Solvency Trends for Illinois Grain Farms

This article examines the debt-to-asset ratio trends of Illinois grain farms using data obtained from the Illinois Farm Business Farm Management (FBFM). The debt-to-asset ratio is a measure of solvency and financial risk that expresses the share of a farm's total assets that are owed to creditors. It is calculated by dividing the value of a farm's total liabilities by its total assets. In other words, it measures a farm’s ability to pay off all of its liabilities with its total assets.1 In our analysis, we report the annual average total assets and total liabilities of grain farms in Illinois by the size of their gross farm returns—small, medium-sized, and large. We define small farms as those with gross farm returns less than $350,000, medium-sized farms as those with returns between $350,000 and $999,999, and large farms as those with returns greater than $999,999. We then use these total liability and total asset values to calculate the implied debt-to-asset ratio (hereafter, debt-to-asset ratio). This approach will also allow us to discuss the relative changes in total assets and total liabilities driving the debt-to-asset ratio trends.