By Jesse Newman
More U.S. farmers are filing for bankruptcy, as federal payments
projected to reach record levels this year fall short of
compensating for the coronavirus pandemic and a yearslong slump in
the agricultural economy.
About 580 farmers filed for chapter 12 bankruptcy protection in
the 12-month period ended June 30, according to federal data. That
was 8% more than a year earlier, though bankruptcies slowed
slightly in the first half of 2020 partly because of an infusion of
federal aid and hurdles to filing during the pandemic, according to
agricultural economists and attorneys.
The pandemic has pressured prices for many commodities,
squeezing farmers who raise crops and livestock, and prolonging a
six-year downturn in the Farm Belt.
The Trump administration is expected to dole out a record $33
billion in payments to farmers this year, according to the
University of Missouri's Food and Agricultural Policy Research
Institute. The funds, including those intended to help farmers hurt
by trade conflicts and the coronavirus, would push government
payments to 36% of farm income, the highest share in nearly two
decades, the institute said.
"Agricultural markets have been horrible, and the pandemic
exacerbated it, big time," said Paul Swanson, an Oshkosh,
Wis.-based attorney. He said he has 40 open farm-bankruptcy cases,
about a third more than last year.
Mr. Swanson said some clients who received federal coronavirus
aid still wound up in bankruptcy. "The cash came in, the cash came
out," he said.
Before the pandemic, a global grain glut and foreign competition
had pushed down agricultural prices. Trade disputes deepened the
pain, drawing retaliatory tariffs from top buyers of U.S. farm
commodities, such as China and Mexico.
Then the coronavirus hit, upending the U.S. food-supply chain.
As restaurants closed, farmers plowed under thousands of acres of
vegetables and dumped milk into manure lagoons. Corn prices
plummeted as Americans stopped driving, cutting demand for ethanol,
a corn-based biofuel blended into gasoline. Prices for
slaughter-ready cattle and hogs dropped as meatpacking plants that
became virus hot spots slowed or halted production.
Hog farmers have lost nearly $5 billion in actual and potential
profits for 2020, according to the National Pork Producers Council,
a trade group. In California, agricultural businesses stand to lose
as much as $8.6 billion, according to a study commissioned by the
California Farm Bureau Federation.
Wisconsin dairy farmer Art Steffen filed for bankruptcy in
January, before coronavirus arrived but after years of low milk
prices and mishaps on his farm left him with $3 million in unpaid
bills, including $400,000 for animal feed and $2,000 for cattle
semen and other breeding supplies.
Mr. Steffen, who sells the milk from his 300 cows to a
string-cheese plant, said filing for bankruptcy made him feel he
had failed as a steward of the farm that has been in his family
since the 1860s.
Mr. Steffen withdrew his bankruptcy filing in June to qualify
for a forgivable loan under the federal government's Paycheck
Protection Program. He received roughly $40,000, enough to pay his
four employees for less than three months. He also received $97,000
from the administration's coronavirus-relief program.
Mr. Steffen spent those funds on animal feed and electricity. In
July, he refiled his bankruptcy case. "The mission is to survive
and pay people what you owe," Mr. Steffen said.
Chapter 12 bankruptcy, created during the 1980s farm crisis,
allows distressed family farmers or fishermen to devise a plan to
repay creditors over three to five years. Farms with debts that
don't exceed $10 million may file for the protection.
Lynn Hicks, who milks 70 cows on a farm 200 miles northwest of
Mr. Steffen's, said she hasn't secured government aid because she
is also in bankruptcy. As funds dwindled, Ms. Hicks and her
husband, Nick Hicks, appealed to suppliers to wait until they were
paid for their milk to cash their checks. They became a grass-fed
dairy to eliminate grain costs. Ms. Hicks opened a
furniture-refinishing business to supplement the family's
income.
"A lot of tears have been shed," she said.
Trouble for many farmers extends back to a commodity boom
beginning in 2006 that encouraged them to borrow heavily, said
Patrick Westhoff, director of the Food and Agricultural Policy
Research Institute.
U.S. farm debt has grown steadily since then to more than $425
billion this year, the U.S. Department of Agriculture estimates.
That is the largest sum since a farm crisis in the 1980s that
pushed many farmers and lenders out of business.
"There are a lot of people that have been hanging on for a long
time that needed a positive development, and this year hasn't
provided that," Mr. Westhoff said. "It's been just the
opposite."
Buoyed by $16 billion in direct payments to farmers to mitigate
pandemic-related losses, farm income might tick down just 3% this
year to $90.6 billion, the Food and Agricultural Policy Research
Institute predicted in June. As of this week, less than $7 billion
of the funds had been distributed, according to USDA.
Trade aid and coronavirus-relief payments are due to end this
year. Agricultural economists say more farms could fold next year
without additional support. Slow purchases from China and the
pandemic's persistence continue to weigh on demand for agricultural
products.
If more aid isn't extended, farm income is expected to fall 12%
to $79.4 billion in 2021, according to the Food and Agricultural
Policy Research Institute. Government payments would drop by half
to less than $17 billion.
Congress is debating further financial support for farmers, and
USDA could offer more aid from the $14 billion earmarked earlier
this year to replenish the Commodity Credit Corp., a funding
mechanism for agriculture. A spokesperson said USDA is evaluating
the impact of Covid-19 on agriculture as it considers a second
round of payments.
"It's hard to pinpoint the damage when you're in the middle of
the hurricane," said John Newton, chief economist at the American
Farm Bureau Federation. "Sure, half the house is still standing,
but this thing is not past us yet."
Write to Jesse Newman at jesse.newman@wsj.com
(END) Dow Jones Newswires
August 06, 2020 05:44 ET (09:44 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.