Fall is setting in. Soon combines will be rolling through fields harvesting grain. High school football fills the Friday evening air with excitement. On weekends you can drive through the countryside and catch the smell of smoke rising from a campfire. It’s my favorite time of year.

Looking across the golden fields of Ogle County one can tell it will be a very productive harvest this year. However, looking deeper through that harvest and into the complexities of agriculture one can see trouble on the horizon. Low commodity prices will again test the resolve of farmers and weigh heavily on their profitability.

Reading through various articles the other day I found this one published by the American Farm Bureau. It deals with farm bankruptcies, something no one on the farm ever wants to think about let alone face. But with sinking commodity prices for yet another year and outlooks grim it is something we need to keep a steady watch over.

Chapter 12 bankruptcy provides family farmers with flexibility to carry on normal business operations while making reasonable payments towards their debt load, even when facing the risk and uncertainty of agricultural production. The measure was introduced into law as a temporary measure in 1986 but became permanent in 2005 due to its success streamlining the filing process and addressing the large debts of farming operations.

The good news for 2023 is that farm bankruptcies have once again reached a record low since Chapter 12 became permanent. According to the U.S. Courts, 139 farm bankruptcies were filed in 2023, down 18% from 2022. This continues a four-year decline since the decade high of 599 filings in 2019. Unfortunately, this downward trend in farm bankruptcies is unlikely to continue.

Farm finances are a dark spot right now. The total number of farms in the U.S. declined by over 140,000 between the 2017 and 2022 Census of Agriculture. Five thousand more farms were lost from 2022 to 2023. Additionally, in February, net farm income for 2024 was projected to be down nearly 40% from 2022, and many key commodity price expectations have fallen further since then. The government safety net that normally supports farmers when markets hit bottom is currently undermined by inflation and an outdated 2018 farm bill. So, just because Chapter 12 farm bankruptcies have been falling in recent years does not mean farms are not facing devastating financial struggles now.

Most regions had decreases in bankruptcy filings last year after more than doubling in 2022.  Regions that had double-digit percentage decreases in Chapter 12 filings were the Northwest, mid-Atlantic, Midwest and Southeast. The Midwest and Southeast had the most filings of any regions with 42 and 40 filings, respectively. Both the Northeast and West saw no change from 2022 to 2023, but the Northeast tied for the least number of filings compared to the West’s 11 filings.

On a state level, the total number of bankruptcies widely varies. While 17 states/territories had no bankruptcies, some states had as many as 11 cases filed. Twelve states had no filings in 2023: Alaska, Alabama, Connecticut, Hawaii, New Hampshire, New Mexico, Nevada, Rhode Island, Utah, Vermont, West Virginia and Wyoming.

In less fortunate circumstances, 14 states had increases in 2023 filings. Texas had the largest increase in filings with 10 cases – eight more than 2022. Three other states had a double-digit number of filings: California (11), Georgia (11) and Kansas (10). Of the 14 states with increased cases, nine increased by only one case (Georgia, Idaho, Massachusetts, Maine, Minnesota, Mississippi, North Dakota, New Jersey and Ohio). The other states that had increases include Missouri (six, up from one), North Carolina (six, up from four) and Tennessee (four, up from one).

Chapter 12 farm bankruptcies in 2023 fell to a record low since the program was made permanent, but this year, farmers face decreased revenues and higher costs. As a result, we are likely going to see increased filings in 2024 and beyond. After record-high grain prices and farm incomes in 2022, 2023 net farm income (farm income minus expenses) is forecast at only $155 billion, down from $185.5 billion in 2022. However, a drop in 2023 grain prices is expected to continue into 2024. USDA estimated that 2024 net farm income would be $43 billion lower than 2023. As a result, the $21-billion drop in farm cash receipts for crop and livestock sales in 2024 that USDA expected in February is now likely to be even greater.

Another element of the farm financial struggle is production expenses that continue to increase to record highs for the fourth consecutive year. In the February net farm income forecast, production expenses were expected to increase $17 billion. The Purdue University-CME Group Ag Economy Barometer has recorded higher input costs as farmers’ biggest concern for their farming operation for many years. Looking to the future, USDA forecasts that total production costs will continue to increase into 2025 for all major field crops. To accommodate these costs, it is crucial that farmers have access to capital. Agricultural debt nationwide increased in 2023 due to growing demand for production loans to cover surging supply costs. However, farm capital investment is approaching record lows, according to the Purdue University-CME Group Ag Economy Barometer’s Farm Investment Index. That same report has shown growing concern for interest rates’ impact on long term farm well-being.

According to data from the Kansas City Federal Reserve, farm debt at commercial banks reached over $744 billion in 2023, up from $709 billion in 2022. Much of this debt has been made more expensive after 11 interest rate increases by the Federal Reserve between March 2022 and January 2024. So, farmers have been hit by both the inflation that increased many of their costs and the interest rate hikes that have been aimed at curbing that inflation. The double-edged sword of inflation and the interest rates that the Federal Reserve Bank is using to combat it have raised operating costs for farmers, increasing the need for credit to provide farm liquidity.

Filing for bankruptcy is a last resort after all other options have been exhausted to pay back debts. Therefore, bankruptcy filing may not always be a solution for farms facing financial hardship. Many farms may choose to close before reaching the point of bankruptcy when faced with such uncertain futures for farm finances. Recent declines in the number of U.S. farms are just the latest in a trend of losses in farms and farmland beginning in 1950. Smaller farms with under $50,000 in agricultural product sales and government program payments face the highest rates of closure, likely due to the high costs of sustaining these businesses with limited farm revenue. These smaller farms are also, naturally, more reliant on off-farm income. Eighty-four percent of all U.S. farms earn the majority of their household income off-farm and use that to cover farm expenses. To be eligible for Chapter 12 filings, more than 50% of the filer’s gross income must have come from farming. As a result, many struggling farms may not even have Chapter 12 bankruptcy as an option.

Farmers are relying on the 2018 farm bill, written and passed in an era of stable prices, to serve as support against the uncertainty of the current market. That farm bill operated through six years of market volatility, a global pandemic and exceptional price inflation that was not adequately addressed by many of the farm bill’s programs. The 2018 farm bill, still in place in 2024 under a 12-month extension, is based on outdated reference prices that lower the safety net to the financial floor and offer very little protection against bankruptcy. Farms continue to face lower income from the dropping commodity prices that are leading to farm losses, but – for many farmers – with no support from outdated farm bill provisions, we may be facing a near future of heightened farm financial hardships.

It has been encouraging to see four straight years of fewer Chapter 12 filings. Keep the greater farm financial environment in mind, though, when looking to the coming years. Rising production costs, difficulty attaining capital and falling crop prices all threaten long-term farm well-being. Farm bankruptcies are only one indicator of farm financial health. Other farm closures, sales and consolidations can also show that farms are financially struggling, short of the last resort of a Chapter 12 bankruptcy. Farm finances will almost certainly weaken in 2024 and 2025, based on high credit costs, rising land costs and falling commodity prices.

“The hardest thing in life is knowing which bridge to cross and which to burn.” -Anonymous

Ron Kern is the manager of the Ogle County Farm Bureau.