Assets, Debt, and Wealth
Farm Sector Equity (Wealth) Forecast to Remain Flat in 2021
Farm sector equity—the difference between farm sector total assets and total debt—is forecast to rise 1.8 percent in 2021 to about $2.74 trillion but decline 0.1 percent in inflation-adjusted dollars. The expected increase in farm sector assets ($57.4 billion or 1.8 percent) is greater than the expected rise in farm debt ($9.6 billion or 2.2 percent) in nominal dollars. When adjusted for inflation, farm sector assets are expected to decrease $0.38 billion while farm sector debt is expected to rise $1.6 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 Remain Stable When Adjusted for Inflation
The 2021 farm assets forecast of $3.18 trillion represents a 1.8 percent increase from 2020 in nominal dollars. The value of farm real estate assets (land and its attachments) accounts for 82.6 percent of 2021 farm sector assets and is forecast at $2.63 trillion, up 2.2 percent in 2021 in nominal terms. When adjusted for inflation, the value of farm real estate assets is expected to be relatively unchanged, increasing 0.3 percent. The value of nonreal estate farm assets is expected to remain relatively unchanged in 2021 with a 0.2 percent increase in nominal terms. However, it is a decrease of 1.6 percent when adjusted for inflation. The forecast for other agricultural sector asset categories was mixed: investments and other financial assets forecast to decrease $4.54 billion or 4.1 percent in 2021 in nominal dollars; machinery and vehicle assets expected to increase $7.65 billion, or 2.7 percent; and inventories forecast to decline $2.13 billion, or 1.4 percent.
Farm real estate debt is expected to reach $287.4 billion in 2021, a 3.1-percent annual increase in nominal terms and a 1.2-percent rise in inflation-adjusted dollars. Farm real estate debt as a share of total debt has risen each year since 2014 and is expected to account for 65.1 percent of total farm debt in 2021. Farm nonreal estate debt is expected to decline by 0.6 percent in nominal terms to $154.3 billion in 2021. Since its peak in 2014, nonreal estate inflation-adjusted debt has decreased 6.8 percent.
Farm Sector Solvency and Liquidity Expected to Weaken, Profitability Ratios Remain Stable
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. The farm sector debt-to-asset ratio and debt-to-equity ratio are expected to continue their slow increases from 2012, forecast at 13.89 and 16.13 percent. The equity-to-asset ratio is likewise expected to continue its decline from 2012, forecast at 86.11 percent.
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 decrease $9.4 billion (4.8 percent) in 2021 to $185.4 billion, while liabilities due to creditors within 12 months (referred to as "current" debt) are expected to increase $0.7 billion (or 0.7 percent) to $111.1 billion. The current ratio— current assets divided by current debt—is forecast to be 1.67 in 2021, down from 1.77 in 2020. Working capital—the amount of cash and cash-convertible assets minus amounts due to creditors within 12 months—is forecast at $74.3 billion in 2021, a 12-percent decrease from 2020.
The debt service ratio measures the share of the sector's value of production required to service farm debt payments; it is forecast to be 0.25 in 2021, slightly higher than the 2020 forecast of 0.24. The times interest earned ratio measures the farm sector's ability to meet interest payments out of 2021 net farm income; it is forecast to decrease from 9.18 in 2020 to 8.35 in 2021. The decline in these ratios reflects the decrease in net farm income and continuing trend of the rising farm sector debt.
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, while net cash income and net farm income are forecast to decline, some other farm sector profitability forecast measures are forecast to remain unchanged from 2020. Total rate of return on farm assets is expected to remain at 4.1 percent. Total rate of return on farm equity is expected to stay at 4.2 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 objective of the farm sector balance sheet is to estimate or forecast the value of assets if sold in today's marketplace.