Farm Sector Debt

Real Estate Debt

The farm real estate debt forecast for 2013 is $149.8 billion, 2.1 percent lower than projected real estate debt outstanding at the end of 2012. Farmland values, sector net cash income, and farm real estate loan interest rates are the three main factors affecting agricultural sector real estate debt markets in 2013. Lower cash earnings and marginal increases in interest rates are expected to lower the demand for debt financed real estate purchases in 2013. New tax provisions that became effective in 2013 could also have a dampening effect on land transactions in 2013.

As land values continue to rise in some parts of the country, the effect on real estate debt depends on the profits that can be made from the land at prevailing interest rates, the availability of farmland for sale, and the alternative investment options available to farmers. The continuing rise in farmland values indicates that it is viewed as a good investment, and the low interest rates prevailing throughout 2012 suggest that funds were available for well-qualified borrowers. The prospect of higher capital gains tax rates and other changes in Federal tax policy in 2013 may also have encouraged sales in the latter part of 2012. 

Nonreal Estate Debt

Nonreal estate debt is forecast at $127.6 billion for 2013, up 10.1 percent from 2012. Increases in operating capital requirements and capital spending (mainly for machinery and equipment) are the key factors influencing the expected rise in nonreal estate loan activity, with average loan sizes expected to increase relative to 2012.  Farm machinery purchases were resilient in 2012 and with the continuation of tax provisions that allow accelerated depreciation and relatively high earnings, machinery and equipment purchases are projected to remain strong in 2013.