Farm debt service ratio forecast to stabilize in 2017 and 2018

The farm sector debt service ratio measures the share of agricultural production used for debt payments. It provides a way to assess the farm sector’s ability to make scheduled interest and principal payments on farm debt when they are due. A higher debt service ratio implies a greater share of production income is needed to make debt payments, suggesting lower liquidity (the amount of capital readily available as cash). Following record-level agricultural production in 2013, the debt service ratio in 2012 and 2013 was at its lowest level since 1962 at 20 percent. The ratio then increased year over year to 26 percent in 2016. USDA’s Economic Research Service (ERS) forecasts the debt service ratio to increase slightly to 27 percent in 2017 and 2018, as debt payments have increased and the value of agricultural production has declined since 2013. However, the ratio remains well below the peak in 1983 even as farm sector debt approaches levels seen in the 1980s. Declining interest rates have helped to keep debt payments low, and the value of agricultural production has increased 38 percent since 2002, after adjusting for inflation. As a result, the debt service ratio is now near its 2002 value and its 35-year historical average. — USDA, ERS