Total U.S. farm debt has grown by 46% since 2010. Purdue University agricultural economist Brent Gloy said that sobering figure is one of the reasons lenders are becoming more concerned about both the broad trends in the U.S. agricultural economy, and the balance sheets of individual producers.
In the weekly Purdue Agricultural Insights, Gloy also noted that total farm-sector indebtedness currently stands at $407 billion. The total interest cost on this debt is forecast to be $21.9 billion for 2018.
Other factors cited by Gloy that are making lenders uneasy include:
- Real estate debt stands at $248 billion, or about 61% of total debt. That’s up from 55% in 2010.
- Real farm debt is nearing the all-time high level that occurred in 1980 (see Figure 1). If it were to grow another 4% in 2019 – which is fairly likely – it will eclipse that record high.
- Real estate debt actually is 11% higher than in was in the early 1980s.
- Investments in other financial assets have fallen by $62 billion – or 50% -- in the last eight years.
“In other words, farmers have reduced their holdings of financial assets sharply, while adding significant amounts of debt since 2010,” said Gloy.
On the bright side, interest rates remain relatively low, and the traditionally longer payment terms for real estate debt should help keep debt service more manageable. “Whether the current levels are too high depends on the cash-flow generation of the famers who are servicing that debt,” noted Gloy. “It is important to remember that debt is not uniformly distributed across the farm sector. Some farmers have way too much debt, and others, none at all.”