Assets, Debt, and Wealth
Farm Sector Equity (Wealth) Forecast To Remain Flat in 2018
Farm sector equity—the difference between farm sector total assets and total debt—is predicted to rise 1.6 percent in 2018 to nearly $2.7 trillion, but decline slightly (0.1 percent) in inflation-adjusted (real) dollars. In nominal dollars, the increase in farm assets (1.6 percent or $47.5 billion) is expected to exceed the rise in farm debt (1 percent or $3.8 billion). But when adjusted for inflation, farm sector debt is expected to fall almost $3 billion (0.8 percent), while real farm sector assets fall almost $6 billion (0.2 percent).
See a summary of the balance sheet in the table U.S. farm sector financial indicators, 2011-2018F, or get the full balance sheet details including the current/noncurrent balance sheet and selected financial ratios.
Farm Sector Assets and Debt Expected Largely Unchanged in Real Terms
At $2.6 trillion, the value of farm real estate assets accounts for 83.5 percent of 2018 farm sector assets. ERS anticipates that farm sector real estate value will increase 2.1 percent in 2018, continuing its long-term upward trend since the late 1980s. When adjusted for inflation as in the chart below, both total assets and real estate assets are relatively unchanged from 2017.
The largest farm nonreal estate asset category, "machinery and vehicles," is forecast to account for half of nonreal estate assets in 2018, reflecting the capital intensity of U.S. agriculture. Machinery/vehicle assets are forecast to increase 2.7 percent to $257.0 billion in 2018. End-of-year stocks for animals/animal products are expected to decrease 3.2 percent to $112.8 billion. The value of crop inventories is forecast to decline almost 16 percent in 2018 to $44.9 billion. Inventories of purchased inputs are predicted to rise 0.5 percent to $14.9 billion. Investments, both in cooperatives as well as other financial assets, are expected to increase 0.3 percent in 2018 to $80.2 billion.
Farm real estate debt is expected to reach $239.0 billion in 2018, a 1.2-percent annual increase in nominal terms but flat when adjusted for inflation. Farm nonreal estate debt is expected to remain relatively flat (increase 0.6 percent in nominal terms) in 2018.
Farm Sector Solvency and Liquidity Ratios
The farm sector debt-to-asset ratio and debt-to-equity ratios are expected to move slightly downward, while the equity-to-asset ratio is expected to increase slightly in 2018.
Working capital, which is the amount of cash and cash-convertible assets minus amounts due to creditors within 12 months, is forecast at $56.2 billion in 2018, a 16-percent decline from the 2017 projected amount. This decline reflects expected declines in 2018 farm income and current assets and an increase in current debt. Cash and cash-convertible assets (referred to as "current" assets) are expected to be $171.5 billion in 2018, while liabilities due to creditors within 12 months (referred to as "current" debt) are expected to be $115.3 billion. The "current ratio," which is current assets divided by current debt, is forecast to decline from 1.58 in 2017 to 1.49 in 2018. Working capital and the current ratio are common measures of liquidity in the sector.
The 2018 debt service ratio, which measures the share of the sector’s value of production required to service farm debt payments, is forecast to remain unchanged from 2017. The times interest earned ratio, which measures the farm sector’s ability to meet interest payments out of 2018 net farm income, is forecast to decline from 4.42 in 2017 to 3.98 in 2018.
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, which 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 objective is to estimate or forecast the value of assets if sold in today’s marketplace.