Fed's Bowman sees echoes of 1980s crisis in current farm struggles

U.S. Federal Reserve Governor Michelle Bowman gives her first public remarks as a Fed policymaker at an American Bankers Association conference in San Diego, California, U.S., February 11 2019. REUTERS/Ann Saphir

(Reuters) - The Federal Reserve is closely tracking the recent increase in farm bankruptcies which is a signal of stress in the agricultural economy, Fed Governor Michelle Bowman said on Thursday.

“The challenging outlook has prompted some to wonder if the industry is about to relive the hard times of the 1980s farm crisis,” Bowman said in prepared remarks at an agricultural lending conference in Deming, New Mexico. “There are some similarities.”

Bowman, a Washington-based policymaker at the U.S. central bank, noted that Chapter 12 federal court filings - a type of bankruptcy protection geared mostly toward small farmers - had increased from 360 filings in 2014 to 500 in 2018.

“The Federal Reserve tracks these developments closely because of their potential implications for both the economy and banking supervision,” Bowman said in remarks that did not address the outlook for monetary policy.

She said the recent drop in farm incomes was a “troubling echo” of the 1980s.

Bowman noted, however, that there were substantial differences between the current state of the agricultural economy and the darker days of the 1980s.

Debt servicing costs for farmers are currently lower, in part because inflation and interest rates are historically low and because farmer leverage is not as high, she said.

Bowman said another contrast to the 1980s was that farmland values have only declined modestly in recent years. This means banks currently lending to farmers are doing so based on relatively strong collateral.

“The outlook for U.S. agriculture is challenging, though agricultural banks remain relatively stable,” Bowman said.

Reporting by Jason Lange in Washington; Editing by Chizu Nomiyama