Despite Robust Ag Land Prices and Low Interest Rates- Working Capital Declines

Last month, DTN writers Katie Dehlinger and Todd Neeley reported that, “Tight profit margins are likely here to stay, and that could create challenges for producers, especially if land values stumble or interest rates rise above their current historically low levels, according to bankers and economists at two separate events on Tuesday.

“A group of farm credit CEOs held a press call on [October 22nd], outlining the state of the agriculture economy.

“Jeff Swanhorst, CEO of AgriBank, which provides farm loans throughout the Corn Belt, said the debt-to-asset ratio in agriculture remains in a strong position at 13.5%, and stable land values continue to hold up the farm economy.”

The DTN article noted that, “Currently, total U.S. farm assets stand at about $3.1 trillion with debts at $415.7 billion, according to USDA. By comparison, in 1980, farm assets stood at around $2.7 trillion with debt at $431.6 billion. The 1980 debt-to-asset ratio was 16.1%.

“In the current stressed farm economy, farmers are continuing to cut into working capital to weather low prices. Working capital is seen as a cushion to survive adversity, Swanhorst said.

“During agriculture’s boom time in 2012, working capital came in at just north of $160 billion, dropping to just under $60 billion in 2019.”

Dehlinger and Neeley added that, “University of Missouri FAPRI professor and former USDA World Agricultural Outlook Board Chairman Seth Myers said at a separate Farm Foundation event that the current low-price environment is here to stay for row crops. Farmers will need to adapt, or they’ll be pushed further to the margins. It’s a slow process, unlike the 1980s, when financial conditions deteriorated rapidly.”

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