A recent study concludes that agricultural debt has increased significantly over the last decade. In Illinois, for example, debt levels were $258 per tillable acre compared to $368 in 2004.
Gary Schnitkey, the University of Illinois Extension specialist who wrote the study, says it does not appear that the increased debt load is an immediate cause for concern. “Debt level increases have not resulted in worsening debt-to-asset position, nor have they resulted in an increase in interest expense per tillable acre,” he says. The study does not consider how rising interest rates, combined with a drop in land prices, could worsen those ratios in the future.
Schnitkey speculates that the past decade's low interest rates, plus a surge of non-farmers buying farmland speculatively, has contributed to the current situation. “Higher debt per acre could put additional pressure on farmers to increase cash flow by increasing farm size, seeking off-farm opportunities and decreasing per-acre costs,” Schnitkey says.