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Debt load growing for farm operations at unsustainable rate

An ag economist says the debt load for farm operations is growing at an alarming rate.

Greg Ibendahl with Kansas State University says the trend has been happening for nearly three decades. “It’s kind of being hidden by the fact that land values have kind of outpaced that. So, you don’t really see it so much. But to me that is a concern because if we would see some kind of situation where land values would crash like we saw back in the early 80s, then you’re looking at a situation where now your debt to asset ratios look really, really bad.”

He says today’s landscape is similar to the run up to the 1980s farm crisis, but with an exception.  “Land prices remain high, but it wouldn’t take much to duplicate a 1980s situation where land prices would drop. So far we haven’t seen that. It’s certainly something to think about.”

He tells Brownfield it’s having a negative impact on balance sheets. “When you start to get too much debt, you start to get too much interest. It starts to affect cash flow, so that can kind of snowball and suddenly you find yourself really having a hard time making things cash flow.”

Ibendhal says it’s also contributing to higher delinquency rates. “The more debt you have as a farmer the bigger stake in the farm business your lender has, which means that there’s suddenly a bigger player as a partner in your farm business. They probably have more say over what actually happens.”

He says producers should be extremely cautious purchasing new land and equipment because of tight margins and may want to consider paying off debt once commodity prices improve.