke