Recent rise in farm debt resembles the run-up to the 1980s farm debt crisis

Farm debt has risen almost five percent annually since 2004, the largest increase since the years leading up to the 1980s farm debt crisis. "Today’s rising debt raises questions about whether U.S. farm operations will face financial stress in the future," Brian C. Briggeman of the Federal Reserve Bank of Kansas City reports. Briggeman defines farm financial stress as the inability to meet debt service payments, including principal and interest and notes "the primary determinants of financial stress are the level of debt, its cost or interest rate, and the amount of farm income available to service the debt."

"In recent years, low interest rates and robust farm income have kept financial stress from spiking for the average farm operation," Briggeman writes. "Still, some agricultural enterprises have seen incomes fall, leaving some producers with elevated levels of financial stress." Unlike the years leading up to the 1980s farm debt crisis, the accumulation of farm debt in recent years has been concentrated in real estate and among a small group of producers, Briggeman reports. From 2003 to 2009 farm real estate debt rose more than six percent per year while non-real estate debt rose three percent per year.

The recent rise in debt has been concentrated among producers with more than $1 million in sales. From 2004 to 2008 total real farm debt doubled for these operations to $60 billion, Briggeman reports, noting these farms, which account for five percent of all farms, saw their share of total farm debt rise from 15 to 30 percent during that time. Farms with less than $1 million in total sales held roughly stead with $160 billion of debt, Briggeman reports. Low interest rates have allowed farmers to carry higher level of debt, but Briggeman concludes a financial shock, like a rise in farm interest rates, a decline in farm income or both, could increase financial stress quickly. (Read more)