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USDA: Rising indicators of financial stress

The USDA’s Deputy Chief Economist says the overall farm balance sheet is relatively strong but there are rising indicators of financial stress.

Deputy Warren Preston said at the recent AgriPulse Ag Outlook Forum in Kansas City that there’s been a slow rise in farm debt, fueled by farmers’ borrowing against their real estate equity.

“It’s not necessarily for purchase of farm real estate. It’s farmers tapping into the equity in their real estates for operating loans.”

Preston says farmers are tightening their belts, with production expenses declining. But he calls that a double-edged sword.

“On the one hand, it’s good to see that farmers have that resilience and they have the ability to adapt. But on the other hand, it’s worrisome when that production expense includes the realized depreciation and a signal that farmers perhaps don’t have the income, are not investing in new capital.”

They’re not buying new assets like machinery and buildings.

Preston says farmers can’t mine that equity forever and at some point, there needs to be reinvestment in capital stock.

Preston spoke at the AgriPulse/ Agricultural Business Council of Kansas City Ag Outlook forum.