Winnipeg | CNS Canada – Fewer farms means fewer bankruptcies but with that simple equation comes the realization that the size and tone of those bankruptcies in North America is growing.
“They are larger, the amount of debt is greater, the fact that we’re not seeing a higher number doesn’t mean there isn’t considerable distress out there,” said Todd Langel, a lawyer with Faegre Baker Daniels in Des Moines, Iowa.
Speaking at the Grain World conference in Winnipeg on November 15, Langel said the factors causing insolvencies on most farms these days are generally tied to low commodity prices and a lack of knowledge of how to deal with shrinking margins.
“The U.S. producer has gone through a relatively recent period of profitability due to higher prices during the last cycle (five years ago) and that has allowed some producers who don’t have quite as sharp a pencil to continue,” he said.
The competition for North American farmers is also getting tougher due to cheaper production costs in South America.
However, Langel says Canadian farmers may have a few advantages over their counterparts to the south.
“I think that a number of Canadian producers are larger and have a greater degree of sophistication in some of the operations that may give them an advantage,” he said. “They also may pay more attention to risk management strategies.”
Another factor that is becoming more common is that an increased number of farmers are using corporate structures or limited liability companies to define their operations.
This may work to their advantage, but it also tends to muddy the true number of farms that may actually be going under, according to Langel.
“They may be using organizational methods that don’t tend to get put into bankruptcy,” he added.
According to Langel, what can often occur is the farmer may choose to simply dissolve the corporation or LLC as opposed to putting it through a court-monitored restructuring process.