Debt carried by U.S. farmers increased significantly in recent years as prices for farmland surged, leaving young farmers and livestock producers most exposed to possible financial strain, according to a recent Federal Reserve Bank of Kansas City report.
The article by reserve bank economist Brian Briggeman finds that farmers with sales of more than $1 million drove the rise in debt, but also are positioned to handle a hike in interest rates or drop in income. Farmers younger than 35 years old and livestock producers are in a more vulnerable position because of limited incomes. The whole farm sector would come under financial stress if a sharp combination of rising interest rates and falling income occur.
"Under this scenario, the number of financially stressed farms would jump significantly," Briggeman wrote.
The farm sector has seen the largest surge in debt since the 1970s, growing just short of 5 percent a year from 2003 to 2009, according to the report. Fueling the rise was a 40 percent increase in farmland values over the same period, the report said.
Large operators are in a position to absorb financial stress because of strong prices with grain and soybean futures reaching record levels in 2008. Agriculture commodities have again surged in the last six month, and while below 2008 highs, remain well above historical averages.
Young farmers and livestock producers are more susceptible to possible financial stresses. Young farmers likely missed out on strong profits from the last commodity boom, while livestock producers faced slumping incomes in past years from high feed costs when grain prices surge, the report said.
"A surge in financial stress among livestock producers, who hold half of all farm debt, would be of particular concern to agricultural lenders," Briggeman wrote.
