USDA report confirms farm sector is hurting; says farms with more than $100,000 in sales more likely to be under stress

USDA ERS chart. All values expressed in 2018 dollars.

A new Agriculture Department study confirmed that U.S. farm sector finances have been doing steadily worse since 2012, but that most measures of financial health are near long-run (1970-2017) average levels. However, larger farms, farms with a younger owner, and dairy farms remain particularly vulnerable. The study compares the farm sector's recent financial performance to historic periods of financial stress to provide a better perspective on the severity of the ag sector's current slump. Factors considered include land prices, debt, loan defaults and bankruptcies, commodity prices and more.

Here are some of the highlights from the study, published by the USDA's Economic Research Service:

• Farm real estate is no longer rapidly appreciating in value and has declined in some regions.
• Between 2016 and early 2019, interest rates rose, which increased the cost of borrowing for some farmers.
• Farmers who borrowed big for land or machinery when the farming economy was doing better are at a higher risk of financial insolvency.
• From 2012 to 2017, farmers saw the biggest multiyear decline in percent of net cash income since the 1970s. But since farm income was near a record high in 2012, the drop left farmers near the long-run average. 
• Farm sector debt is near the peak levels seen in the late '70s and early '80s. Interest rates in 2018 were forecast to be 23% above average levels from 2000 to 2017, but were still 8% below long-run average levels because of historically low interest rates.
• Farm assets, especially land, have appreciated more quickly than debt in recent decades. So the sector's debt-to-asset ratio has fallen since the mid-1980s and hit a historic low in 2012. Since then, demand for land has decreased in some areas and the debt-to-asset ratio has increased. The debt-to-asset ratio is now above its 10-year average, but remains low compared to the 1970-2017 average.
• Between 85-90% of farms in each category are not categorized as financially stressed, but farms with at least $100,000 in annual sales are more likely to be under financial stress than smaller farms. That's because larger operations tend to get more income from farming and tend to take out more loans.
• The share of larger farms (at least $100,000 in annual sales) in financial distress has increased since 2012. The stress comes from having low levels of solvency or low repayment capacity.
• Increases in farming sector financial stress are becoming evident in rising loan delinquency rates, though such rates remain below historical averages and below levels seen from 2010 to 2013 in the wake of the Great Recession.
• If gross cash farm income were to fall by 10 or 20% from 2017 levels, the share of all farms in extreme financial stress would increase from 1.1% in 2017 to 1.3% and 1.6%, respectively. Extreme financial risk means not having enough income to meet loan payments and a debt-to-asset ratio over 55%. Larger farms, farms with a principle operator under age 40, and dairy farms are vulnerable to such an income drop.