This post is the third in a series that contrasts and compares the farm prosperity of the 1970s with the current period of farm prosperity. This post examines U.S. farm debt during the two periods. The previous posts are available here and here.
This article uses 5 variables: (1) U.S. farm real estate debt on December 31 - includes both land and buildings; (2) U.S. farm non-real estate debt on December 31; (3) financial assets of U.S. farms on December 31; (4) U.S. cash farm production expenses for the calendar year - includes farm origin and manufactured inputs, as well as interest, labor, property taxes, and land rent; and (5) the U.S. Gross Domestic Product (GDP) price deflator. Economists commonly use the GDP price deflator as a broad measure of price inflation in a nation's economy. The GDP deflator is obtained from the Federal Reserve Bank of St. Louis. Rest of the data is from the U.S. Department of Agriculture (USDA), Economic Research Service.
To facilitate comparison of the two periods, measures are indexed, also called benchmarked, to a 5-year period that predates the start of the period of prosperity. The benchmark periods are 1968-1972 for the 1970 period of farm prosperity and 2001-2005 for the current period of farm prosperity. Five year benchmark periods are used to dampen the variability that can exist if a single year is used as a benchmark.
The latest calendar year for which information is available for all variables is 2012, the 7th year after 2005. As a result, the 1970 period ends with 1979, the 7th year after 1972. There is no definitive way to decide when to start the period of prosperity or what period to use as a benchmark, but these choices are reasonable. As more data becomes available for the current period, the analysis period can be extended, but 7 years is a long enough period for an initial comparative examination.
Farm Real Estate Debt
By 2012, deflated farm real estate debt had increased 37% compared with the 2001-2005 benchmark period (see Figure 1). In contrast, by 1979, deflated farm real estate debt had increased 55% compared with the 1968-1972 benchmark period. Thus, deflated farm real estate debt has increased less during the current period of farm prosperity, although its increase is not trivial.
Farm Non-Real Estate Debt
The time path of farm non-real estate debt is strikingly different in the two periods of farm prosperity. Relative to their respective benchmarks, deflated farm non-real estate debt had grown 83% by 1979 but only 13% by 2012 (see Figure 2). Thus, deflated farm non-real estate debt has increased substantially less during the current period of farm prosperity.