Economist Concerned Regarding Growing Levels of Agricultural Debt

URBANA, IL – Agricultural debt on a nominal basis in Illinois has been increasing since 1991 and with the continued tighter margins and more variability in the farm economy, increasing debt levels need to be monitored closely says Bradley Zwilling with the University of Illinois. Nominally, according to USDA’s Economic Research Service (ERS), agricultural debt reached a peak in 1984 of $189 billion. From 1984 through 1989, producers retired debt, and agricultural lenders wrote off some debt, resulting in a decline in total debt. By 1989, the level of agricultural debt had declined by 31 percent, reaching a level of $131 billion. The importance a farmer puts on monitoring their debt level continues to be increasingly important in this period of lower margins. “With higher inputs and variability, we will continue to see the increase in debt per acre” Zwilling adds. “With interest rates moving higher, this means a rising interest expense as well.” Also, with some farm assets decreasing in value, this can also lead to higher debt-to-asset ratios even without any additional debt. Finally, as debt levels increase, farmers need to monitor their term debt ratio. A ratio of one means that income available is equal to the term debt payments. Establishing or maintaining good recordkeeping during these times will help farmers identify areas of concern faster and be able to make better farm financial decisions.Visit Farmdoc Daily for more information.
(SOURCE: All Ag News)