Heading into 2012, times are good, very good. There also is considerable risk. "More risk is being pushed back to the farm than ever before," says Paul Ellinger, head of the agricultural and consumer economics department at the University of Illinois.
Amount of delinquent ag loans at commercial banks in 2010; residential mortgages were at 10%.
The drop in land values required to create a negative debt-to-asset ratio for Midwest farmers.
Amount of farm equity in Illinois comprising real estate in 2010. That number is on the uptick.
Research shows that if farm income dropped by 20% in Illinois, half of the state’s farmers could not make their loan payments. If land values dropped 30%, between 24% and 27% of Illinois’ producers would have a negative debt-to-asset ratio. That said, farmers have put a significant amount of profits into working capital. These numbers were part of a presentation made this past summer by the University of Illinois’ Paul Ellinger at the Agricultural Symposium sponsored by the Federal Reserve Bank of Kansas City.
Another interesting statistic from Ellinger’s research is that 46% of farm equity was made up of real estate from 2006 through 2010, even though land values rose sharply during this period. Moreover, large farmers, as well as young farmers, are actually more at risk than the baseline of all Illinois farmers.
Financial risk is high, but producers have a number of tools to reduce risk that were not present in the 1980s, or were not widely used then if they did exist. "For example, farmers have federal crop insurance, futures and options available before you get to the balance sheet," Ellinger says.
- Mid-November 2011