Home Business American farmers going bankrupt as trade war with China drags on

American farmers going bankrupt as trade war with China drags on

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American farmers going bankrupt
American farmers going bankrupt

By Jessie Higgins

EVANSVILLE, Indiana (UPI) — As the trade war with China drags on, many of America’s farms are going bankrupt.

The number of farmers falling behind on loans and filing for bankruptcy has jumped since the trade dispute began in spring 2018, according to industry statistics. And farms of all types and sizes continue going out of business.

“Many farmers and ranchers are reaching their breaking point,” said Matt Perdue, the government relations director at the National Farmers Union. “The consensus is that this is going to lead to a lot of exits and more consolidations.”

Between July 2018 and June 2019, the number of farms that filed for Chapter 12 bankruptcies (a type of bankruptcy designed to allow family farmers and family fishermen to restructure their finances) rose by 13 percent over the previous year, according to the American Farm Bureau Federation.

Loan delinquency rates have reached a six-year high. And nearly 13,000 farms disappeared in 2018, according to the U.S. Department of Agriculture.

Farm experts say these figures indicate a troubling trend in American agriculture. Farmers are struggling to stay afloat.

Low prices

The problem can be summed up in two words — low prices.

Nearly all commodity prices have been low since about 2014, said John Newton, the chief economist at the American Farm Bureau.

Prices tend to cycle up and down in agriculture and short periods of low prices are typical. Farmers try and plan their businesses around these cycles, banking money during years of plenty to survive years with less.

The problem with this particular low cycle is that it’s lasted a longer than usual.

“We’ve had low ag prices for four to five consecutive years,” Newton said. “The first year, people weather it. The second year, they tighten their belts and cut costs. But, over time, you run out of options without higher commodity prices.”

Prices were beginning to rebound in the first part of 2018, indicating to economists that the farm-price cycle finally was inching toward a high.

But that high never came, because on July 6, 2018, the Trump administration imposed tariffs on billions of dollars of Chinese goods in retaliation for their “unfair trading practices.” China responded in kind, placing tariffs on billions of dollars of U.S. goods — many of them agricultural.

Nowhere to sell

China was America’s top buyer of agricultural goods, making the nation a linchpin in the U.S. farm economy. When that market went away, farmers were left suddenly with a massive surplus of products and nowhere to sell them.

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Commodity prices collapsed.

“I don’t think you can understate the severity of the challenge the trade dispute created,” the farmers union’s Perdue said. “It was a situation where we were already down, and then you find out the bottom is falling out of the commodities market.”

Soybeans have hogged the limelight in the trade war story because of the direct and catastrophic impact the tariffs had on that industry.

China had consumed about a third of all the soybeans grown in the U.S. — most of which was ground into livestock feed. Since enacting the tariffs, China all but stopped buying American beans.

But many other commodities are also taking a beating, including nuts, cotton, pork and dairy.

“A lot of crop prices tend to trend with each other,” Perdue said. “A lot of crops have been severely hit.”

The billions of dollars in trade assistance the Trump administration has provided farmers has helped, Perdue added. But that money is not making up for all the losses, he said.

Signs of stress

Industry experts are seeing the signs of financial farm stress across the country. Farm groups have responded by hosting workshops and seminars to teach struggling farmers about bankruptcy options.

In upstate New York, the Rural Law Initiative is hosting one such seminar Tuesday.

“A lot of people don’t understand this is even an option for them,” said Taier Perlman, the lead staff attorney for the Rural Law Initiative. “They may not have to sell their land, leave their farm and move on with their lives.”

More than 1,000 miles to the west, a bankruptcy attorney in Omaha hosted a similar workshop in July.

“The continued pressure on the market is causing more and more people in inch toward needing to file bankruptcy,” said Donald Swanson a bankruptcy attorney with Koley Jessen.

“It’s not a floodgate yet, but the problem is there is no obvious solution to cash flow. When prices drop dramatically, it just doesn’t work. You have farmers who lost money last year and the year before,” Swanson said.

And bankruptcy is not the best option for everyone, he added. Chapter 12 is designed to help farmers who are over-extended reduce their debt enough to stay in business.

“If you go into Chapter 12, you decide what assets you want to keep,” Swanson said. “But the rule is you have to pay for what you keep, and you can discard the rest. But — and this is a big but — you have to have enough cash flow to pay that debt. So, you have to cover the cost of operations and the remaining debt servicing.”

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This makes the Chapter 12 option appealing to young farmers, who have time to strip down their business, repay the debts and rebuild.

But with the average age of the American farmer at 58, many simply don’t have that time.

Expensive equipment

Farms easily can accrue millions of dollars of debt. Many have large real-estate loans that they use to buy farm land and build or upgrade buildings. In addition, they may take out multiple other loans to purchase new tractors and other machinery.

“People don’t realize how expensive farm equipment is,” Newton said. “You can pay $100,000 for a tractor, or $1 million for a cotton picker. That’s a lot of debt.”

Problems arise quickly when commodity prices fall, and farms aren’t able to earn enough money from their goods to pay those debts. Banks then have a decision to make. They either can work with the farmer, weathering the low alongside him in the hopes that prices will rebound and payments will resume or they can call in the loan.

For now, many banks appear to be working with farmers, Swanson said. Part of the reason is farmland values are holding surprisingly strong despite the dip in prices.

It’s unclear exactly why land is holding its value, but industry experts say that might be what is keeping America’s farm economy from total collapse.

“As long as the land values hold, in most situations, bankers are going to continue to limp along with the farmers,” Swanson said. “But, if the price of the product stays down and the land value drops, we’ll see a lot of bankruptcies.”

This can be seen in the states that have the highest bankruptcy rates. Kansas and Nebraska, which have second- and fourth-highest number of bankruptcies with 39 and 25, respectively, also have experienced the greatest devaluation of farmland, said Robert Dinterman, a postdoctoral agribusiness researcher at Ohio State University, who recently completed a farm bankruptcy analysis.

Dairy in crisis

Wisconsin leads the nation in farm bankruptcies, but for a different reason — its high concentration of dairy farms.

The dairy industry was in crisis before the trade war began, and, like other commodities, the trade war has exacerbated the situation, dairy experts say.

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After experiencing record high milk prices in 2014, dairy farms across the country expanded.

“Between 2011 and 2014, we had above average prices,” said Terry Estes, a former Wisconsin dairy farmer who lost his farm in 2017. “So, the banks started pushing farmers to expand. Anybody who expanded or made major improvements on their farm during that era is in real trouble now.”

By 2015, the market was flooded with milk. Prices soon were so low that the average farmer lost money on every pound of milk sold.

As the years dragged on, dairies folded. Since 2015, more than 2,500 Wisconsin dairy farms went out of business, according to the USDA.

“I was a dairy farmer for 25 years,” Estes said. “I had 130 cows and worked 500 acres.”

Estes brought his son into the business, and together they expanded their farm shortly before the prices collapsed. It’s a difficult topic for him to talk about.

“Just imagine that, in one day, all of a sudden your bank calls and tells you they’re calling in the note on your house,” Estes said. “And that same day your boss tells you you no longer have a job. So, you’ve lost your house and your job in the same day. That’s what happened.”

After losing his farm, Estes became a real estate agent for Wisconsin dairy farms. He currently has more than a dozen farms listed.

“My thought was, in the beginning, maybe I could help the younger generation get started in farming,” Estes said. “The reality is, I’m spending most of my time with people 55 to 65 years old, who are trying to figure out what to do and how to have something left for retirement.”

Farm closures

Wisconsin is the only state in which the USDA tracks monthly farm closures. The data for the rest of the country is published annually. The latest count, for 2018, showed that 4,400 farms selling more than $10,000 in products went out of business.

“It’s a little too early to tell if the last 18 months accelerated farm closures,” Newton said.

Farm economists overall agree that the trends in agriculture are troubling, but most stop short of calling the current situation a crisis.

“Crisis might be a strong word,” Newton said. “But all the indicators right now are going in the wrong direction.”

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