What's Really Going on in Agriculture?
What's Really Going on in Agriculture?
What's going on in agriculture right now? Well, the
financial picture for farms is completely different than it was a century ago.
So let's dig past the headlines and figure out what's really happening.
What does it actually mean when we hear about a "farm bankruptcy
crisis"?
First things first: Yes, farm bankruptcy rates are rising,
up from historic lows in the last few years. Once you chart it out, you kinda
see the trend. But here's the kicker—it's not just farms. Everyone's
going bankrupt more right now, whether we're talking personal bankruptcies or
business bankruptcies. This isn't just a farm problem; it's a "the US
economy is in trouble" problem that's affecting everybody.
It's wild to me that everybody knows farm bankruptcies are going up, but we're not talking about how everybody's bankruptcies are going up. There isn't a farm bankruptcy problem right now. There's just a bankruptcy problem, and since farms are part of the US, they're experiencing it, too. We're all going bankrupt more, and we don't even know that. That's weird. What's going on here?
The Farm Lobby and the Crisis Narrative
A big part of what's going on is that the farm lobby
exists. Their job is to keep pushing stories about how the farm sector is
in crisis. Why? So people panic, and Congress sends farmers more money. That's
what's happening.
You see the same tactic with the "farmer suicide
crisis." As someone who's lost family members and friends to suicide, I
think it's a really rough thing to be made into a media story. The truth is,
the farmer suicide rate is exactly the norm for their demographic: older,
rural, white men with guns. It is exactly on par. We have occupational data
for suicide rates, and if you line them up, you get a long list of rural and
blue-collar jobs. Farmers aren't even in the top 20!
The farm sector really just wants the US government to send
them your money. To do that, they have to keep everybody scared that
they're about to collapse. There are a lot of people whose job it is to make
sure those scary headlines are always out there.
So today, I just want to talk to you about farm bankruptcy
and all the background farm and money stuff that the news is never going to
tell you. It's not because journalists are bad people; it's because most
folks—including folks in the news—just don't understand agriculture. So they're
just going off of whatever talking points the farm lobby sends them. When the
only information out there about agriculture comes from the farm lobby that
wants your money, you're just going to get a cycle of scarier and scarier
headlines that don't tell you what's actually happening.
Three Key Things the News Won't Tell You
Here are a few key things we'll talk about today:
1. Farmers Aren't Necessarily More Likely to Go Bankrupt
Underneath all the scary headlines, farmers are not more
likely to go bankrupt than other people. That could change with this
whole soybean thing—that could always change—but let's make sure we understand
the baseline of what's actually happening right now. The soybean crisis hasn't
even really hit farms yet.
2. Farm Bankruptcy Is Different
Bankruptcy for farms does not mean what it means for
you. There's a special kind of bankruptcy for farms that's a lot softer, a lot
cushier, and most of the time allows farmers to keep right on farming. It
doesn't mean the farm is over. It gives the farm time to collect, reset, and
keep on going.
Bankruptcy is not how farms go out of business; it's how
they stay in business. And that's an important thing to know whenever we're
hearing panicked news about farm bankruptcy.
3. Bankruptcies Can Lead to Growth
Surges in farm bankruptcy don't mean agriculture is over.
Some of the biggest times of growth and real expansion in US agriculture happen
right after a big wave of bankruptcies. Now, how does that work? We'll
talk about it.
Who Are "Family Farms" Today?
To make sense of farm bankruptcy news, you have to know a
few things about agriculture. Family farms are not who you probably think
they are. I feel like this is something I go over in every video, but most
small family farms in the United States are millionaires with a six-figure
income.
I know that's really different from what we've always heard.
We all grew up hearing about how small family farms are struggling and getting
pushed out of the business. And that was true for a very long time. But after a
century of pushing the smallest and poorest people out of the business, who's
left in agriculture? It's not poor people. That's why, nowadays, most small
family farmers in the United States are millionaires with a six-figure income.
So if you hear "farm bankruptcy" and you think
"Great Depression," people like my great-grandpa being forced out of
the business—that is not what's happening anymore. And we deserve news
that's going to be straight with us about that. But I think most people who do
the news just don't know that. They've been raised on the same diet of
"family farmers are small, poor, and struggling" as all of us. And so
you wind up with kind of a circular logic where everybody in the country just knows
family farmers are small, poor, and struggling, and no one bothers to
fact-check on that.
The reality is that farm country today is not the same farm
country that our grandparents remember. They tend to be families with much
better financial footing than most Americans. So if we're worried about
bankruptcy protection, we should probably just be worried about most
Americans, not farmers as a special class.
Chapter 12: Bankruptcy for Farmers
But speaking of farmers as a special class, that takes us to
number two: how bankruptcy works differently for farms than it does for
everybody else.
Farms get something called Chapter 12 bankruptcy.
You've probably heard of Chapter 7 and Chapter 11, which are for individuals
and businesses. Chapter 12 is a special kind of bankruptcy just for family
farms and family fishermen.
Chapter 12 is designed to give people a way to keep their
farm or fishing business going without having to sell off their land, their
boats, and their other equipment. So most of us, when we hear
"bankruptcy," we think losing everything, being forced to sell off
everything you own to pay off debtors. That is not how it works for
farmers and fishermen because they have a special kind of bankruptcy that lets
them not have to do that.
Chapter 12 is more like hitting pause on all your
debts and giving you some time to put together a repayment plan that's going to
work better for you. You can sell some of your land to pay off debts
under Chapter 12, but you don't have to. And if you sell land under Chapter 12,
you don't have to pay capital gains taxes on it. It's a tax exemption! That
means you don't have to sell nearly as much of your land as you would if you
had to pay taxes on it.
The way Chapter 12 bankruptcy works, it's not the farm going
out of business. It's a way for the farm to stay in business. It is a
special kind of bankruptcy that is specially designed to make sure people don't
go out of business. When you hear farms are going bankrupt, most people hear
you have to sell off the land. That's literally not how it works; they have a
special form of bankruptcy designed to keep that from happening. That's also a
special level of protection that nobody else gets besides farmers and
fishermen.
The Expansion of Chapter 12
To be able to file Chapter 12, you have to get half of your
income and have half your debts from farming. You're not going to qualify if
you're a dentist who happens to have a couple of acres where you raise
chickens. And I actually think that's fine. If you're going to have a special
kind of bankruptcy for farmers to keep them from going out of business, it
should be for people who are farming professionally.
But here's where it gets interesting: Chapter 12 was
originally designed for small and medium-sized family farmers. The amount of
debt you could discharge was capped around $3 million. By 2019, it was
capped there, and originally, you had to be getting 80% of your income
from farming, not 50%. You don't want a bunch of wealthy people just buying up
farmland so they can qualify as farmers and get special bankruptcy protections.
You want to make sure this is reserved for people making their living in
agriculture.
In 2019, Donald Trump expanded those restrictions to allow a
lot more wealthy people who just own a lot of farmland to qualify for Chapter
12 bankruptcy. And this was expected to dramatically increase the number of
Chapter 12 bankruptcies. And that's exactly what happened.
Chapter 12 went from being a special protection for people
whose livelihoods depend on agriculture to more of a coverall for all kinds of
people with a lot of wealth who happen to own some farmland. And now they can
access those special protections that were meant for family farmers. That helps
explain why farm bankruptcies are on the rise.
The other change Trump made was instead of capping Chapter 12 bankruptcy at $3 million, it is now $11 million. That has opened the door for a lot of quite wealthy families to use Chapter 12 bankruptcy to discharge their debts when they wouldn't have qualified before. I know the phrase "$11 million worth of debt" sounds shocking, but remember how banks work: they don't give out $11 million worth of loans to poor people. You have to have a lot of assets and a lot of financial capital of your own to qualify for that amount of debt.
What these changes to Chapter 12 bankruptcy did was take
this program that was designed to protect small and medium family farmers whose
livelihoods depend on agriculture and expanded it out to a lot of people who
may just be agricultural investors. As our economy starts to hit serious
problems from labor shortages, deportations, trade wars, and high interest
rates, you can expect to see a lot of businesses get in trouble, and a lot of
wealthy people who own businesses start to get in trouble. And now that we've
expanded who qualifies for Chapter 12, that starts to look like a lot of farm
bankruptcies on the rise.
What we're looking at right now is not a farm crisis. It's
just a general economic crisis.
Farm Media Literacy: It's Always a Crisis Somewhere
Keep this in mind for making sense of farm news, or
"farm media literacy," if you will: the way agriculture works,
there's always going to be some part of the country or some section of
agriculture that's in crisis.
Let me give you an example. Let's say we had a year when
corn yields were really good. Everybody had a great harvest, the weather was
good, so everybody's got a bumper crop. Well, now you've got a huge supply of
corn on the market, so the price for corn is going to collapse. If something
goes well and you have a good crop, that means the price is going to tumble.
On the flip side, if you had a bad year—a drought, floods, something that made a bad harvest—supply goes down, and the price goes up. So, every year you either have a good harvest or you have good prices. You can't have both. It is very, very unusual to have both a good crop and good prices.
So if you are the farm lobby and your mission is to persuade Americans that farmers are in crisis all the time, you're always going to have headlines to pull from somewhere. That's what's going on.
Bankruptcy for farmers is primarily addressed through Chapter 12 of the Bankruptcy Code, which provides a tailored process for family farmers to reorganize their debts while continuing their operations.
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