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Financial stress and farm bankruptcies in US agriculture

Author

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  • Robert Dinterman
  • Ani L. Katchova
  • James Michael Harris

Abstract

Purpose - The purpose of this paper is to evaluate farm financial stress within the USA over the past 20 years and the agricultural and economic factors which have impacted farm businesses. The effect of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) on farm financial stress is further evaluated. In particular, Chapter 12 bankruptcies – which can only be filed by farmers – were only a temporary measure until BAPCPA made Chapter 12 a permanent fixture in bankruptcy law. Design/methodology/approach - Chapter 12 bankruptcy filings from 1997 until 2016 are used as a proxy for farm financial stress. Panel fixed effects models are used to determine relevant factors affecting financial stress for farmers from agricultural and macroeconomic perspectives. Further, models incorporating pre- and post-BAPCPA regimes are utilized. Findings - The results show that macroeconomic factors (interest and unemployment rates) are strong predictors of farm bankruptcies for farms while agricultural land values are the only consistent strong predictor among the agricultural factors. When evaluating the post-BAPCPA regime, only agricultural land values continue to be a significant predictor of farm bankruptcies. The findings also indicate a dynamic relationship with agricultural land values, where current year values are negatively related but previous year land values are positively related to bankruptcies. Originality/value - The authors provide an analysis of the post-BAPCPA regime on farm bankruptcies that has not been evaluated within the literature yet. Further, the findings illuminate discussion on a potentially dynamic relationship with financial stress and agricultural land values.

Suggested Citation

  • Robert Dinterman & Ani L. Katchova & James Michael Harris, 2018. "Financial stress and farm bankruptcies in US agriculture," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 78(4), pages 441-456, February.
    • Handle: RePEc:eme:afrpps:afr-05-2017-0030
    DOI: 10.1108/AFR-05-2017-0030
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    1. Dixon, Bruce L. & Ma, Nan & Ahrendsen, Bruce L. & Settlage, Latisha A. & Stam, Jerome M., 2002. "Factors Affecting Chapter 12 Bankruptcy Filings in the United States: A Panel Data Model," 2002 Regional Committee NC-221, October 7-8, 2002, Denver, Colorado 132366, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
    2. Ellinger, Paul & Featherstone, Allen & Boehlje, Michael, 2016. "Leverage of U.S. Farmers: A Deeper Perspective," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 31(1), pages 1-7, April.
    3. Neil E. Harl, 2006. "Bankruptcy reform and the effects on chapter 12 bankruptcy for farmers (and fishermen)," Agricultural Finance Review, Emerald Group Publishing, vol. 66(1), pages 7-16, May.
    4. Patrick, Kevin & Kuhns, Ryan & Borchers, Allison, 2016. "Recent Trends in U.S. Farm Income, Wealth, and Financial Health," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 31(1), pages 1-8, March.
    5. Peter J. Barry & Warren F. Lee, 1983. "Financial Stress in Agriculture: Implications for Agricultural Lenders," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 65(5), pages 945-952.
    6. Alston, Lee J, 1984. "Farm Foreclosure Moratorium Legislation: A Lesson from the Past," American Economic Review, American Economic Association, vol. 74(3), pages 445-457, June.
    7. Brian C. Briggeman, 2010. "Debt, income and farm financial stress," Main Street Economist, Federal Reserve Bank of Kansas City, issue 6.
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    Cited by:

    1. Chen, Jian & Katchova, Ani L. & Zhou, Chenxi, 2021. "Agricultural loan delinquency prediction using machine learning methods," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 24(5), May.
    2. Dubman, Robert & Key, Nigel & Law, Jonathan & Litkowski, Carrie & Mandalay, Okkar & Subedi, Dipak & Todd, Jessica E & Whitt, Christine, 2021. "Agricultural Income and Finance Situation and Outlook: 2021 Edition," Economic Information Bulletin 327362, United States Department of Agriculture, Economic Research Service.
    3. Robert Dinterman & Ani L. Katchova, 2021. "Survival analysis of farm bankruptcy filings: Evaluating the time to completion of chapter 12 bankruptcy cases," Agribusiness, John Wiley & Sons, Ltd., vol. 37(2), pages 324-347, April.
    4. Eric C. Davis & Ani L. Katchova, 2020. "The Impact of Bank Deregulations on Farm Financial Stress and Stability," Sustainability, MDPI, vol. 12(4), pages 1-14, February.
    5. Steele C. West & Amin W. Mugera & Ross S. Kingwell, 2021. "Drivers of farm business capital structure and its speed of adjustment: evidence from Western Australia’s Wheatbelt," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 65(2), pages 391-412, April.
    6. Mário Santiago Céu & Raquel Medeiros Gaspar, 2022. "Vegetative cycle and bankruptcy predictors of agricultural firms," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 68(12), pages 445-454.
    7. Florence A. Becot & Shoshanah M. Inwood, 2022. "Medical economic vulnerability: a next step in expanding the farm resilience scholarship," Agriculture and Human Values, Springer;The Agriculture, Food, & Human Values Society (AFHVS), vol. 39(3), pages 1097-1116, September.

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    More about this item

    Keywords

    Financial stress; Farm bankruptcies; Q14;
    All these keywords.

    JEL classification:

    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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