Implement Dealer Financing and Farm Financial Stress

In a series of recent articles, we show that farmers' use of implement dealer financing has increased substantially since 2003 (farmdoc daily May 9, 2018). Implement dealers currently provide nearly one-third of the agricultural sector's long-term non-real estate debt. We also found that implement dealer financing is more common for smaller farms. Some industry observers have expressed concern that implement dealer financing may lead to increases in financial risk for participating farms. This post compares the financial risks between farmers with and without implement dealer financing for long-term non-real estate debt (i.e., machinery and equipment loans). We find that farms that use implement dealer financing have similar indicators of potential financial stress than those that do not.While many lenders, such as commercial banks or the Farm Credit System, report aggregate lending to farmers, it is difficult to measure other lending relationships, such as borrowing from individuals. For these types of lending relationships, economists typically rely on surveys of farm operators. The best source for national-level aggregate farm debt is the Agricultural Resource Management Survey (ARMS) jointly produced by USDA Economic Research Service and National Agricultural Statistics Service. The annual ARMS survey asks farmers detailed information on the terms, age, interest rate, and lender type for (up to five) outstanding loans. It is important to note that the lender type is reported by ARMS' farmer-respondents. Thus, we define implement dealer financing as loans for which respondents report the lender as "implement dealers and financing corporations." As a result, we are unable to identify the financial institution providing the line of credit, which takes a variety of forms, but instead are only able to identify farmers' definition of the credit supplier.