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 1, 2022.
Farm Sector Equity (Wealth) Forecast to Rise in 2022
Farm sector equity—the difference between farm sector total assets and total debt—is forecast to rise to $3.34 trillion by the end of calendar year 2022, a 10.4-percent increase relative to 2021 in nominal dollars. Farm sector assets are expected to increase 9.7 percent to $3.84 trillion while farm sector debt is expected to increase 4.6 percent to $496.0 billion in 2022. When adjusted for inflation, farm sector equity and assets are forecast to increase by 4.3 percent and 3.6 percent, respectively, and debt is forecast to decline by 1.2 percent.
See a summary of the balance sheet in the table U.S. farm sector financial indicators, 2015-22F, or get the full balance sheet details, including the current/noncurrent balance sheet and selected financial ratios.
Farm real estate assets (land and its attachments) represented 83 percent of total farm sector assets in 2021. In 2022, real estate assets are forecast to increase 10.1 percent to $3.19 trillion in nominal dollars, accounting for most of the forecast increase in total assets. When adjusted for inflation, real estate assets are forecast to increase by 4.0 percent. Non-real estate assets include the value of investments and other financial assets, inventories of crops, animals, purchased inputs, and machinery/vehicles.
Both farm real estate and non-real estate debt are forecast to increase in 2022 relative to 2021 in nominal terms but decline when adjusted for inflation. If realized, this would be the first decline in total debt since 2012 in the inflation-adjusted series. Farm real estate debt is expected to reach $341.9 billion in 2022, a 5.4-percent increase in nominal terms but a 0.4-percent decrease in inflation-adjusted dollars. Farm non-real estate debt is expected to increase to $154.1 billion in 2022, a 2.8-percent increase in nominal terms but a 2.9-percent decline when adjusted for inflation.
Farm Sector Solvency Expected to be Stronger While Liquidity to be Weaker in 2022
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 and debt-to-equity ratio. Lower values for these ratios are preferred. In 2022, these ratios are expected to go down because assets are forecast to grow at a faster rate than the debt, in nominal dollars. The debt-to-asset ratio is forecast to decrease from 13.56 percent in 2021 to 12.93 percent in 2022 while the debt-to-equity ratio is expected to decrease from 15.68 percent to 14.85 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. One measure is working capital which measures the amount of cash available to fund operating expenses after paying off debt to creditors due within 12 months (current debt). In 2022, working capital is forecast to fall 2.6 percent relative to 2021 indicating reduced liquidity. When adjusted for inflation, working capital is forecast to fall 8.0 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 provides a market value estimate and forecast of farm sector assets, debts/other liabilities, and wealth (e.g., equity or net worth) as of December 31. 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.