US Farm Debt Continues Its Upward March

With farm income having dropped and continuing to decline, there is beginning to be more attention paid to the level of debt in the U.S. farm sector.  This week we will examine some of the broad trends in debt use. Today, the total indebtedness stands at $407 billion.  Total debt has grown steadily, increasing by 46% since 2010 (an annual compound growth of 5% per year).  The total interest cost on this debt is forecast to be $21.9 billion dollars for 2018. When one looks at the components of the total debt it becomes clear that real estate debt has accounted for the majority of the increase (figure 2).  At $248 billion, real estate debt currently accounts for 61% of total debt.  This share has increased since 2010 when it accounted for 55% of total debt. The increasing use of real estate debt has likely been driven by a couple of factors.  First, long-term interest rates have remained low which provides an incentive to utilize long-term financing on real estate.  Second, the drop in farm income has likely made it necessary for farmers to utilize agricultural real estate for collateral.  Third, farmland prices increased over this time period often resulting in more borrowings when farmers purchase farmland.  Additionally, it is likely that lenders have sought to refinance borrowers and secure loans with real estate during the farm income downturn.