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16 Texas farms filed for Chapter 12 bankruptcy in 2020, six less from 2019

Posted at 11:03 PM, Feb 05, 2021
and last updated 2021-02-06 00:03:34-05

WACO, TX  — There were 16 Chapter 12 farm bankruptcies in the state of Texas during the year 2020, according to recently released caseload statistics from U.S. Courts compiled by the American Farm Bureau Federation.

Nationwide, the AFBF found the number of Chapter 12 family farm and family fishery bankruptcies in 2020 totaled 552. The number is down 43 filings, or 7%, from 2019.

A recently released report from the USDA shows family farms, defined as any farming operation where the majority of the businesses is owned by the producer and their relatives, comprise 96% of all U.S. farms and account for 82% of the value of all agricultural products sold.

Chapter 12 farm bankruptcies AFBF
Chapter 12 Farm Bankruptcies during 2020. 552 filings, down 7%, or 43 filings, from 2019. American Farm Bureau Federation

Dr. John Newton, Chief Economist with AFBF, said he is exercising caution in attributing the dip in Chapter 12 bankruptcies from 2019 to 2020 as a concrete sign of improvement.

"I think you have to look, if you look at all, at the filings across Chapter 11, Chapter 7, Chapter 12," he said.

According to Newton, when you look across all the chapters of the bankruptcy code, the reason for fewer filings in 2020 compared to 2019 becomes more apparent.

"We had 230,000 fewer filings during 2020," he said. "So I think one of the main reasons was it was very difficult to file bankruptcy in a COVID environment."

While Chapter 12 bankruptcies were down from 2019, the 552 filings are still the third-highest number in the last decade.

Newton stressed it's important to remember that family farms don't file for Chapter 12 bankruptcy out of the blue.

"You know, it takes many years to get to the point where you're filing for Chapter 12 bankruptcy," he said.

There's a mountain of factors that lead up to that point, in part, beginning with a string of years with low commodity prices, added on with instances of poor or severe weather conditions, and ongoing global pandemic.

"I think if you look over the last five seven years, we've seen low commodity prices across the agricultural sector," Newton said. "Whether it's low corn prices, little soybean prices, low wheat prices. We've seen natural disasters, flooding, we had 30 named storms this hurricane season."

Calendar Year Change Farm Bankruptcies
YOY Change in Chapter 12 Farm Bankruptcies. 2020 Compared to 2019, Calendar Year Change. American Farm Bureau Federation AFBF

According to AFBF, data at the district court level shows Chapter 12 bankruptcies were highest in western Wisconsin with 39 filings, followed by Kansas with 35, and Nebraska at 32. The 30 filings in eastern Wisconsin represent the fourth-highest total among districts in 2020, and where the increase in filings was greatest from 2019 at 15 filings.

"You look at Wisconsin, you think about milk prices, which have been low for five years," Newton explained. "They started to rebound late in 2019, they saw some strength in 2020, but when you have low milk prices for several years to the extent that you're not covering your costs of production that's going to lead some farms to have to file for bankruptcy."

Newton said he's seen similar situations play out in Vermont.

The Lone Star State is not immune to some of the realities associated with the agriculture sector in other parts of the country, said Commodity and Regulatory Activities Associate Director with the Texas Farm Bureau, Brant Wilbourn.

Commodity and Regulatory Activities Associate Director with the Texas Farm Bureau, Brant Wilbourn said the overall picture for Texas agriculture in 2021 is bright. But producers are still trying to claw back losses amid a string of years with depressed commodity prices.

"Over the past few years, basically all commodity prices have been depressed and there's been some issues related to trade disputes depressing those prices as well," he said.

Wilbourn said Texas saw six fewer Chapter 12 bankruptcies in 2020 compared to 2019. In contrast, the total number is a far cry from the numbers seen in some Midwest states, but still a concern.

"However we still had 16 this past year," he said. "I mean the overall picture looks brighter, although some producers are still facing some issues with depressed prices and trying to claw back some of those losses that they've had."

In addition to low commodity prices and high input cost, Wilbourn said the price of land also factors into Texas farmers filing for Chapter 12 bankruptcy.

"Land prices are kind of increasing as well, which have an impact on folks if they rent property to farm," he said. "I wish the fix was just as simple as saying we need higher commodity prices, you know that would help, but it's going to take more than just higher commodity prices to get that completed."

Higher prices can also mean higher input costs, especially for cattle feeders or dairy farmers, according to Newton.

"Higher crop prices right now for our producers growing corn, soybeans, wheat grain and sorghum are welcome," he said. "But for your cattle feeders, your hog feeders or dairy farmers, those higher prices mean higher input cost. We really need to see higher prices across agriculture for several years in a row just to help people dig out of the hole that they dug themselves in over the last four or five years."

On Friday, the USDA's 2021 Farm Income Forecast predicted net farm will decrease $9.8 billion, or close to 8%, this year. The report points out the decrease is largely due to lower supplemental and ad hoc disaster assistance for COVID-19 relief in 2021 relative to 2020. Despite the decline in net farm income this year, the USDA highlights 2021's projection of $111.4 billion would still be 21% above it's 2000-2019 average of $92.1 billion.

Net farm income and net cash income Feb 2021 real.png
U.S. net farm income and net cash farm income, 2000-21F

"What you see in that is higher cash receipts from crop and livestock sales. Production expenses have also gone up," Newton explained. "Higher fuel prices, higher fertilizer prices, higher feed costs for your livestock feeders, coupled with lower federal support and as a result, you see net farm income at about eleven hundred billion dollars. That's down about nine billion dollars, or percent from what we saw last year."

For now, there are several takeaways from 2020 which point to positive trend for U.S. agriculture for 2021.

"I think certainly right now you see higher prices in the market. I think a lot of that's due to very strong exports," Newton said. "Agriculture and related product exports this year came in at a $161 billion, that's the highest that it's been since 2013, so that's certainly great news."

According to Newton, it's important the agriculture sector see those exports continue and recover in top markets such as Mexico, Canada, Japan, and South Korea.

"We need it to continue to really turn the corner, and I think we are starting to turn that corner," he said.

Still, if 2020 serves as an example, a lot can change, and there's still some uncertainty and details to be ironed out about how the agriculture sector will navigate during the Biden presidency.

"One thing that a lot of people are talking about right now is how do we achieve our climate goals with this administration through increased adoption of climate-smart technology, climate-smart agriculture," Newton said. "There's conversations about how carbon can become an income stream for farmers and that may not happen in the next few months. But I think throughout 2021 we're going to be having that conversation."

You can view the Market Intel report from the American Farm Bureau Federation on Farm Bankruptcies in 2020, in its entirety by visiting this link. You can view the USDA's February 2021 Farm Income Forecast here.