Following several years of low farm income and rising debt levels, a review of Federal Deposit Insurance Corporation quarterly call report data reveals 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% of commercial real estate loans in agriculture were more than 30 days past due, up from 2.1% in the prior quarter and above the long-run average of 2.1%.
Similarly, 2.2% of non-real estate loans in agriculture held by commercial lenders were more than 30 days past due, up from 1.5% in the prior quarter and above the long-run average of 1.6%. The first quarter of 2013 was the last time delinquency rates were this high for commercial lenders.
Figure 1 highlights the delinquency rate for both real estate and non-real estate loans held by 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.
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%, 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 the calendar year 2018 compared to 2017.
Chapter 12 Bankruptcies by State
Total bankruptcies filed by state vary significantly, from no bankruptcies in some states to as many as 45 filings in others, as shown in Figure 2. 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.
As seen in Figure 3, some states saw a significant increase in Chapter 12 bankruptcies the past year. Kansas had 13 more, up 50% from the 12-month period ending June 2018. Oklahoma also had a significant rise in farm bankruptcies, with filings more than doubling from the previous year.