While total debt held by farms increased from 1992 to 2011, average farm debt-to-asset ratios declined during that time according to a report on debt use by farms conducted by USDA’s Economic Research Service.

Average farm debt-to-asset ratio decliningDebt use decisions by farms not only affect the economic stability of the individual farm but also the larger rural community, which is why USDA ERS says policymakers, agricultural lenders and bank regulators, and other farm-industry stakeholders closely monitor farm debt trends. This study compared debt use in various categories of farms, including farm size, specialization, operator age, region and other farm characteristics. It identified two major types of farms – family farms (including small, midsize and large-scale farms) and non-family farms.

From 1992 to 2011, total farm debt increased 39 percent (adjusted for inflation). However, the debt-to-asset ratio declined from 0.13 in 1992 to 0.09 in 2011. Further, the share of highly-leveraged farms, those with a debt-to-asset ratio of greater than 0.4, has declined during the two decades the study covered.

With regard to farm size, the share of farm debt held by large-scale farms (those with a gross cash farm income, or GCFI, of $1 million or more) increased from 16 percent in 1992 to 35 percent in 2011. Additionally, during that time, the average debt held by large-scale farms increased from $684,400 to $1,165,500 (in constant 2011 dollars using the chain-type deflator). The share of debt held by small family farms (those with a GCFI of less than $350,000) decreased from 46 percent to 27 percent, and the average debt held by small family farms decreased by 9 percent from 1992 to 2011. According to the report, the value of farm production during the 20 years studied shifted similarly between small and large farms.

The report also looked at different types of specialized farms and found that dairy and poultry farms tend to be more leveraged than farms specializing in field crop, beef and hog production. According to the report, dairy and poultry farms generally face higher capital costs in order to operate or expand and thus have a higher debt use than other types of farms.

According to USDA ERS, the share of highly leveraged farms has decreased since 1993. According to the report, the share of farms with debt-to-asset ratios exceeding 0.4 was halved between 1993 and 2011. Among livestock operations, more than 8 percent had a debt-to-asset ratio between 0.41 and 0.7 in 1993 and 2 percent had a debt-to-asset ratio of greater than 0.7. In 2011, those figures dropped to less than 4 percent and 1 percent, respectively.

The agency says that more research is needed to predict how current debt use would be affected by changes in financial conditions, including a rise in interest rates, decline in farmland values, changes in farm and energy policy, and changes in international trade.

The full report is available on the USDA ERS website