News

AEI.ag dives into farm debt

An ag economist says while today’s historically high farm debt is concerning, balance sheets look different from the last ag crisis.

David Widmar is with Agricultural Economic Insights.

“The last two or three years has been the first time we’ve exceeded or eclipsed the previous inflation-adjusted high for farm debt which we saw right in the beginning of the 1980s,” he says.

He says debt has been increasing since the late ‘90s and early 2000s, but the composition has changed.

“Today about 65 percent of the debt out there is real estate debt,” he says.

That compares to a 50-50 split that was common between real estate and non-real estate debt until the 2000s. Farmers today also have more equity and assets with USDA calling for strong net farm incomes and rising farmland values.

Widmar tells Brownfield as interest rates rise, cash payments on inputs could become more common as farmers try to curb expenses.

“Producers need to stop and think about what could I get for this input if I just stop and pay cash upfront and is this implicit interest rate really in my favor?”

USDA has forecast 2022 farm debt to increase in nominal terms year over year but decline when adjusted for inflation. If realized, this would be the first decline in total debt since 2012.

Widmar tells Brownfield the change in interest rates might feel like whiplash for some farmers.

“It’s not only the level of interest rates, but it’s also the rapid change in interest rates,” he says.

Widmar says the year started with rates that might have been a career-low and could end at the highest levels seen in over a decade.

“We haven’t seen this much interest rate change in a long time, so producers are going to have to recalibrate expectations and plans,” he says.  “I think the other thing that producers really need to keep a close eye on is the payback period, the terms.”

He recommends farmers reflect on their sources of debt and create a plan to operate with less interest rate uncertainty as increases continue.