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Grain farm debt-to-asset ratio weakening

There’s another indicator of a worsening financial situation for most crop farmers.

Gary Schnitkey with the University of Illinois says he recently looked at the debt-to-asset ratio of Illinois grain farms, using a benchmark of point-five.

By taking debt divided by assets, the number of farms above point-five climbed from 7 percent in 2013 to 13 percent by the end of 2017.

“So you could say 13 percent of the farms would be vulnerable.”

He tells Brownfield producers who find themselves with a debt-to-asset ratio above point-five might consider refinancing.

“And if that’s not an option, or that has already been done, then you have to think about ways of cutting cash flow.  For many grain farms, that would focus on cash-rented land.”

And while this study was on Illinois grain farms, Schnitkey says other Midwestern crop producers are probably in similar situations.

“Actually, the situation from an income standpoint in 2018 could be worse in other areas because we’ve had exceptional yields (in Illinois) this year.”

He says very few farms are currently in high debt-to-asset ratio classes, but Schnitkey is anticipating lower farm incomes in 2019.

 

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