Fields of Debt: Falling prices, borrowing binge haunt Midwest ‘go-go farmers’

Some farmers loaded up on easy credit when grain prices were high – and kept borrowing after they crashed. Now debt and delinquencies are rising fast, raising fears of broader turmoil in U.S. agriculture.

NEWTON COUNTY, Indiana – A third-generation farmer, Matt Gibson eyed a big expansion of his family’s business in late 2011, as grain prices soared in a searing Midwestern drought.

By August of 2012, days before corn prices peaked, the Gibson family had borrowed nearly $18 million in a series of loans from Chicago-based BMO Harris Bank.

The Gibsons took on more debt after the drought broke the following spring, sending grain prices tumbling. By 2015, with grain prices at half their peak, BMO and others creditors sued the Gibson businesses seeking to recoup more than $30 million.

The travails of Matt Gibson, 39, and his family are emblematic of a new class of “go-go farmers,” a term coined by fellow Midwest growers and agricultural economists. Many, like the Gibsons, borrowed heavily to expand their farms, then borrowed more in an effort to plant their way out of a commodity price crash, according to dozens of interviews with Midwest farmers, lenders and agriculture experts.

Their distress could foreshadow broader economic turmoil in the grain sector, which includes corn, soybeans and wheat.

“We’re in for a very, very rough time,” said Jim Mintert, director of Purdue University’s Center for Commercial Agriculture. “It’s going to take several years to work our way through this.”

farmerdebt_small Fields of Debt: Falling prices, borrowing binge haunt Midwest 'go-go farmers' Economy

A Reuters analysis of federal data on agricultural lending in the grain-producing “I-states” – Illinois, Indiana and Iowa – shows that delinquency rates on farmland and production loans are rising sharply.

“It’s definitely a red flag,” Robert Johansson, chief economist for the U.S. Department of Agriculture, told Reuters.

The total dollar amount of nonperforming bank farm loans in the three states shot up to $288.2 million in the second quarter of 2016, up from $132.5 million in the second quarter of 2013, the year after corn and soybean prices peaked, according to data from the Federal Deposit Insurance Corporation.

The federal government doesn’t track large farm bankruptcies, but a special category of bankruptcies for smaller farms – Chapter 12 filings – points to distress in the grain sector. In the top Midwest grain states, the number of Chapter 12 filings, limited to those with less than $4.03 million in debt, were 51 percent higher in the 12-month period ending June 30 of this year compared to the same period in 2013, according to federal court data. In Iowa, the top corn producer, Chapter 12 filings had climbed 125 percent.

Another troubling indicator: The proportion of extremely leveraged grain and other row crop farmers in the U.S. – those with debts totaling more than 71 percent of assets – doubled, to 2.4 percent, between 2012 and 2015, according to the latest available USDA data.

In all, about one in three U.S. farms raising grain and other row crops, not including cotton, last year were categorized by the department as “highly leveraged” or “very highly leveraged,” meaning their debts equaled at least 41 percent of assets.

“I expect these categories to get larger,” the USDA’s Johansson said. “We should be looking at this.”

Such statistics match up with the stories of agrarian hubris and family desperation that are piling up in coffee shops and courtrooms across the Midwest. The common narrative is a struggle against low grain prices and high debt after years of credit-fueled expansion.