Farm investment and leverage cycles: will this time be different?

Jason Henderson and Nathan Kauffman

Economic Review, 2013, issue Q II, 89-114

Abstract: A wave of capital investment has spread throughout the U.S. farm sector in recent years. With booming farm profits, farmers have made a range of real estate investments, building new structures such as grain bins and machine sheds and improving productivity through expanded pivot irrigation and tiling. ; Exploring the historical patterns of U.S. farm capital investment and leverage, authors Henderson and Kauffman consider the prospects for another boom-and-bust cycle if historical patterns re-emerge. ; Over recent years, elevated farm profits have enabled farmers to keep leverage ratios near historic lows. But accumulating wealth, coupled with low interest rates, could lead farmers to maintain high levels of capital investment even as profits begin to fade. Henderson and Kauffman find that the stage may be set for an accumulation of excess debt among farming enterprises, a scenario that potentially could lead to another financial crisis in U.S. agriculture.

Date: 2013
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