U.S. farm sector’s working capital expected to continue weakening in 2017
Farm financial liquidity describes how easily the U.S. farm sector can convert assets to cash in order to meet its short-term debt obligations. One measure of liquidity is working capital, the difference between current assets (such as cash and inventory) and short-term debt. Higher working capital means better financial health for the farm sector. ERS expects that working capital for the farm sector could contract to $48 billion by the end of 2017. The erosion in working capital was caused both by the reduction in the value of current assets (down $87 billion since 2012) and growing current debt (up $30 billion since 2012). Although working capital has weakened since ERS started tracking this measure in 2012, this decline followed record highs in net cash farm income from 2011 to 2013. The balance sheet forecast also indicates that farm solvency ratios—which measure whether debt can be met in a timely manner—are favorable compared to 25-year historical averages. However, farm solvency has weakened for 5 consecutive years; taken together with the decline in working capital, this pattern reflects a modest increase in farm financial risk exposure for the sector as a whole. This chart is based on the ERS Farm Income and Wealth Statistics data product, updated February 7, 2017.