Early Exclusive: Rising Debt to Asset Ratios in Ag Raising Red Flags

November 16, 2018 06:00 AM

Interest rates continue to climb, with the Federal Reserve expected to raise the benchmark right one more time yet this year. The rising rates are putting a further strain on farmers.

Ag Lender Farmer Mac says increased interest rates are having the biggest impact on operating loans since most of those loans are on variable rate.

Rising interest rates also mean land may not be an attractive option for investors. Rising rates, plus a dragging farm economy, is sparking fears that the debt to asset ratios could rise to levels agriculture saw in the 1980's. However, Farmer Mac economist Curt Covington says, that hasn't happened yet.

“I don’t see rates rising to the levels of the 1980s, but I think it is a concern,” said Covington.

He said when you assess today’s agriculture cycle, rising interest rates, lower profitability on farm properties, means asset values are automatically driven lower, which is land.

“So, even if you don’t add additional dollars in debt, you’ve reduced the land value,” he said. “So, I think the debt to asset ratio is going to increase, and I think we’ll see a noticeable increase when the 2018 numbers come out.”

Covington expects the increasing to creep into 2019, but still not near what agriculture saw in the 1980s.

To sign up for the latest copy of Farmer Mac’s “The Feed,” visit www.farmermac.com/thefeed.

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