Ag economist Jason Henderson of Purdue says “what has me a little nervous” is an upturn in borrowing as the farm sector heads into a period of lower commodity prices and farm income. At a closing session of USDA’s Outlook Forum, Henderson said agricultural real estate borrowing rose by 8 pct in 2013 from 2012’s level.
“The side effect of the wealth effect is often rising debt,” said Henderson, who made waves a couple of years ago as a Federal Reserve official who warned of how rising interest rates and falling land values are inversely related.
If farmers are prudent managers who avoid over-leverage of assets, the tighter margins expected in the near term will be a speed bump for the balance sheet, he said.
USDA economist Jennifer Ifft said the most probable paths for interest rates and farm income point to potential declines in land values of up to 35 pct. Debt-to-asset ratios would rise by up to 5 points if land values declined that much, Ifft said.
“Current income may be insufficient for debt repayment for some highly leveraged farms if income declines below levels forecast for 2014,” said Ifft.
Henderson’s and Ifft’s presentations can be found among the Friday breakout sessions. Scroll down to the 2 p.m. sessions and look for the title “U.S. Farmland: Uses, Values and Policies.”