Increases in U.S. Farm Debt and Interest Expenses Minimally Affect Sector’s Financial Position in the Short-Term, as Measured by Liquidity and Solvency Ratios

U.S. farm debt is on track to rise to a record level in 2023, the USDA’s Economic Research Service (ERS) projected in its February 7, 2023, Farm Income Forecast release. The projected increases in debt would be across both real estate and nonreal estate obligations. Moreover, interest expenses would be the fastest growing agricultural production cost after a series of rate increases by the Federal Reserve over the past year to address rising inflation. Debt and interest expense increases have implications for liquidity and solvency of the farm sector. Liquidity refers to the ability of farms and ranches to meet short-term debt obligations. Solvency refers to the ability of a farm or ranch to satisfy its long-term debt obligations. Examining some of the key ratios used to measure liquidity and solvency, especially those that use interest expenses or debt in the calculation, can help assess how interest rate increases can affect the farm sector’s financial position.