U.S. Farmers’ Borrowing Boom Is Built on Shaky Land Values

Despite a half-decade of falling grain prices, Midwestern farmland has held much of its value and has become the foundation for a borrowing boom, the Financial Times reported on Tuesday. Farm debt across the U.S. has risen to $427 billion, close to amounts that preceded the 1980s agricultural crash, when adjusted for inflation. Farmers remain creditworthy in the eyes of banks, even as their incomes fall, because the collateral value of land remains high. While farm income has halved from its peak in 2013, farm equity has fallen just 5 percent because of stable land values, according to Robert Johansson, chief economist at the U.S. Department of Agriculture. But if prices were to collapse, farm bankruptcies would widen and leave lenders — many of them backed by the federal government — with big losses.



In related news, lawmakers are looking to catch national farm bankruptcy law up with the size of debt and needed business reorganization schemes that financially overwhelmed farmers and ranchers face these days, Agri-Pulse.com reported. To that end, Sen. Chuck Grassley (R-Iowa) and a bipartisan cadre on the Senate Judiciary Committee expect to advance a Family Farmer Relief Act of 2019, S.897, which takes a very singular action: It’ll hike the debt ceiling for farms seeking protection and a restructuring plan under the farm bankruptcy law, or Chapter 12, to $10 million. An identical House bill, H.R. 2336, also has bipartisan sponsorship, and Agriculture Committee members are trying to get that chamber’s Judiciary Committee to review it. “We are hoping to get this across the finish line as soon as possible,” though the handling in both chambers is still being worked out, says Andrew Walmsley, congressional relations director for the American Farm Bureau Federation. The liability cap began at $1.5 million with the law’s 1986 passage and was raised to $3.2 million in 2005. But Congress indexed the cap to inflation, and it is now $4.2 million. The limit looks like a lot of money, but the economic size of production agriculture has zoomed up. For example, USDA data shows that the average value of U.S. cropland, as well as the per acre value of farm assets overall, have both more than doubled since the $3.2 million cap was set 14 years ago.

Study: The Cost of College Continues to Climb

Tuition for a bachelor’s degree has more than tripled from an (inflation-adjusted) average of about $5,000 per year in the 1970s to around $18,000 today, according to an updated study by the New York Federal Reserve. The study found that the cost of college has increased sharply over the past several years, though tuition increases are not the primary driver. Rather, opportunity costs have increased substantially as the wages of those without a college degree have climbed due to a strong labor market. While the high and rising cost of college tuition receives considerable attention, out-of-pocket expenses prove to be only a small part of the total cost of college once opportunity costs are considered. Attending college on a full-time basis typically requires delaying entry into the labor market and forgoing wages that would be available to those with a high school education. Someone pursuing a bachelor’s degree could expect to forgo more than $120,000 in wages—almost four times net tuition costs. This opportunity cost has changed over time as the wages of high school graduates have fluctuated. Notably, opportunity costs fell following the Great Recession as the wages of young workers with only a high school diploma declined, but picked up markedly after 2012 as the labor market strengthened and wages increased.



The issue of student loan debt and bankruptcy is the first problem addressed in the Final Report of the ABI Commission on Consumer Bankruptcy. Click here to download your copy.

A special ABI Podcast will be released later this month looking at the Consumer Commission’s recommendations on student loan debt and bankruptcy.

Recent Court Ruling Continues Trend of Governments Rethinking Their 'Moral Obligation' to Municipal Bondholders

A judge ruled last week that Platte County, Mo., was completely within its rights when it opted six months ago to not pay a $765,000 bond payment due for a long-struggling shopping development, Governing reported. In his decision, Circuit Court Judge James Van Amburg noted there was “no promise or requirement” for the county to pay the debt on the Zona Rosa retail center, even if the county auditor’s proposed budget included a line item for the payment (which was the case last year). The ruling validates a trend in the post-recession era — at least in Missouri — of municipal governments placing their obligations to taxpayers ahead of what they may owe to bondholders. Detroit’s bankruptcy in 2013 shook the municipal world when it pushed through a restructuring plan that placed general obligation (GO) bondholders behind the city's pensioners when it came to who would recover the most of what they were owed. GO debt is supposed to be backed by the full faith and taxing power of the government selling them. Before Detroit, they had been considered unbreakable. To some extent, these deeds don’t go unpunished. Even before it let the Zona Rosa bonds go into default, Moody’s Investors Service downgraded Platte County to junk status. In reaction to the Puerto Rico ruling, Moody’s and Fitch Ratings have placed dozens of other governments with related special revenue bonds under review for a downgrade.

Legislation Proposes Adding New Options to Retirement Savings Plans

Americans may soon see some welcome changes to the rules governing their retirement savings plans, including the ability to contribute to their Individual Retirement Accounts longer or tap them to help pay for the arrival of a new child, the New York Times reported on Tuesday. But the same bipartisan bill could also make retirement planning even more confusing, particularly for workers hoping to recreate the pensions of a bygone era. Among the two dozen or so rule changes is a provision that is strongly supported by insurance companies but that has consumer advocates worried. It would eliminate some of the liability for employers who add annuities to the menu of options for their 401(k) plans — including expensive and complex products that purport to offer the peace of mind of a guaranteed income stream. The proposed changes are part of H.R. 1994, the Setting Every Community Up for Retirement Enhancement Act of 2019, which passed the House with an overwhelming bipartisan majority on May 23. The bill would also allow small businesses to band together to create retirement plans and broaden the uses of college savings accounts. Leaders in the Senate are now pushing to take up similar legislation, which also has wide support and was first introduced in 2016.


 

Could Bitcoin Hit $50,000? In Wild World of Crypto Options, Some Say Yes

As bitcoin has rebounded from wintertime lows, some traders in an obscure corner of the cryptocurrency markets are betting it could jump as high as $50,000 — more than double its record during the bitcoin mania of 2017, the Wall Street Journal reported. These ultrabullish trades have taken place in recent weeks in bitcoin options. They came as the digital currency has gained 130 percent from the beginning of the year to about $8,550 on Monday. Many investors soured on the digital currency after it plunged more than 70 percent in 2018. And the small number of wildly optimistic bets in bitcoin options don’t mean its current surge will continue. At LedgerX, a New York-based marketplace for bitcoin derivatives, an unidentified trader on May 23 bought 30 call options that give the owner the right to buy bitcoin at $50,000 between now and June 2020, when they expire. The buyer spent $4,500 on the options, trading records show. The May 23 trade was tiny for the bitcoin market, where billions of dollars’ worth of the digital currency change hands daily. But it was notable because LedgerX hadn’t seen call-options trades at the $50,000 level in more than half a year, according to Juthica Chou, the company’s co-founder and chief operating officer. LedgerX also saw a revival of activity in May in bitcoin call-options trades with strike prices of $25,000, she added. (Subscription required.)

Miss Yesterday's Webinar with Experts Discussing the Supreme Court’s Ruling in Taggart v. Lorenzen? Watch a Replay!

ABI held a media webinar yesterday featuring experts discussing the Supreme Court's unanimous ruling in the case of Taggart v. Lorenzen (No. 18-489) that a court may hold a creditor in civil contempt for violating a discharge order if there is no fair ground of doubt as to whether the order barred the creditor’s conduct. ABI Editor-at-Large Bill Rochelle spoke with Nicole Saharsky of Mayer Brown, who was the Counsel of Record for the Respondents, and Hon. Eugene Wedoff (ret.), who joined an amicus brief in support of the petitioner. Watch a replay of the program:

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