The susceptibility of farmland loans to default under falling farmland and commodity prices

Yifei Wu, Jeffrey Dorfman () and Brady E. Brewer

Agricultural Economics, 2021, vol. 52, issue 4, 561-574

Abstract: Periods of high commodity prices and rising farmland debt loads are typically accompanied with speculation that there will eventually be declines in commodity and farmland prices that may lead to a farm credit crisis. We evaluate the likelihood of such a crisis using a simulation model of heterogeneous farmers during periods of volatile commodity and farmland prices. This model simulates a period of increasing commodity and farmland prices with a subsequent drop in prices of farmland and commodities. We find default rates are less sensitive to commodity prices than farmland prices, that the length of time prices remain low matters significantly, and that when both farmland and commodity prices fall together defaults rise more than the sum of the responses to separate price shocks.

Date: 2021
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