By Andi Anderson
In 2023, farm bankruptcies reached a record low, with only 139 filings, marking an 18% decrease from the previous year. This decline follows a four-year trend of decreasing bankruptcies since the peak of 599 filings in 2019.
Notably, Michigan reported no farm bankruptcies in 2023, a first for the state since Chapter 12 bankruptcy became permanent in 2005.
However, this positive trend may be short-lived, as financial experts express concerns about the future. According to a report by the American Farm Bureau Federation (AFBF), farm finances are facing significant challenges.
AFBF economist Samantha Ayoub warned, "Net farm income for 2024 is projected to be down nearly 40% from 2022, and many key commodity price expectations have fallen further since then."
Chapter 12 Bankruptcy, initially introduced in 1986, provides farmers with the flexibility to continue business operations while managing their debt. Despite the recent decline in filings, Ayoub emphasized that many farmers are still struggling financially, even if they haven't filed for bankruptcy.
The Midwest and Southeast regions saw the most Chapter 12 filings in 2023, with 42 and 40 cases, respectively. The Southwest region, particularly hard-hit by extreme drought, was the only area to see an increase in filings, with 14 cases reported.
Ayoub pointed out that after a year of record-high grain prices and farm incomes in 2022, the outlook for 2023 and beyond appears bleak. The USDA has projected a $43 billion decline in net farm income for 2024, adjusted for inflation.
Grain prices, in particular, are expected to continue falling due to increased supply and favorable growing conditions.
In addition to declining prices, farmers are grappling with rising production costs. USDA forecasts indicate that production expenses will hit a record high in 2024, marking the fourth consecutive year of increases.
The total cost of production is expected to rise even further in 2025 for all major field crops except cotton.
The financial strain on farmers is exacerbated by increasing agricultural debt, which reached over $744 billion in 2023, up from $709 billion in 2022.
This growing debt has been made more burdensome by 11 interest rate hikes by the Federal Reserve between March 2022 and January 2024. As a result, farm interest expenses rose by 43% from 2022 to 2023 and are expected to remain elevated into 2024.
Adding to the financial pressure is the reliance on an outdated 2018 farm bill, which was written during a period of stable prices. This six-year-old safety net is struggling to provide adequate support as farmers face falling commodity prices and rising costs.
As Ayoub concluded, "Farm finances will almost certainly weaken in 2024 and 2025, based on high credit costs, rising land costs, and falling commodity prices." With the farm safety net fraying, farmers may face significant challenges in the years ahead.
Photo Credit: gettyimages-d-keine
Categories: Michigan, Business