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In his March 6 Wall Street Journal op-ed, Senator Michael Bennet (D-CO) wrote that in 2018, sector-wide net farm income declined by $9.1 billion from the previous year, with record level farm debt, and that in his home state of Colorado, farm bankruptcies were twice as high as in 2008. All largely attributable to President Trump’s trade policies. He concluded that the number of farm bankruptcies is much higher today than ten years ago, during the “great recession.” In fact, his story about farm bankruptcies uses cherry picked data and is wrong. The agricultural sector is not experiencing a financial melt-down.
In 2018, among the 2.2 million farms that produce food and fiber on a nationwide basis, only 501 farms filed for bankruptcy under chapter 12 (the one measure for which data on bankruptcies are available on a consistent basis from the mid-1980s). It is true that in 2008, a year in which corn and wheat prices reached very high levels, only 345 farms filed for bankruptcy. However, the number of farms who filed for bankruptcy under chapter 12 were 544 in 2009, 723 in 2010, 637 in 2011, and 512 in 2012 — all years in which crop and cattle prices were atypical high. The real point is that bankruptcies among farms were exceptionally low in all of those years, as they were in 2018. They are equally likely to be low in 2019, a year during which farm income is meant to increase by approximately $7 billion more than it was in 2018 according to the US Department of Agriculture forecasts.
The Senator is correct that, unequivocally, in 2018, as a direct result of the current administration’s trade policies, prices for some agricultural commodities were substantially lower. On the crop side, those commodities include soybeans, peas (garbanzo beans et al) and lentils. On the livestock side, hogs are included. Prices for wheat, corn and some other crops were also lower but the trade related impacts were very modest.
Senator Bennet is also correct in stating that farm debt is at a record level. Though the data are only one side of the sector’s financial ledger, and looked at in isolation, an incorrigibly misleading indicator. By historical standards, farm assets are also at an exceptionally high level. In fact, the current farm sector debt-to-asset ratio of 13.5 percent — a much more relevant indicator — is close to its twenty year average level of 13.6 percent, and only modestly higher than its 2011 record low of 11.3 percent.
Another important indicator, the rate at which loans to farmers are non-performing, is currently running at about 1.5 percent. This is higher than in the agricultural commodity price boom years of 2012 and 2013, but still very modest. There is no evidence of an imminent farm financial crisis, and compared to most other sectors of what is still a buoyant US economy, the farm sector continues to more than hold its own.
So, would many farmers be somewhat wealthier absent the Trump trade war initiatives: Yes! Are farm bankruptcies exceptionally high and the US farm sector in a financially perilous situation? There is no evidence of that at all.
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