The Debt Finance Landscape for U.S. Farming and Farm Businesses
by Michael Harris
, Jim Johnson, John Dillard, Robert Williams
, and Robert Dubman
Outlook No. (AIS-87) 64 pp, November 2009
Income and wealth for farm businesses have changed noticeably this decade. Debt levels have been rising, asset levels have outpaced debt despite a recent fall in land prices, and equity has more than doubled for farm businesses. However, recent declines in farm income and falling land prices have raised concerns about the financial position of U.S. farms. Total farm sector debt reached a record $240 billion in 2008, a $26-billion increase over 2007. Debt is expected to decline to $234 billion in 2009. The distribution of debt among farm operators has also been changing. In 1986, nearly 60 percent of farms used debt financing. By 2007, the number had dropped to 31 percent. In essence, farm debt has become more concentrated in fewer, larger farm businesses. Lenders and farm operators indicate that real estate accounts for the largest use of farm debt. Debt repayment capacity utilization (DRCU) of farm operators has dropped since the 1980s. DRCU dropped from 27 percent in 2000 to 22 percent in 2007. Larger farms are more likely to use more of their debt capacity.
Keywords: Farm debt, farm financial structure, debt-free farms, debt repayment capacity, Agricultural Resource Management Survey
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