Financial stress and farm bankruptcies in US agriculture

Abstract

We evaluate farm financial stress within the U.S. over the past twenty years and the agricultural and economic factors which have impacted farm businesses. We further evaluate the effect of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) on farm financial stress. In particular, Chapter 12 bankruptcies-which can only be filed by farmers-were only a temporary measure until BAPCPA made Chapter 12 a permanent fixture in bankruptcy law. We utilize filings of Chapter 12 bankruptcies from 1997 until 2016 as a proxy for farm financial stress. Panel fixed effects models are used to determine relevant factors affecting financial stress for farmers from agricultural and macroeconomic perspectives. Further, models incorporating pre-and post-BAPCPA regimes are utilized. We find that macroeconomic factors (interest and unemployment rates) are strong predictors of farm bankruptcies for farms while agricultural land values are the only consistent strong predictor among the agricultural factors. When evaluating the post-BAPCPA regime, only agricultural land values continue to be a significant predictor of farm bankruptcies. Our findings also indicate a dynamic relationship with agricultural land values, where current year values are negatively related but previous year land values are positively related to bankruptcies. We provide an analysis of the post-BAPCPA regime on farm bankruptcies that was not previously evaluated. Further, our findings illuminate discussion on a potentially dynamic relationship with financial stress and agricultural land values.

Survival analysis of farm bankruptcy filings: Evaluating the time to completion of chapter 12 bankruptcy cases

“…As this occurs, farmers' finances become heavily tied to the land markets which presents possible risks in farming. Dinterman et al (2018) note that decreases in land values trigger a higher rate of farm bankruptcies in a region and is exacerbated if the preceding years had rapid appreciation in land values. This dynamic in the farmland market brings to light a potentially more important aspect in the bankruptcy proceedings than simply the classifications of claims as a bubble in land values may result in a run of farm bankruptcies.…”

“…While there has been research on national, regional, and industry specific economic factors affecting the filing rate of chapter 12 bankruptcies (Dinterman, Katchova, & Harris, 2018; Dixon, Ma, Ahrendesen, & Settlage, 2003; Shepard & Collins, 1982; Stam & Dixon, 2004) there is limited research focused on the individual filings that addresses duration to completion of the chapter 12 restructuring plan and its outcome. Stam, Dixon, and Rule (2003) follow the filing procedure of bankruptcies by examining the time to termination of chapter 12 bankruptcy cases and their outcome (discharge vs. dismissal) since the passage of the 1986 Family Farmer Bankruptcy Act until 2001.…”

The Impact of Bank Deregulations on Farm Financial Stress and Stability

“…Two such state-level variables are unemployment rate and land values. These were included in all models, as Dinterman, Katchova, and Harris [13] found unemployment rates to be positively correlated with farm bankruptcies and agricultural land values to be negatively correlated. State-level minimum wage and total factor productivity and county-level per capita income and population density variables were also used.…”

“…Given the scale of the changes and the consequential effects that have been found for the general economy, the effect of bank deregulations on farm financial stress needs to be clearly grasped, especially as Dinterman, Katchova, and Harris [13] found that farms are now facing increasing debt, decreasing income and stagnant land values. Worse still, these trends are expected to continue, putting the long-term viability of many small farm operations at risk.…”

Mapping Stress in Agricultural Lending

“…During the recent downturn in the agricultural economy, some bankers reported that farmers were seeking off-farm employment or that spouses were going back to work off the farm to maintain living standards or assist with farm or household expenses. In addition, other studies have shown that off-farm income can significantly reduce financial stress for both borrowers and lenders (Brooks and others 2018;Dinterman, Katchova, and Harris Forthcoming).…”