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Cropping up: Farm real estate debt is set for record

Low interest and strong crop yields are prompting US farmers to borrow ever more. Are they still solvable? Here is our answer in two charts.

 

In 2017, US farm real estate debt is expected to reach a historic high of $242.4 billion. The bump in mortgage loans owes much to low interest rates, strong balance sheets and solid crop yields. An additional factor, according to the US Department of Agriculture, is the rising propensity of farmers to use land and facilities as collateral for non-real estate debt.

That type of borrowing is expected to decline this year – cheaper inputs play a part – but not by much (0.3 percent). Real estate debt, in contrast, is due to rise 7.5 percent year-on-year. Total debt, adjusted for inflation, remains short of its 1981 peak, when it reached $413.4 billion. But it is not far off: it is forecast at $390 billion in 2017. Real estate debt is the main driver. Its non-real estate peer has trended downward since 2014.

For all this, solvency rations are not expected to differ much from 2016, because asset values are also rising. The story is different for liquidity ratios, which have been weakening in recent years. The 2017 debt-service ratio, which measures the share of production used for debt payments, is projected at its highest since 2002. The times-interest-earned ratio, which indicates how many times a farmer can cover its interest charges out of net income, is forecast at its lowest in 15 years.