Low commodity prices have made things tough by bringing down land values, tightening balance sheets, and increasing the stress level of America’s producers. Unfortunately, that means farmers are continuing to take on more debt.
The amount of outstanding farm debt is likely to reach an all-time high this year. Brent Gloy of Agricultural Economic Insights says if the debt level climbs another five percent from current levels, it will reach an all-time high. MILK online says unlike the 1980s farm crisis, farm debt to asset ratios are still very low today in comparison.
A Farmer Mac research expert says the amount of leverage on farms over the past several years remains low. USDA historical data shows that in spite of that large amount of debt, farmers are still in good position. The Economic Research Service shows debt-to-asset ratio is 14 percent. During the 1980s, that same number reached a high of over 22 percent. The lowest point was back in 2012 at 11.3 percent.
Farm prices were very volatile ahead of the 1980s crash, which meant farmers didn’t have an opportunity to stockpile assets. Going into this downturn, record-high commodity prices helped farmers get their financial houses set up before prices tumbled.