Here's some financial food for thought
Corn Belt farmers with large debts now facing difficulties
Recently, I came across this Reuters article by Paul Neiffer. Although there is specific information for the Corn Belt states, it is relevant to our area also.
Reuters Investigates just published an article on how the “go go” farmers of the past few years are facing extreme financial difficulties. The key definition of a “go go” farmer is a farm operation that expanded aggressively with debt during the good farm years (2005-13) and is now in financial difficulties. Some of the facts in the article are as follows:
- The total dollar amount of nonperforming bank farm loans in the three key “I” Ag states (Iowa, Illinois and Indiana) shot up to $288.2 million in the second quarter of 2016 from $132.5 million in the second quarter of 2013.
- Chapter 12 bankruptcy filings (special farm bankruptcy filing) are up 51 percent during the same period and for Iowa, the increase is more than 125 percent.
- Extremely leveraged grain and other row crop operations (debts totaling more than 71 percent of assets) doubled to 2.4 percent between 2012 and 2015 and is likely higher this year.
It is estimated that one in three farm operations are classified as highly leveraged or very highly leveraged, meaning their debts are at least 41 percent of assets. Many of the “go go” farmers were younger and had not seen a downturn in the farm economy (like their parents saw during the 1980s). It was very easy to borrow money when times were good and the banks were very cooperative (they knew if they did not make the loan, another bank would).
Interest rates are low today compared to the 1980s, but when current farmers start missing payments the rates start to increase. In some cases, interest rates can be very high. The article points out one situation with an annual rate over 2,000 percent.
Most of the farm economy still has substantial liquidity and net worth, but this may not apply to the “go go” farmers.
Luke Fritz is executive director of the Butler County Farm Service Agency.[/naviga:li]
