Tag Archives: Agriculture

Farm Crisis: Suicides Spike In Rural America As Trade War Deepens

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The deepening trade war between the US and China has roiled complex global supply chains and America’s Heartland. The latest breakdown in negotiations comes at a time when soybean exports to China have crashed, and huge stockpiles are building, have resulted in many farmers teetering on the verge of bankruptcy. Mounting financial stress in the Midwest has allowed a public health crisis, where suicide rates among farmers have hit record highs, according to one trade organization’s interview with the South China Morning Post.

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American Farm Debt Reaches 1980s Crisis Levels

Debt among American farmers has increased to $409 billion, Agriculture Secretary Sonny Perdue warned Wednesday. That is up from $385 billion last year and is currently at levels not seen since the agricultural recession (farm crisis) of the 1980s, reported Reuters.

“Farm debt has been rising more rapidly over the last five years, increasing by 30% since 2013 – up from $315 billion to $409 billion, according to USDA data, and up from $385 billion in just the last year – to levels seen in the 1980s,” Perdue said in his testimony to the House Agriculture Committee.

Purdue told lawmakers: “Relatively firm land values have kept farmer debt-to-asset levels low by historical standards at 13.5%, and continued low-interest rates have kept the cost of borrowing relatively affordable.”

“But those average values mask areas of greater vulnerability,” he added.

The agricultural sector has experienced tremendous headwinds in the last five years amid deflationary trends in commodity prices, storms damaging crops, and more recent – supply chain disruptions into China due to President Donald Trump’s trade war.

“As producers are not able to cover year to year expenses with operating loans, they are forced into transforming operating loans into term debt which erodes their creditworthiness,” said Luis Ribera, an agricultural economist at Texas A&M University.

“On top of all that then we have the trade war which reduces the demand of US commodities given that tariffs make them more expensive and then depress the prices even more.”

US Department of Agriculture chief economist Robert Johansson said farm exports are expected to drop by as much as $1.9 billion this year, citing the deepening trade war.

China has been a significant buyer of corn, soybeans and other agricultural commodities for at least three decades, but since President Trump launched protectionist policies, Beijing responded by imposing tariffs on American agriculture products which caused trade between both countries to decline. While Beijing has promised to buy hundreds of billions of dollars in agricultural items, it has offered little relief to soybean farmers who are teetering on bankruptcy even with President Trump’s farm bailout money in hand. But as recent trade negotiations might result in an upcoming lasting agreement, it might not be enough to save hundreds of heavily indebted American farms from sliding into bankruptcy. 

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The number of farmers filing for bankruptcy has soared to its highest level in a decade. And with high levels of debt, bankruptcies are expected to rise into the 2020s.

Perdue said land values have helped some farmers maintain a low debt-to-asset ratio of 13.5%. However, in the next recession, land values are expected to dip, which could trigger a deleveraging period for farmers on par with the 1980s farm crisis.

Source: ZeroHedge

Farm Bankruptcies Soar In American Midwest

Eighty-four farms in the US Midwest region covered by the Minneapolis Fed’s Ninth District states (Minnesota, Montana, North and South Dakota, Wisconsin and the Upper Peninsula of Michigan) filed for chapter 12 bankruptcy in the 12 months that ended in June – more than twice the level observed in June 2014, according to a new report from the Federal Reserve, surpassing the prior peak hit just after the GFC.

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“Current numbers are not unprecedented, even in the recent past, having reached 70 bankruptcies in 2010. However, current price levels and the trajectory of the current trends suggest that this trend has not yet seen a peak,” Ron Wirtz, an analyst at the Minneapolis Fed, wrote.

Bankruptcy numbers inversely correlate with the rise and fall of soft commodity prices. After an abrupt spike in chapter 12 filings during the GFC – which peaked in 2010 – soft commodity prices started to rise across the board and bankruptcies declined. Farm bankruptcies bottomed out in 2014, but that was at the point when prices peaked then began to drop.

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As shown in the chart above, some of the problems predate President Trump’s trade war with China. 

One culprit is that demand for corn and soybeans has not kept pace with increasing supply from industrialized farms over the current economic expansion. 

Some chapter 12 filings reflect low price levels for corn, soybeans, milk and even beef, but the situation had dramatically worsened since the trade war started earlier this year, and accelerated when China began slapping retaliatory tariffs on American soybeans. 

Meanwhile, as the Fed notes, not all Ninth District states are feeling the same effects. 

Wisconsin, for example, is seeing about 60% of all bankruptcies. It appears that bankruptcy filings have been unusually high among dairy farms. Mark Miedtke, the president of Citizens State Bank in Hayfield, Minn., said bankruptcy had not reared its head for borrowers in his region of southeast Minnesota, but farmers are certainly feeling the pinch. 

“Dairy farmers are having the most problems right now,” Miedtke said quoted by AP. “Grain farmers have had low prices for the past three years but high yields have helped them through. We’re just waiting for a turnaround. We’re waiting for the tariff problem to go away.”

“The underlying problem, which existed before the trade war, was overproduction. Farmers are almost too efficient for their own financial good,” Miedtke added.

The bankruptcy wave of farms is also spilling into the ag loans market as the Ninth District’s 531 banks have reported an alarming rise in nonperforming ag loans. 

“Asset quality of ag loans at these banks in the bottom quarter of the performance distribution worsened significantly after the recession. They improved markedly by 2012 and saw a couple of years of very healthy rates (Chart 3). But by 2014, asset quality in this cohort of banks was worsening again. By the second quarter of this year, asset quality would fall below levels seen in the aftermath of the recession—a trend not seen in any other standard loan category, like residential and commercial real estate, or construction and industrial, or even consumer loans,” said Minneapolis Fed. 

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The farm bust is not isolated to Ninth District states but also is showing up in other parts of the Midwest.

A new report from the Federal Reserve Bank of Kansas City, which includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming, and portions of Missouri and New Mexico, shows how farms in its district reported much lower income than a year ago.

Kansas City Fed said farm incomes were expected to weaken into early 2019. The worst ag banking conditions were in states with the heaviest concentrations of corn and soybeans.

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The report also notes how farmers have started to deleverage, taking a page out of the GE playbook, with fire sales of land or equipment to make loan payments.

In short, it appears that America’s farm bust has arrived; while it has been festering for years starting under the Obama administration, with President Trump’s trade war and China shutting out US farmers to its market the perfect storm has arrived.

Source: ZeroHedge