Will another farm crisis occur? That's a question at many meetings this winter. This is the third in a series of four articles that discusses growth of farmland and the farm sector. The first post discusses land values while the second looked at net farm income with forecasts from USDA and FAPRI.
Assets and equity are near 50-year records and growing at a far greater pace than debt. The U.S. farm sector is financially strong and well-positioned to take on declining land values.
The overall net worth of the U.S. farming sector is projected to increase by 6.1 percent, or $145.3 billion, in 2013 and 2.3 percent, or $58.2 billion, in 2014. The farm sector debt-to-asset ratio is projected to reach a record-low 10.75 percent in 2013 and remain relatively flat into 2014. The same holds true for the debt-to-equity ratio for 2013 and 2014.
The accompanying Farm Sector Balance Sheet chart shows the real value of the U.S. farm sector balance sheet major components since 1960 (in 2009 dollars). In real terms, both asset values and equity are projected to set new 50-year records in 2014. Real farm sector net worth has increased consistently since the bottom of the 1980s farm real estate market in 1986, with slight one- to two-year pullbacks coinciding with the recessions in 1991, 2002 and 2008-09. Growth in both asset values and net worth increased at a higher rate starting in 2002. Since then, real asset values have grown at an annualized rate of 5.3 percent per year, while equity has grown at a 5.7 percent annualized rate per year. Over that period, real farm debt has grown at a much slower level of 2.4 percent annualized per year.
Farm Sector Balance Sheet & Debt-to-Asset Ratio
Source: USDA 2014 Survey
The balance sheet chart also plots the farm sector debt-to-asset ratio over the same time period. During the 1980s farm crisis, the ratio reached the 50-year high of 22.2 percent in 1985. Since then, the ratio has shown steady improvement through 2014, with the exception of the aforementioned recession time periods where there was a slight retracement in the long-term downward trend. A similar pattern would be seen with the debt-to-equity ratio. In addition, overall debt levels, measured in real dollars (2009), are currently significantly lower than in the early 1980s. Note the limitation of this data, which does not report on the concentration of agricultural debt and assets with individual agricultural producers.
Over time, farmland has become an increasingly important source of equity in U.S. agriculture. Cropland and pastureland average values in the 15-state AgriBank District have grown at an average annual rate of 7.6 percent since USDA started reporting separate cropland and pastureland values in 1997. District farmland values have grown steadily since the end of the farm crisis in 1987, with minor pullbacks coinciding with economic recessions.
*Information in this post was provided by AgriBank. AgriBank is FCS Financial’s funding source. It is one of the largest banks within the national Farm Credit System, with more than $80 billion in total assets. Under the Farm Credit System’s cooperative structure, AgriBank is owned by 17 affiliated Farm Credit Associations. The AgriBank District covers America’s Midwest, a 15-state area from Wyoming to Ohio and Minnesota to Arkansas. More than half of the nation’s cropland is located within the AgriBank District, providing the Bank and its Association owners with exceptional expertise in production agriculture. For more information, visit www.AgriBank.com.
Assets and equity are near 50-year records and growing at a far greater pace than debt. The U.S. farm sector is financially strong and well-positioned to take on declining land values.
Debt: Not the Factor It Was in the 1980s Farm Crisis
The overall net worth of the U.S. farming sector is projected to increase by 6.1 percent, or $145.3 billion, in 2013 and 2.3 percent, or $58.2 billion, in 2014. The farm sector debt-to-asset ratio is projected to reach a record-low 10.75 percent in 2013 and remain relatively flat into 2014. The same holds true for the debt-to-equity ratio for 2013 and 2014.
The accompanying Farm Sector Balance Sheet chart shows the real value of the U.S. farm sector balance sheet major components since 1960 (in 2009 dollars). In real terms, both asset values and equity are projected to set new 50-year records in 2014. Real farm sector net worth has increased consistently since the bottom of the 1980s farm real estate market in 1986, with slight one- to two-year pullbacks coinciding with the recessions in 1991, 2002 and 2008-09. Growth in both asset values and net worth increased at a higher rate starting in 2002. Since then, real asset values have grown at an annualized rate of 5.3 percent per year, while equity has grown at a 5.7 percent annualized rate per year. Over that period, real farm debt has grown at a much slower level of 2.4 percent annualized per year.
Farm Sector Balance Sheet & Debt-to-Asset RatioSource: USDA 2014 Survey
The balance sheet chart also plots the farm sector debt-to-asset ratio over the same time period. During the 1980s farm crisis, the ratio reached the 50-year high of 22.2 percent in 1985. Since then, the ratio has shown steady improvement through 2014, with the exception of the aforementioned recession time periods where there was a slight retracement in the long-term downward trend. A similar pattern would be seen with the debt-to-equity ratio. In addition, overall debt levels, measured in real dollars (2009), are currently significantly lower than in the early 1980s. Note the limitation of this data, which does not report on the concentration of agricultural debt and assets with individual agricultural producers.
Over time, farmland has become an increasingly important source of equity in U.S. agriculture. Cropland and pastureland average values in the 15-state AgriBank District have grown at an average annual rate of 7.6 percent since USDA started reporting separate cropland and pastureland values in 1997. District farmland values have grown steadily since the end of the farm crisis in 1987, with minor pullbacks coinciding with economic recessions.
*Information in this post was provided by AgriBank. AgriBank is FCS Financial’s funding source. It is one of the largest banks within the national Farm Credit System, with more than $80 billion in total assets. Under the Farm Credit System’s cooperative structure, AgriBank is owned by 17 affiliated Farm Credit Associations. The AgriBank District covers America’s Midwest, a 15-state area from Wyoming to Ohio and Minnesota to Arkansas. More than half of the nation’s cropland is located within the AgriBank District, providing the Bank and its Association owners with exceptional expertise in production agriculture. For more information, visit www.AgriBank.com.
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