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 7, 2023.
Farm Sector Equity (Wealth) Forecast to Rise in 2023
Farm sector equity—the difference between farm sector total assets and total debt—is forecast to rise to $3.51 trillion in 2023, a 5.0 percent increase relative to 2022 in nominal dollars. Farm sector assets are expected to increase 5.2 percent to $4.05 trillion while farm sector debt is expected to increase 6.2 percent to $535.1 billion in 2023. When adjusted for inflation, farm sector equity, assets, and debt are forecast to increase by 2.1 percent, 2.3 percent, and 3.3 percent, respectively.
See a summary of the balance sheet in the table U.S. farm sector financial indicators, 2016–2023F, 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) is forecast to be $3.39 trillion representing 84 percent of total farm sector assets in 2023. In 2023, real estate assets are forecast to increase by 6.3 percent from 2022 in nominal dollars, accounting for most of the forecast increase in total assets. When adjusted for inflation, real estate assets are forecast to increase by 3.4 percent. Non-real estate assets include the value of investments and other financial assets, inventories of crops, animals, purchased inputs, and machinery/vehicles.
Total farm sector debt is forecast to increase in 2023 relative to 2022 with increases forecast for both real estate and non-real estate debt. Farm real estate debt is expected to reach $375.9 billion in 2022, a 7.7-percent increase in nominal terms and a 4.7- percent increase in inflation-adjusted dollars. In nominal terms, Farm non-real estate debt is expected to increase to $159.2 billion in 2023, a 2.8-percent increase but it is expected to remain stable when adjusted for inflation.
Weaker Farm Sector Solvency and Liquidity Expected in 2023
Solvency is a measure of the ability of a farm or ranch operation to satisfy its debt obligations when they are due. Popular measures of solvency include the debt-to-asset ratio and debt-to-equity ratio. Lower values for these ratios are preferred. In 2023, these ratios are expected to go up because debts are forecast to grow at a faster rate than the assets, in nominal dollars. The debt-to-asset ratio is forecast to increase from 13.09 percent in 2022 to 13.22 percent in 2023 while the debt-to-equity ratio is expected to increase from 15.07 percent to 15.24 percent.
Liquidity is the ability to transform or convert assets to cash quickly to satisfy short-term obligations when they are due without a material loss of value or price of the asset. USDA uses several different financial metrics to evaluate farm sector liquidity. One measure is working capital which measures the amount of cash available to fund operating expenses after paying off debt to creditors due within 12 months (current debt). In 2023, working capital is forecast to decrease 11.2 percent relative to 2022 indicating reduced liquidity. Other liquidity measures such as the current ratio and debt service ratio are forecast to worsen in 2023. The current ratio measures the ability of current assets, if sold and converted to cash, to cover current debt obligations. The debt service ratio measures the share of production plus direct Government payments used for debt payments.
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 provides a market value estimate and forecast of farm sector assets, debts/other liabilities, and wealth (e.g., equity or net worth) as of December 31. 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.