Chapter 12 family farm and family fisherman bankruptcies were down in 2018 nationwide. The nation saw 498 chapter 12 filings in the 2018 calendar year, down one percent — or three filings — from the 2017 calendar year, according to the American Farm Bureau. Numbers in 2018 were even lower than the 10-year average of 504.
But Kansas did not feel that relief.
In 2018, Kansas saw the second most chapter 12 filings at 35, as well as the second largest increase from 2018 over 2017 at 10 more filings.
The states that comprise the U.S. Court of Appeals 10th Circuit along with Kansas, including Oklahoma, New Mexico, Colorado and Wyoming, saw a 21 percent increase in chapter 12 filings in fiscal year 2018 compared to 2018. The circuits that include Wisconsin — which had the most chapter 12 filings in 2018 — and the Northeast also saw increases. Roger McEowen, Professor of Agricultural Law and Taxation at Washburn University, said the increases are concentrated and tied to specific types of agriculture.
“Offsetting those increases, the Southeast showed a 47 percent decline in chapter 12 filings, and the West and the Northwest showed a 41 percent decline,” McEowen said. “So it is specific to the type of agriculture that is in those particular areas, so some are getting hit harder than others. You combine certain row crops with dairy and you’re getting smashed, and that’s the northeast and part of the Midwest number.”
The dairy industry was hit hard in 2018 by tariffs from Mexico and China implemented during trade disagreements between those importers and the U.S. Similar trade negotiation tactics hit Kansas soybean and grain sorghum producers. Trade war tariffs hit industries focused heavily in Kansas, Wisconsin and northeast states such as New York, and Kansas experienced drought troubles with wheat and corn. Combined, these factors made a tough year for Kansas farmers and likely contributed to the increase in chapter 12 filings, according to Kansas Farm Bureau Director of Commodities Mark Nelson.
“Since hitting a peak in the 2011-2013, where Kansas net cash farm income averaged $5.39 billion dollars, we've seen farm income trend sharply down,” Nelson said. “Yields have been somewhat hit or miss and trade war impacted prices have been trending down for both crops and livestock. I believe those tough pockets, where both prices and yields have declined, while production costs have not, have significantly impacted those highly leveraged farms, leading to a rise in the number of Chapter 12 bankruptcies in 2018 over 2017 and 2016.”
Nelson believes the problems are tied solely to 2018 and pointed out that net cash farm income was down 32 percent in 2017 from 2016. Corn and soybean yields were both down 10 bushels per acre in 2017 compared to 2016, and those poor yield numbers continued into 2018 in parts of the state because of drought and other weather complications.
While those problems coupled with trade turmoil to create problems for farmers in 2018, Kansas also experienced struggles within the borders of the U.S.
“Overall commodity prices have also significantly weakened, and Kansas prices, being more in the interior of the U.S., have really suffered,” Nelson said. “For example, Kansas soybean prices are normally 50 cents under the averages seen in Illinois, but for much of the past year, they've run roughly one doller per bushel less than Illinois; so not only are prices down, they're down somewhat more in interior locations like Kansas and the Dakota's as we try to store crops that the U.S. is struggling to find export markets for.”
McEowen believes that more rough waters could be ahead, as farm incomes continue to decrease and debt continues to rise, according to projections from the United States Department of Agriculture.
“The underlying economic data is not great,” McEowen said. “USDA data indicates that we’ve got some rough stuff coming ahead. Debt to asset ratios are on the rise, the debt-service ratio is projected to reach and all time high for this year. The current ratio is projected to reach and all time low, but that data’s only been maintained since 2009, so we don’t have a long history to pull from.”
Even though Kansas is sitting in a concentrated area for agricultural issues, chapter 12 bankruptcies are decreasing nationwide. The decrease could be affected by the decreasing number and increasing size of farms in the U.S. and by the fact that to qualify to file chapter 12, a farm must have aggregate debt of less than $4.153 million. However, even staring down the barrel of some tough data, McEowen said the nation is seeing a small percentage of the chapter 12 bankruptcies it saw in the farm crisis of the 1980s.
“Chapter 12 bankruptcy became law in 1986, and we started seeing cases filed in ‘86 and ‘87,” he said. “For the period ended June 30, 1987, the total chapter 12 filings numbered 4,824. So right now we’re talking less than a tenth of the chapter 12 filings we had in 1987. In 1988 that total number was 3,099.”