Debt is more likely to be carried by large farmers than any other producer group, a new report by USDA/ERS says. “Because debt is concentrated among larger farms, the aggregate loan repayment performance of agricultural credit is increasingly dependent on a smaller group of farm operators,” the report says. “If asset values or incomes falter, the burden of these declines will fall on fewer and larger producers and their creditors.”
Overall, the share of farm businesses that end the year with unpaid debt has declined. While many farmers use credit cards and lines of credit to finance input purchases during the year, most pay off their loans during the current production cycle, normally by year’s end.
According to USDA’s Agricultural Management Survey
, nearly 60% of U.S. farm operators reported outstanding debt at the end of 1986; by 2007, the figure had fallen nearly in half to 31%.
“Larger farms, with a greater asset base and higher revenues, are now much more likely to use debt than smaller farmers”. The majority of smaller farms surveyed indicated that they have sufficient funds to finance their operations.
Corn and general cash grain farmers together accounted for 10% of farms and about 23% of the debt. At the end of 2007, 50% of farm business debt was held by 15% of farmers, compared with 30% held by farmers at the end of 1986. Farm debt is also concentrated geographically, with the Corn Belt, Northern Plains, and the Southeast having relatively high levels of debt due to their larger share of grain, hog, poultry, and dairy operations.
At the end of 2007, 65% of farmers reported having no debt outstanding on the farm business balance sheet, but they tended to be smaller, averaging 258 acres. But not all debt-free farmers are small. For example, more than 14% of farmers with annual sales between $1 million and $5 million reported owing no debt at the end of 2007.