Following several years of low farm income and rising debt
levels, a review of Federal Deposit Insurance Corporation quarterly call report
data reveals that the delinquency rates for commercial agricultural loans in
both the real estate and non-real estate lending sectors are at a six-year
high.
For the first quarter of 2019, 2.5 percent of commercial
real estate loans in agriculture were more than 30 days past due, up from 2.1
percent in the prior quarter and above the historical average of 2.1 percent.
Similarly, 2.3 percent of non-real estate loans in agriculture held by
commercial lenders were more than 30 days past due, up from 1.5 percent in the
prior quarter and above the historical average of 1.7 percent.
The first quarter of 2013 was the last time delinquency
rates were this high for commercial lenders. While the delinquency rates are
well below the levels experienced following the recession, they are above the
historical average and trending in the wrong direction due to several years of
poor farm income exasperated by extreme weather events and ongoing trade
disruptions (USDA's Early Look at 2019 Farm Income).
As annual average loan delinquency rates have increased for
24 consecutive quarters, so too have farm bankruptcies over the prior 12
months. Through June 2019, and over the prior 12 months, there were a total of
535 Chapter 12 bankruptcy filings, up 13 percent, or 60 bankruptcies. The
number of Chapter 12 filings over the previous 12 months is the highest level
since 2012's 582 filings. The increase in bankruptcy filings is a noteworthy
shift given bankruptcy levels fell during calendar year 2018 compared to 2017,
e.g., Farm Bankruptcies in 2018 - The Truth is Out There.
Total bankruptcies filed by state vary significantly, from
no bankruptcies in some states to as many as 45 filings in others. Oregon,
Nevada, New Mexico, New Jersey, Rhode Island and Delaware had no Chapter 12
bankruptcies filed in the past year, based on data from the U.S. Courts.
These states have consistently seen low numbers of
bankruptcies in the past decade. In contrast, Wisconsin, Kansas and Minnesota
led the nation in Chapter 12 filings; bankruptcy filings in Kansas and Minnesota
increased so significantly in the past year that they reached the highest
levels of the past decade.