U.S. farm bankruptcies are continuing to tick higher and the toll may rise even further as off-farm jobs are lost in the wake of the COVID-19 pandemic, according to the American Farm Bureau (AFB).
In a market intel piece Thursday, AFB chief economist John Newton said COVID-19 related challenges for agriculture – such as weakening commodity prices – are already well known and well documented. However, a lesser-discussed concern is the impact of high unemployment on off-farm income and, ultimately, debt repayment capacity.
As Newton explained, the last considerable increase in U.S. farm loan delinquencies coincided with the Great Recession. During that time, unemployment reached nearly 10% and off-farm income fell by as much as $10,000 per household, resulting in farm loan delinquencies that exceeded 3% in 2010. That increase in delinquencies was likely a major factor in American farm bankruptcies rising to their highest levels of the decade in 2010, he said.
Now, amid COVID-19, U.S. unemployment is projected to reach 14.5% in the second and third quarters of this year – potentially putting off-farm income at risk again.
“The decline in off-farm income will make it more difficult for farmers and ranchers to service their record $425 billion in debt – and could potentially put pressure on land values in upcoming years if debt repayment challenges emerge,” Newton wrote.
Meanwhile, U.S. farm bankruptcies are already on the rise. Chapter 12 family farm bankruptcies for the 12-month period ending March 2020 totaled 627 filings, a 23% increase from the previous 12 months, according to recently released data from the U.S. Courts. Chapter 12 bankruptcy filings have increased for five consecutive years, and the 627 filings over the previous 12 months is the third-highest total over the last 20 years – behind 743 filings in 2011 and 632 filings in 2003, Newton noted.
“Moving forward, however, the coronavirus’ impact on the national economy as a whole and the farm economy specifically -- high unemployment and low commodity prices and reduced farm revenue -- may make it more difficult for farmers to repay debt, which could increase farm bankruptcies,” he said.
Source: DePutter Publishing Ltd.
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