Farm bankruptcies inched up in the year ended June 30, as weather and economic factors took their toll in some parts of the country.
The Department of Agriculture says 1,059 farmers went into bankruptcy in the period, up from 902 in the 12 preceding months. That's only a tiny percentage - 0.055% - of the slightly more than two million farms, but the rise was the first since 1992.
It is significant because historically the preferred method of working out financial problems for farmers and their lenders has been working them through, not declaring bankruptcy. It's rare that more than 1% of the country's farms go bankrupt, even in down years.
Midwest farm bankers say some customers are turning to bankruptcy as an increasingly painless and destigmatized way out of an impossible debt situation.
"Some of our customers have taken bankruptcy as a way out when they didn't have to," said Charles E. Hitchman, chief executive of Blencoe (Iowa) State Bank. "I would say the stigma is getting less severe because financing has gotten easier and easier to get."
Some bankers say the social penalty in rural communities for filing bankruptcy is not what it once was - even 10 years ago, when farm bankruptcies swept the nation.
In north-central Iowa and in Minnesota, farm losses are skyrocketing because of the hedge-to-arrive debacle, in which farmers and grain elevators are bickering over who should pay for the forward contracts gone bad. Bankruptcies could increase there.
"Some of our borrowers are into it pretty serious," said James Loonan, chief executive of State Bank of Easton, Minn., in Faribault County, where the bulk of the hedge-to-arrive contracts were made. "No one's talking bankruptcy or suicide yet, but that's because no one likes to talk about it. There's an awful lot of stress."
Mr. Loonan said most of his customers are solid citizens who will ride it out. But does he think farmers are choosing bankruptcy now when they don't necessarily have to?
"No question about it," he said. "It's credit cards. Farmers get unsolicited credit cards in the mail like every one else. They'll sink you no matter what business you're in."
Iowa was one of the hardest-hit states in the farm bankruptcy surge in the late 1980s. Almost half of all Iowa farms went into Chapter 12, the federal farm-bankruptcy provision, from 1986 to 1989, according to the state.
Most rural bankers expressed deep faith in farm borrowers, even though they may get some who walk away from bad situations. Farmers have "nowhere to run" once they have filed for bankruptcy protection, said James Shafer, president of First National Bank in Tremont, Ill.
"I have two customers that, if they had the consumer loan mentality, they would have filed bankruptcy," Mr. Shafer said. "I have one retirement- age farmer who by all rights should have filed, but didn't. He stood in my office with tears in his eyes thanking me for sticking with him. Farmers are too proud."
"Sure, we get guys who file bankruptcy that could probably stick it out," said one northern Iowa farm banker, "but they lose all respect in the community. And they should. These people turn into real pariahs."
