Assets, Debt, and Wealth
Suggested citation for linking to this discussion:
U.S. Department of Agriculture, Economic Research Service. Farm Sector Income & Finances: Assets, Debt, and Wealth, February 4, 2022.
Farm Sector Equity (Wealth) Forecast to Remain Stable in 2022
Farm sector equity—the difference between farm sector total assets and total debt—is forecast to rise 1.0 percent in 2022 to $2.85 trillion but decline 2.5 percent in inflation-adjusted dollars. Farm sector assets are expected to increase $42.2 billion to $3.31 trillion in 2022— a 1.3 percent increase from 2021 in nominal dollars. Farm sector debt is expected to increase $13.1 billion to $0.47 trillion in nominal dollars. When adjusted for inflation, farm sector assets are expected to decrease $76.2 billion and farm sector debt is expected to decrease $3.4 billion.
See a summary of the balance sheet in the table U.S. farm sector financial indicators, 2015-22F, or get the full balance sheet details, including the current/noncurrent balance sheet and selected financial ratios.
Farm real estate assets (land and its attachments) at $2.72 trillion is forecast to account for 82 percent of farm sector assets in 2022 after increasing 1.0 percent relative to 2021 in nominal terms (a decline of 2.5 percent when adjusting for inflation). The value of non-real estate farm assets—which includes investments, inventories, and machinery and equipment—is expected to gain $15.4 billion, a 2.7 percent increase in nominal terms (a 0.9 percent decline in real terms) to $592.3 billion in 2022.
Both farm real estate and non-real estate debt are forecast to increase in 2022 relative to 2021 in nominal terms but decline when adjusted for inflation. Farm real estate debt is expected to reach $312.0 billion in 2022, a 3.4 percent increase in nominal terms but a 0.2 percent decrease in inflation-adjusted dollars. Since 2015, farm real estate debt as a share of total debt has grown each year and is expected to account for 67 percent of total farm debt in 2022. Farm non-real estate debt is expected to increase by 1.8 percent in nominal terms to $155.4 billion in 2022.
Farm Sector Solvency, Liquidity, and Profitability Expected to Worsen Slightly in 2022
Solvency is a measure of the ability of a farm or ranch operation to satisfy its debt obligations when due. Popular measures of solvency include the debt-to-asset ratio, debt-to-equity ratio, and equity-to-asset ratio. In 2022, these three solvency measures are expected to slightly worsen because debt is forecast to grow at a faster rate than the value of assets. The debt-to-asset ratio is forecast to increase from 13.89 percent in 2021 to 14.11 percent in 2022 while the debt-to-equity ratio is expected to increase from 16.13 percent to 16.43 percent. The equity-to-asset ratio is forecast to decrease from 86.11 percent to 85.89 percent.
Liquidity is the ability to transform or convert assets to cash quickly to satisfy short-term obligations when due without a material loss of value or price of the asset. USDA uses several different financial metrics to evaluate farm sector liquidity. Cash and cash-convertible assets (referred to as "current" assets) are expected to decline $2.6 billion (1.3 percent) in 2022 to $202.1 billion. Liabilities due to creditors within 12 months (referred to as "current" debt) are expected to increase $0.6 billion (or 0.5 percent) to 109.1 billion. As a result, the current ratio— current assets divided by current debt—forecast to be 1.85 in 2022, a decline from 1.89 in 2021; first decline since 2016. Working capital—the amount of cash and cash-convertible assets minus amounts due to creditors within 12 months—is forecast at $93.0 billion in 2022, a 3.3-percent decrease from 2021.
The debt service ratio, which measures the share of the sector's value of production required to service farm debt payments, is forecast to increase by 0.01 to 0.24 in 2022. The times interest earned ratio, which measures the farm sector's ability to meet interest payments out of 2022 net farm income, is forecast to decline to 6.1 in 2022 from 6.9 in 2021. This is due to the expected decrease in net farm income and increase in interest expenses.
Profitability refers to the sector's ability to generate returns from production inputs. Accordingly, profitability ratios measure the farm sector's return relative to resources used. In 2022, the forecast lower net farm income is expected to reduce the total rate of return on farm assets from 5.2 to 3.4 and the total rate of return on farm equity from 5.3 to 3.2.
See more about financial ratios in the Documentation for the Farm Sector Financial Ratios.
A Note on Farm Balance Sheet Estimates and Forecasts
The farm sector balance sheet aims to provide a market value estimate and forecast of farm sector assets, debts/other liabilities, and wealth (equity or net worth). It differs from individual business and corporate balance sheet accounts that are based on historical cost accounting concepts. For example, historical cost-based balance sheets show capital assets, such as farm machinery and equipment, at their original cost less accumulated depreciation. The objective of the farm sector balance sheet is to estimate or forecast the value of assets if sold in today's marketplace.