The drop in farm income and erosion in farmland values are early signs that the farm bankruptcy rate, now at a low 2 per 10,000 farms, is on the rise, said associate professor Ani Katchova of Ohio State University. The rise will be constrained by the strong equity position of the sector and the benefit of off-farm income for many operators, she said at USDA’s annual Outlook Forum.
“Bankruptcy rates will probably continue to go up in 2017 and beyond if current conditions continue,” Katchova said during a panel discussion of agricultural stress.
At present, indicators of financial stress, such as the debt to asset ratio, are at benign levels although inching upward since the 2013 collapse of commodity prices. Katchova said bankruptcy rates were a lagging indicator, registering movement after debt ratios increase and loan delinquencies accumulate.
Nathan Kaufman of the Kansas City Federal Reserve Bank said the change in delinquencies has been modest considering the plunge in farm income. “Farmland values … by and large, have remained relatively strong,” he said. On average, land is four-fifths of a farmer’s assets, so stable land values give farmers a firm financial base. “There are still options to work with borrowers,” said Kaufman, describing the banker’s point of view.