If you go strictly by what the USDA reports, you may not think there will be that much belt tightening to do for farmers to survive over the next few years, when commodity prices may be lower than they have been over the past several years. USDA recently estimated that the debt to asset ratio in agriculture was only 1 to 10. In other words, for every dollar of debt farmers have 10 dollars of assets.
Mike Boehlje, Purdue University Extension ag economist, believes that USDA underreports debt that farmers actually carry. The main area they miss is credit extended by equipment, chemical and seed companies for inputs. Those numbers aren't picked up in USDA accounting. Boehlje suspects that more farmers take advantage of these options, and have a significant portion of their debt for inputs in many cases with these businesses instead of with a financial lending institution.
Even so, Boehlje realized that there is no true average picture of a farmer's financial situation. About half of the people in farming today have no debt. That skews the numbers for those who do.
Boehlje believes the next three or more years that will likely have lower commodity prices than in the recent past will be especially damaging for smaller farm operations. Those with fewer than 1,000 acres may have a harder time coming up with enough cash or liquid assets to cash flow their operation in some cases. Part of it will depend upon how much land they own, and how much they rent, he notes.
At the same time, he doesn't condone larger farms that may pay $15,000 per acre for land or $500 per acre for cash rent. Those numbers just don't make sense no matter how you figure things, the ag economist says.