From lower bankruptcy filings and interest rates to slight increases in farmer sentiment and the Global Dairy Trade, news for the first week of August is fairly positive.

Lee karen
Karen Lee
Managing Editor / Progressive Dairy

Chapter 12 bankruptcy filings in 2023 reach record low

The number of U.S. farms filing Chapter 12 bankruptcy were recorded at 193 for 2023. This is a record low since Chapter 12 became permanent in 2005 and continues the four-year decline since the decade high of 599 filiings in 2019, according to an analysis by American Farm Bureau Federation (AFBF) economics intern Samantha Ayoub.

“Coming off a year of record-high commodity prices and subsequently high net farm incomes in 2022, overall farm loan delinquency rates also dropped in 2023,” Ayoub reported.

However, this downward trend in farm bankruptcies is unlikely to continue.

“In February, net farm income for 2024 was projected to be down nearly 40 percent from 2022, and many key commodity price expectations have fallen further since then,” she said.

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“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safety net that normally supports farmers when markets hit bottom is currently undermined by inflation and an outdated 2018 Farm Bill.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,” Ayoub added.

Total bankruptcies filed by state vary widely. While 12 states had no bankruptcies, some states had as many as 11 cases filed. Bankruptcy filings were the highest in California and Georgia, followed by 10 in Kansas and Texas and nine in New York.

Most regions of the U.S. saw decreases in bankruptcy filings over the last year. 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.

Only one region had an increase in filings in 2023: the Southwest (Texas, Oklahoma, New Mexico, Arizona, Utah and Colorado). The region had three more cases filed than in 2022 for 14 total Chapter 12 filings in 2023. “This region was hit hard by extreme drought in 2022, reducing harvest yields, which led to continued planting and market uncertainty in 2023,” Ayoub reported.

Farmer sentiment in July showing signs of improvement

All three broad-based measures of farmer sentiment improved in July, even though prices for both corn and soybeans declined over the past month, according to the latest Purdue University/CME Group Ag Economy Barometer.

“Responses to the individual questions used to calculate the indices indicated that the sentiment shift was primarily attributable to fewer respondents saying that conditions were worse than a year earlier and fewer saying that they expect bad times in the future,” said James Mintert, the barometer’s principal investigator and director of Purdue University’s Center for Commercial Agriculture.

Producers continue to be concerned about high input costs and now weak commodity prices are growing on producers’ minds. Only 17% of respondents cited rising interest rates as a top concern, down from 23% in June, consistent with signals from the Fed that interest rates have peaked.

The Ag Economy Barometer provides a monthly snapshot of farmer sentiment regarding the state of the agricultural economy. The survey collects responses from 400 producers whose annual market value of production is equal to or exceeds $500,000. Minimum targets by enterprise are as follows: 53% corn/soybeans, 14% wheat, 3% cotton, 19% beef cattle, 5% dairy and 6% hogs. Latest survey results, released Aug. 6, reflect ag producer outlooks as of July 15-19.

GDT index up slightly

The price index of dairy product prices sold on the Global Dairy Trade (GDT) platform is up just 0.5% in an auction held Aug. 6.

Compared to the previous auction, prices for individual product categories were mostly mostly higher. Lactose was up 16.1% and mozzarella was up 8.4%. Posting smaller increases were buttermilk powder at 3.4%, whole milk powder at 2.4%, cheddar cheese at 1.3% and anhydrous milkfat at 1.2%. Butter and skim milk powder were both down by about 2.5%.

The GDT platform offers dairy products from several global companies: Fonterra (New Zealand), Darigold, Valley Milk and Dairy America (U.S.), Arla (Denmark), Arla Foods Ingredients (Denmark), BMI (Germany), Kerry Dairy (Ireland) and Solarec (Belgium).

The next GDT auction is Aug. 20.

August FSA interest rates turn lower

The announced interest rates on loans through the USDA’s Farm Service Agency (FSA) head downward as they return to the rates announced for June. As we begin August 2024, interest rates for operating and ownership loans (compared to July) are as follows:

  • Farm operating loans (direct): 5.375%, down from 5.5%
  • Farm ownership loans (direct): 5.625%, down from 5.75%
  • Farm ownership loans (direct, joint financing): 3.625%, down from 3.75%
  • Farm ownership loans (down payment): 1.625%, down from 1.75%
  • Emergency loan (amount of actual loss): 3.75%, unchanged

The FSA also offers guaranteed loans through commercial lenders at rates set by those lenders. For more information, producers can contact their local USDA Service Center.

USDA updates farm loan programs

The USDA announced changes to the FSA’s farm loan programs, effective Sept. 25. These changes are intended to increase opportunities for farmers and ranchers to be financially viable.

Farm loan policy changes outlined in the Enhancing Program Access and Delivery for Farm Loans rule are designed to better assist borrowers to make strategic investments in the enhancement or expansion of their agricultural operations.

The three most notable policy changes include:

  1. Establishing a new low-interest installment set-aside program for financially distressed borrowers. Eligible financially distressed borrowers can defer up to one annual loan installment per qualified loan at a reduced interest rate, providing a simpler and expedited option to resolve financial distress in addition to FSA’s existing loan servicing programs.
  2. Providing all eligible loan applicants access to flexible repayment terms that can increase profitability and help build working capital reserves and savings. By creating upfront positive cash flow, borrowers can find opportunities in their farm operating plan budgets to include a reasonable margin for increased working capital reserves and savings, including for retirement and education.
  3. Reducing additional loan security requirements to enable borrowers to leverage equity. This reduces the amount of additional security required for direct farm loans, including reducing the frequency borrowers must use their personal residence as additional collateral for a farm loan.

The USDA encourages producers to reach out to their local FSA farm loan staff to ensure they fully understand the wide range of loan and servicing options available to assist with starting, expanding or maintaining their agricultural operation. To conduct business with FSA, contact your local USDA Service Center.

USDEC, NMPF expand partnerships in South America

The U.S. Dairy Export Council (USDEC) and the National Milk Producers Federation (NMPF) advanced a pair of partnerships in South America. The organizations signed a memorandum of understanding (MOU) with Abraleite, a prominent Brazilian milk producers association, and renewed an existing MOU with Argentine farmer organization Sociedad Rural Argentina (SRA).

The agreements enhance cooperation between the U.S. and South American dairy industries, focusing on critical areas such as the economic and social significance of the dairy sector and the removal of trade barriers affecting both producers and consumers.

The updated MOU with SRA includes the launch of a Sustainability and Trade Taskforce, an initiative to provide a balance to European policies that could unfairly impact producers in the U.S. and Argentina. Objectives include demonstrating that livestock production is a cornerstone of sustainable food systems and advocating for science-based trade policies.

“Dairy producers throughout the Western Hemisphere confront many of the same issues and priorities,” said Gregg Doud, president and CEO of NMPF. “We look forward to working alongside Abraleite and SRA to advance policies that promote dairy and limit trade barriers.”