For the first time in 20 years, farm-sector assets and equity posted a decline in 2008 and are forecast to decline further in 2009, according to an in-depth assessment of U.S. farm income and financial situation by USDA's Economic Research Service.
In its latest Ag Income and Finance Outlook Report, ERS notes that after rising steadily over two decades, farm-sector assets and equity (net worth) declined in 2008 and are forecast to fall further in 2009. "Declines in farm asset and equity values affect the overall solvency of the sector. If they continue, these declines can affect the ability of farmers and other investors to finance purchases of farmland and other assets," according to USDA.
Factors that have contributed to the decline in farm asset values include farm investors' lower expected future net returns, declining cash flow, and tighter credit conditions.
After reaching a low of $722 billion in 1986, ERS notes that sector-wide asset values increased nearly threefold to nearly $2.1 trillion in 2007. In 2008, however, the nominal value of farm sector assets decreased for the first time since 1986 to $2 trillion, and is projected to decrease again in 2009 to $1.9 trillion.
Despite this downturn in asset value, ERS said debt-to-asset and debt-to-equity ratios are still well below the high levels experienced during the 1981-86 farm financial crisis.
Farm-sector equity (the difference between asset values and debt) also rose significantly over the past two decades, reaching a nominal record high nearly every year between 1996 and 2007. "Not only did equity rise to new nominal highs, but the share of total assets accounted for by owner equity rose from 79 percent in 1985 to 90 percent in 2007," ERS says.
"Even with 2008's reduction in asset values and the projected decline in 2009, equity will still account for about 88 percent of the total value of assets in US agriculture in 2009. In 1980, equity accounted for 84 percent of the sector's total asset value," ERS concludes.
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