Iowa farm bankruptcies climb to 10-year high, even with $2 billion in government aid, but outlook is improving

Donnelle Eller
Des Moines Register

By the time Stan Deardeuff talks with farmers who are struggling to stay afloat financially, the longtime Iowa Mediation Service counselor says they're usually resigned.

"They've been in this soup for a while," unable to stave off years of growing debt, says Deardeuff, who has worked with farmers a step away from bankruptcy since the 1980s farm crisis.

There's also regret. "They have a connection to the land. And they feel like maybe they're letting someone down, the next generation that wanted to farm," Deardeuff said.

Iowa had more distressed farmers for counselors like Deardeuff to see last year. Despite $2 billion in government assistance, more Iowa farmers filed for bankruptcy in 2020 than at any time in the past decade, recently released figures show.

The tally could have been much higher, say bankruptcy attorneys, economists and lenders, if not for the federal payments that farmers received to offset trade and coronavirus losses.

The money provided a lifeline that has helped growers stay afloat as they work to outlast an agricultural downturn that's lingered over a half-dozen years.

"Last year would have been a bloodbath if it hadn't been for the government payments," said John Rosenboom, a northwest Iowa banker who also farms. Without that assistance, he said, "A lot of people wouldn't have been able to pay off their operating notes for 2020."

Federal court data shows 34 Iowa farmers filed for Chapter 12 bankruptcy to avoid foreclosure or liquidation, seven more than in 2019. Last year's bankruptcies in Iowa were more than in any year over the past decade.

Federal court data shows 34 Iowa farmers filed for Chapter 12 bankruptcy to avoid foreclosure or liquidation, seven more than in 2019. Last year's bankruptcies in Iowa were more than in any year over the past decade.

Iowa's numbers grew even as last year's U.S. farm bankruptcies shrank 7% to 552. The federal government pumped a record $46.5 billion into the farm economy last year, accounting for 39% of the $119.6 billion in U.S. farm income.

Even more Iowa farmers likely filed through other bankruptcy chapters, unable to qualify to restructure their debt through Chapter 12, said Robert Gainer, an attorney with the Cutler Law Firm in West Des Moines. 

The Chapter 12 filings are "just scratching the surface" of farm financial stress, Gainer said. "There are family farmers — folks who have been farming for two or three generations — and they've just got to the point where they can't reorganize" and they're forced to quit after selling off their land, equipment and other assets.

Last year was tough for many farmers. Grain and livestock prices tumbled as the coronavirus ripped through the supply chain: Thousands of pigs, chickens and other livestock were destroyed as they backed up on farms when rampant COVID-19 infections decimated staff at meatpacking plants, forcing them to temporarily close. At the same time, export demand dropped as some foreign trading partners of the U.S. closed their borders to prevent the virus's spread.

Iowa farmers also were hit with drought and a derecho that brought hurricane force winds through a third of the state in August, flattening millions of acres of crops, crumpling giant grain bins and destroying homes.

There is some good news: The outlook finally is turning around. In addition to the federal aid, farmers got some relief late last year, when weather concerns in the U.S. and South America, combined with revived global demand, drove commodity prices higher, especially for corn and soybeans. The Heartland region, which includes Iowa, is the only area nationally that the U.S. Agriculture of Department has forecast will post net cash farm income gains this year.

But the rally came too late for some. Farmers "just got tired of fighting that fight," said Scott Bixenman, a Sioux City attorney who handles bankruptcies. 

"It's hard to imagine when corn is over $5 and beans are $13-$14 a bushel, but go back 50-60 days, and we're looking at a total different picture," said banker Rosenboom, an ag lender at Heartland Bank in Manson. "And even though prices are high now, a lot of people don't have crops to take advantage of it."

Farm debt 'a snowball that just keeps getting bigger'

Congress created the Chapter 12 bankruptcy law after the 1980s farm crisis drove thousands of families from their homes and land. Farmers, then highly leveraged, faced low commodity prices, falling land values and high interest rates. Legislators sought to help farmers reduce and restructure their debt and avoid mass foreclosures.

In 2019, Congress increased to $10 million the amount of debt a farmer could have and still qualify using Chapter 12 bankruptcy. It more than doubled the previous $4.4 million cap on ag debt.

The change reflects the larger size of U.S. farm operations, expanding the number of farmers who can benefit from Chapter 12 protections, said Joe Peiffer, a Cedar Rapids attorney.

He believes the changes in the federal law may be part of the reason more Iowa farmers filed for bankruptcy protection last year. The changes allow farmers who must sell land and equipment to cut — or eliminate — their capital gains tax by clearing bankruptcy.

"What I’ve seen my entire career, if the farmer sells his assets" — land, equipment and any remaining crops or livestock — "the bank gets all the money and the farmer gets the tax bill," Peiffer said, adding that he's working with a farmer who is liquidating his assets and would face a $700,000 tax bill if not for the Chapter 12 benefits.

Last year, Iowa farmland averaged $7,559 an acre, down only 13% from a 2013 high.

Farmland often is used as collateral for unsecured debt, and its value has been relatively stable during the ag downturn. Last year, Iowa farmland averaged $7,559 an acre, down only 13% from a 2013 high. Meanwhile, farm income in the state dropped about 60% from 2013 to 2019, the most recent USDA data available shows.

Nationally, loanson farmland are expected to make up about 65% of the nation's $441.7 billion agricultural debt this year, forecast to hit the highest level since 1981. That debt is offset by assets that are expected to remain steady at $3.2 trillion, the Agriculture Department says.

Bixenman, the Sioux City attorney, said farmers experiencing losses have repeatedly rolled their shortfalls into the next year's operating loan, with the hope that prices would rally with the next crop and "they could get caught up."

"It just didn't happen because of sustained low prices," he said, adding that some farmers found "they couldn't get financing anymore to put in a crop."

"Some lenders are still willing to work with farmers. Others are trying to collect as much as they can by forcing farmers to liquidate," said Nicole Hughes, a Council Bluffs attorney. "It seems like lenders may be reaching the limit on working with farmers."

Bixenman and other experts say the government payments often went "directly to the banks" — either to enable farmers to continue operating another year or to pay off delinquent loans.

Peiffer said he sees the government payments putting off the inevitable for some farmers. "It provided a stopgap," he said. "Debt is a snowball that just keeps getting bigger as you keep losing and borrowing more money and adding interest. At some point, you can't keep rolling it any longer."

Feeling an obligation to 'keep things going'

Despite the recent price improvement, farm income is forecast to drop 8.1% this year from 2020, largely due to reduced government payments. Aid is forecast to be $25.3 billion, 45% below last year's record, the Agriculture Department reported this month.

Farm expenses are expected to increase nearly 3%, driven by higher prices for fuel, fertilizer and feed. Still, farm revenue is forecast to climb nearly 6% this year. Iowa farmers could see soybean receipts climbing 24%; corn, 14%; pigs, 15%; and cattle, 6%. 

The improved outlook — with corn and soybean prices pushing back toward 2012 highs — could help convince bankruptcy trustees and creditors that farmers can operate profitably and pay off part of their debt, attorneys say.

Deardeuff said the coronavirus, combined with late-year price improvements, slowed mediations conducted by the Iowa Mediation Service. "For agriculture, that's a very good thing," he said.

Iowa State University estimates the break-even price for corn growers to be around $3.30 a bushel and about $8.70 for soybeans. Corn delivered in October is trading around $4.20 a bushel on the Chicago Board of Trade, and soybeans are around $10.60 a bushel.

Profits depend on farming practices and input costs such as seed, fertilizer and equipment, as well as yields, which are highly dependent on the weather.

Drought concerns make farmers cautious about pre-selling their corn and soybeans for future delivery, unsure what kind of yields they'll see, despite the higher prices, Rosenboom said.

About half the state is experiencing abnormally dry to extreme drought conditions, the U.S. Drought Monitor shows. In September, about 70% of the state was in drought.

Chad Hart, an ISU agriculture economist, said global drought concerns — and increased demand, especially for protein — should continue to support commodity prices this year. Pork exports last year, for example, set a record.

And President Joe Biden has indicated he will study trade policy, particularly with China, a major buyer of U.S. farm goods, before shifting the U.S.' approach.

"That's what the ag markets wanted to hear," Hart said.

Still, Hart and others agree it may take some time for farmers to rebuild their finances. "One good year won’t make up for five bad years," Peiffer said.

Bixenman said it's too late for many of his clients. "They're in a situation where they have to liquidate because they can't get operating money," he said. "I don't know that, in the short term at least, better commodity prices are gonna help us."

Rosenboom said he hasn't seen many bankruptcies in the area Heartland Bank serves. But he understands that the pressure to avoid that fate is traumatic for farmers. Lenders at his bank meet regularly with farmers who may be struggling.

"You stop in to see how they're doing. ... You want to make sure their heads and hearts are in the right spot," Rosenboom said. "It's tough. In this area, you're talking about being the third-, fourth-, fifth-generation farmer. You have to face that. It's big. You feel this generational obligation to keep things going."

Donnelle Eller covers agriculture, the environment and energy for the Register. Reach her at or 515-284-8457.