Post on 19-Jun-2020
Farm Income And Wealth: Trends in Financial Stress
USDA 2019 Agricultural Outlook ForumFebruary 21, 2019
Greg LyonsEconomic Research Service, USDA
The Findings and Conclusions in This Preliminary Presentation Have Not Been Formally Disseminated by the U.S. Department of Agriculture and Should Not Be Construed to Represent Any Agency Determination or Policy. This research was supported by the
intramural research program of the U.S. Department of Agriculture, Economic Research Service.
2
Summary
Lower farm incomes, a weaker market for farmland and an uptick in interest rates have raised questions about farm operators’ financial stress
• Are operators earning enough income to service their debt?
• Do operators have the savings and liquid assets on hand to meet their short-term obligations?
• Are more operators at risk of becoming insolvent?
3
Farm sector profits expected to decline in 2018
0
20
40
60
80
100
120
140
160
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018F
$ Bi
llion
s (20
18)
F= Forecast. Values are inflation adjusted using the Chain-type GDP deflator, 2018=100. Source: USDA, Economic Research Service, Farm Income and Wealth StatisticsData as of November 30, 2018
2000 - 2017 NCFI average
Net cash farm income
Net farm income
2000 - 2017 NFI average
4
Are operators earning enough income to service their debt?
0
2
4
6
8
10
12
2000 2002 2004 2006 2008 2010 2012 2014 2016
Term
Deb
t Cov
erag
e Ra
tio
2000 - 2017 TDCR average
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝐷𝐷𝑇𝑇𝐷𝐷𝐷𝐷 𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝑇𝑇 𝑅𝑅𝐶𝐶𝐷𝐷𝑅𝑅𝐶𝐶 =𝑁𝑁𝑇𝑇𝐷𝐷 𝑂𝑂𝑂𝑂𝑇𝑇𝑇𝑇𝐶𝐶𝐷𝐷𝑅𝑅𝑂𝑂𝐶𝐶 𝐼𝐼𝑂𝑂𝐼𝐼𝐶𝐶𝑇𝑇𝑇𝑇𝐼𝐼𝑂𝑂𝐷𝐷𝑇𝑇𝑇𝑇𝑇𝑇𝐼𝐼𝐷𝐷 + 𝑃𝑃𝑇𝑇𝑅𝑅𝑂𝑂𝐼𝐼𝑅𝑅𝑂𝑂𝐶𝐶𝑃𝑃
SOURCE: Economic Research Service, using USDA data from ERS and NASS, Agricultural Resource Management Survey, 2000 - 2017
5
The share of larger farms whose debt payments exceed their income has risen
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
2000 2002 2004 2006 2008 2010 2012 2014 2016
Perc
ent w
ith T
DCR
< 1
Less than $100,000 GCFI $100,000 - $500,000 GCFI Greater than $500,000 GCFI
SOURCE: Economic Research Service, using USDA data from ERS and NASS, Agricultural Resource Management Survey, 2000 – 2017. Gross cash farm income is adjusted using PPI for farm products, 2018 = 100.
6
Do operators have the savings and liquid assets on hand to meet their short-term obligations?
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
0
50
100
150
200
250
300
350
2000 2002 2004 2006 2008 2010 2012 2014 2016
Curr
ent R
atio
$ Bi
llion
s (20
18)
Current Assets Current Liabilities Current Ratio
SOURCE: Economic Research Service, using USDA data from ERS and NASS, Agricultural Resource Management Survey, 2000 – 2017. Values are inflation adjusted using the Chain-type GDP deflator, 2018=100.
𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝑇𝑇𝑂𝑂𝐷𝐷 𝑅𝑅𝐶𝐶𝐷𝐷𝑅𝑅𝐶𝐶 =𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝑇𝑇𝑂𝑂𝐷𝐷 𝐴𝐴𝐼𝐼𝐼𝐼𝑇𝑇𝐷𝐷𝐼𝐼
𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝑇𝑇𝑂𝑂𝐷𝐷 𝐿𝐿𝑅𝑅𝐶𝐶𝐷𝐷𝑅𝑅𝑃𝑃𝑅𝑅𝐷𝐷𝑇𝑇𝐼𝐼
7
Liquid assets have returned to average
0
20
40
60
80
100
120
140
160
180
2000 2002 2004 2006 2008 2010 2012 2014 2016
$ Bi
llion
s (20
18)
Crop inventories Livestock inventories Financial assets and net accounts receivableSOURCE: Economic Research Service, using USDA data from ERS and NASS, Agricultural Resource Management Survey, 2000 – 2017. Values are inflation adjusted using the Chain-type GDP deflator, 2018=100.
8
Short term liabilities have largely increased
0
10
20
30
40
50
60
2000 2002 2004 2006 2008 2010 2012 2014 2016
$ Bi
llion
s (20
18)
Accrued interest Current portion of term debt Short term debt
SOURCE: Economic Research Service, using USDA data from ERS and NASS, Agricultural Resource Management Survey, 2000 – 2017. Values are inflation adjusted using the Chain-type GDP deflator, 2018=100.
9
The share of farmers who do not have enough liquid assets to cover their current obligations has increased
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2000 2002 2004 2006 2008 2010 2012 2014 2016
Perc
ent w
ith C
urre
nt R
atio
< 1
Less than $100,000 GCFI $100,000 - $500,000 GCFI Greater than $500,000 GCFI
SOURCE: Economic Research Service, using USDA data from ERS and NASS, Agricultural Resource Management Survey, 2000 - 2017
10
F= Forecast. Values are adjusted using the chain-type GDP deflator, 2018=100Source: USDA, Economic Research Service, Farm Income and Wealth StatisticsData as of November 30, 2018
Farm Sector Balance Sheet Remains Strong
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
$ Bi
llion
s (20
18)
Debt Equity
2018F
Assets = Debt + Equity
11
0.00
0.05
0.10
0.15
0.20
0.25
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Debt
to A
sset
Rat
io
F= Forecast. Source: USDA, Economic Research Service, Farm Income and Wealth StatisticsData as of November 30, 2018
Are more operators at risk of becoming insolvent?
𝐷𝐷𝑇𝑇𝐷𝐷𝐷𝐷 𝐷𝐷𝐶𝐶 𝐴𝐴𝐼𝐼𝐼𝐼𝑇𝑇𝐷𝐷 𝑅𝑅𝐶𝐶𝐷𝐷𝑅𝑅𝐶𝐶 =𝑇𝑇𝐶𝐶𝐷𝐷𝐶𝐶𝑃𝑃 𝐷𝐷𝑇𝑇𝐷𝐷𝐷𝐷𝑇𝑇𝐶𝐶𝐷𝐷𝐶𝐶𝑃𝑃 𝐴𝐴𝐼𝐼𝐼𝐼𝑇𝑇𝐷𝐷𝐼𝐼
2018F
12
More large farms are becoming highly leveraged
0%
5%
10%
15%
20%
25%
30%
35%
2000 2002 2004 2006 2008 2010 2012 2014 2016
Perc
ent w
ith D
ebt t
o As
set R
atio
> 0
.4
Less than $100,000 GCFI $100,000 - $500,000 GCFI Greater than $500,000 GCFISOURCE: Economic Research Service, using USDA data from ERS and NASS, Agricultural Resource Management Survey, 2000 - 2017
13
Highly leveraged farm businesses are younger, larger than farms with low leverage
Debt to Asset Ratio
Percent of farms Acres Operator
Age
Gross Cash Farm
Income
Net Cash Farm
Income
Percent Rent
Less than 0.1 75% 573 63 187,432 54,463 34%
0.1 to 0.2 8% 946 57 592,130 167,729 62%
0.2 to 0.4 9% 1,139 54 677,774 171,593 67%
0.4 to 0.7 5% 970 51 748,704 151,753 73%
More than 0.7 3% 1,051 52 920,095 212,247 88%
All farms 100% 686 60 312,520 83,306 47%
SOURCE: Economic Research Service, using USDA data from ERS and NASS, Agricultural Resource Management Survey, 2017
14
Delinquency and Bankruptcies, 1987 to 2018F
Data Sources: Bankruptcy data through 1987 from Stam et al., 1991. Subsequent data comes from U.S. Courts Statistical Tables. Delinquency Rate comes from the Ag Finance Databook, Federal Reserve Bank of Kansas City.
0%
1%
2%
3%
4%
5%
6%
7%
0
5
10
15
20
25
1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
Delin
quen
cy R
ate
(% o
f tot
al v
olum
e)
Bank
rupt
cies
per
10,
000
farm
s
Bankruptcy Rate Nonreal Estate Delinquency Rate Real Estate Delinquency Rate
15
Conclusion
Some farm operators are showing signs that they are having trouble servicing their debt
Liquid assets were drawn on during the current period of lower net farm income, but may not be as readily available if lower farm incomes continue
Solvency measures have weakened, but remain strong by long-run historical comparison
16
2019 Forecast Scheduled for March 6th
Farm Sector Income and Finances:https://www.ers.usda.gov/topics/farm-economy/farm-sector-income-finances/
Contact Information: farmincometeam@ers.usda.gov