Assets, Debt, and Wealth
Suggested citation for linking to this discussion:
U.S. Department of Agriculture, Economic Research Service. Farm Sector Income & Finances: Assets, Debt, and Wealth, September 2, 2021.
Farm Sector Equity (Wealth) Forecast to Remain Stable in 2021
Farm sector equity—the difference between farm sector total assets and total debt—is forecast to rise by 2.9 percent in 2021 to about $2.81 trillion but decline by 0.7 percent in inflation-adjusted dollars. Farm sector assets are expected to increase by $79.0 billion while farm sector debt is expected to decrease by $1.0 billion in nominal dollars. When adjusted for inflation, farm sector assets are expected to decrease by $38.0 billion while farm sector debt is expected to decline by $17.4 billion.
See a summary of the balance sheet in the table U.S. farm sector financial indicators, 2014-21F, or get the full balance sheet details, including the current/noncurrent balance sheet and selected financial ratios.
Farm Assets Expected to Also Remain Stable When Adjusted for Inflation
Farm assets are forecast to increase to $3.25 trillion in 2021, which is a 2.5 percent increase from 2020 in nominal dollars. The value of farm real estate assets (land and its attachments) is forecast at $2.69 trillion, and accounts for 83 percent of farm sector assets in 2021. USDA's Economic Research Service anticipates farm real estate values will increase by 2.0 percent in 2021 in nominal terms, but decline by 1.7 percent when adjusting for inflation. In 2021, the value of non-real estate farm assets is expected to gain $27.5 billion, a 5.1 percent increase in nominal terms. When adjusted for inflation, the increase in non-real estate assets is 1.4 percent. Investments and other financial assets are forecast to increase by $8.5 billion or 9.3 percent in 2021 in nominal dollars. Machinery and vehicle assets are expected to increase by $10.1 billion, or 3.6 percent, and inventories are forecast to increase by $8.8 billion, or 5.4 percent.
Farm real estate debt is expected to reach $296.1 billion in 2021, a 1.5 percent increase in nominal terms, but a 2.1 percent decline in inflation-adjusted dollars. Farm real estate debt as a share of total debt is expected to account for 67.7 percent of total farm debt in 2021. Farm non-real estate debt is expected to decline by 3.5 percent in nominal terms to $147.9 billion in 2021. Since its peak in 2014, non-real estate inflation-adjusted debt is projected to fall by 12.4 percent.
Farm Sector Solvency, Liquidity, and Profitability Ratios Expected to Improve in 2021
Solvency is a measure of the ability of a farm or ranch operation to satisfy its debt obligations when due. Popular measures of solvency include the debt-to-asset ratio, debt-to-equity ratio, and equity-to-asset ratio. In 2021, the farm sector debt-to-asset ratio and debt-to-equity ratio are expected to decrease for the first time since 2012. The equity-to-asset ratio is expected to increase for the first time since 2012.
Liquidity is the ability to transform or convert assets to cash quickly to satisfy short-term obligations when due without a material loss of value or price of the asset. USDA uses several different financial metrics to evaluate farm sector liquidity. Cash and cash-convertible assets (referred to as "current" assets) are expected to increase by $7.3 billion (4.0 percent) in 2021 to $191.1 billion, while liabilities due to creditors within 12 months (referred to as "current" debt) are expected to decrease by $2.9 billion (or 2.6 percent) to $107.4 billion. The current ratio— current assets divided by current debt—is forecast to be 1.78 in 2021, up from 1.67 in 2020. Working capital—the amount of cash and cash-convertible assets minus amounts due to creditors within 12 months—is forecast at $83.8 billion in 2021, a 13.8-percent increase from 2020.
The debt service ratio measures the share of the sector's value of production required to service farm debt payments and is forecast to be 0.23 in 2021. The times interest earned ratio measures the farm sector's ability to meet interest payments out of 2020 net farm income and is forecast to improve to 6.75 in 2021 from 6.13 in 2020. This is mainly because of the increase in net farm income.
Profitability refers to the sector's ability to generate returns from production inputs. Accordingly, profitability ratios measure the farm sector's return relative to resources used. In 2021, increases in the net cash farm income and net farm income are forecast to be offset by decreases in capital gains; the total rate of return on farm assets and the rate of return on farm equity are expected to decrease slightly to 4.5 percent from 4.7 percent.
See more about financial ratios in the Documentation for the Farm Sector Financial Ratios.
A Note on Farm Balance Sheet Estimates and Forecasts
The farm sector balance sheet aims to provide a market value estimate and forecast of farm sector assets, debts/other liabilities, and wealth (equity or net worth). It differs from individual business and corporate balance sheet accounts that are based on historical cost accounting concepts. For example, historical cost-based balance sheets show capital assets, such as farm machinery and equipment, at their original cost less accumulated depreciation. The farm sector balance sheet estimates or forecasts the value of assets if sold in today's marketplace.