Alexandria, Va. — A continued decline in commodity prices, rising interest rates and the specter of a trade war could create a financial crisis in the U.S. agricultural sector, according to an article in the May ABI Journal. “The resulting financial stress has resulted in significant deterioration in farm income, which will cause a substantial increase in agricultural workouts and bankruptcies unless commodity prices start to increase,” Mark T. Iammartino and Daniel F. Dooley of MorrisAnderson (Chicago) write in their article, “The Coming U.S. Farm Crisis.”
Iammartino and Dooley find that the struggles being experienced in today’s U.S. agricultural sector resemble those faced by farmers in the early 1980s. “There is substantial risk that if commodity prices remain depressed, recent signs of weakness in real estate values might increase and overall debt conditions could worsen,” they write. “If land values start to decline as they did in the early 1980s, then farm insolvencies will rapidly increase.”
Iammartino and Dooley write that if USDA projections of improvements to pricing of most crop segments prove to be true, then the U.S. might avoid a crisis in farming as deep as what was experienced in the early to mid-1980s. “Even with the prospect of rising interest rates, if commodity prices have reached their nadir and begin to climb once again, continued ample cash liquidity might have helped prop up real estate prices and stopped the degradation of loan characteristics,” they write. “One other trend that might help mitigate a potential crisis is the continued concentration of farms into corporate hands.”
The wild card in the agricultural industry is what ultimately happens with trade tariffs, according to the authors. “If export volumes decline, there will be further pressure on U.S. prices,” Iammartino and Dooley write. “Thus, the possibility of a trade war is a real threat to the agriculture industry and could spark a crisis itself.”
To obtain a copy of “The Coming U.S. Farm Crisis” from the May edition of the ABI Journal, please click here. To speak with the authors, please contact ABI Public Affairs Manager John Hartgen at 703-894-5935 or [email protected].
ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes nearly 12,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org. For additional conference information, visit http://www.abi.org/education-events.