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, December 1, 2021.

Farm Sector Equity (Wealth) Forecast to Remain Stable in 2021

Farm sector equity—the difference between farm sector total assets and total debt—is forecast to rise 2.8 percent in 2021 to about $2.81 trillion but decline 1.0 percent in inflation-adjusted dollars. Farm sector assets are expected to increase $88.9 billion and farm sector debt is expected to increase $12.9 billion in nominal dollars. When adjusted for inflation, farm sector assets are expected to decrease $31.5 billion while farm sector debt is expected to decline by $3.9 billion. 

See a summary of the balance sheet in the table U.S. farm sector financial indicators, 2014-21F, or get the full balance sheet details, including the current/noncurrent balance sheet and selected financial ratios

Farm Assets Expected to Also Remain Stable When Adjusted for Inflation

Farm assets are forecast to increase to $3.26 trillion in 2021, which is a 2.8 percent increase from 2020 in nominal dollars. The value of farm real estate assets (land and its attachments) is forecast at $2.69 trillion, and accounts for 83 percent of farm sector assets in 2021. USDA's Economic Research Service anticipates farm real estate values will increase 2.0 percent in 2021 in nominal terms but decline by 1.7 percent when adjusting for inflation. In 2021, the value of non-real estate farm assets—which includes investments, inventories, and machinery and equipment—is expected to gain $36.4 billion, a 6.8 percent increase in nominal terms. When adjusted for inflation, the increase in non-real estate assets is 2.9 percent. Investments and other financial assets are forecast to increase $10.3 billion or 11.2 percent in 2021 in nominal dollars. Inventories are forecast to increase $18.7 billion, or 11.5 percent, and machinery and vehicle assets are expected to increase $7.5 billion, or 2.7 percent.

Farm real estate debt is expected to reach $301.7 billion in 2021, a 4.5-percent increase in nominal terms and a 0.7-percent increase in inflation-adjusted dollars. Farm real estate debt as a share of total debt is expected to account for 66.4 percent of total farm debt in 2021. Farm non-real estate debt is expected to decline by 0.1 percent in nominal terms to $152.4 billion in 2021. Since its peak in 2014, non-real estate inflation-adjusted debt is projected to fall 9.8 percent.

Farm Sector Solvency Relatively Unchanged, But Some Improvement in Liquidity and Profitability Ratios Expected in 2021

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 2021, the farm sector debt-to-asset ratio and debt-to-equity ratio are expected to remain relatively stable, debt-to-asset ratio increasing by just 0.01 to 13.91 and debt-to-equity ratio increasing by 0.02 to 16.16. The equity-to-asset ratio is also expected to remain relatively stable, decreasing by 0.01 to 86.09.

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 liquidityCash and cash-convertible assets (referred to as "current" assets) are expected to increase $17.4 billion (9.5 percent) in 2021 to $201.2 billion, and liabilities due to creditors within 12 months (referred to as "current" debt) are expected to increase $9.3 billion (or 9.4 percent) to 108.4 billion. As a result, the current ratio— current assets divided by current debt—forecast to be 1.86 in 2021, is relatively unchanged from 2020. However, working capital—the amount of cash and cash-convertible assets minus amounts due to creditors within 12 months—is forecast at $92.8 billion in 2021, a 9.6-percent increase from 2020.

The debt service ratio, which measures the share of the sector's value of production required to service farm debt payments, is forecast to decrease by 0.02 to 0.24 in 2021. The times interest earned ratio, which measures the farm sector's ability to meet interest payments out of 2021 net farm income, is forecast to improve to 6.83 in 2021 from 6.04 in 2020. This is mainly due to the expected increase in net farm income.

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 2021, increases in the net cash farm income and net farm income are expected to improve the total rate of return on farm assets from 4.69 to 5.19 and the total rate of return on farm equity from 4.74 to 5.31.

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.