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

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  • Jason Henderson
  • Nathan Kauffman

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.

Suggested Citation

  • Jason Henderson & Nathan Kauffman, 2013. "Farm investment and leverage cycles: will this time be different?," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 89-114.
    • Handle: RePEc:fip:fedker:y:2013:i:qii:n:v.98no.2:x:1
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    File URL: https://www.kansascityfed.org/documents/1378/2013-Farm%20Investment%20and%20Leverage%20Cycles:%20Will%20This%20Time%20Be%20Different%3F.pdf
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    References listed on IDEAS

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    1. Michael R. Langemeier & George F. Patrick, 1993. "Farm Consumption and Liquidity Constraints," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(2), pages 479-484.
    2. Allen M. Featherstone & Barry K. Goodwin, 1993. "Factors Influencing a Farmer's Decision to Invest in Long-Term Conservation Improvements," Land Economics, University of Wisconsin Press, vol. 69(1), pages 67-81.
    3. Catherine Benjamin & Euan Phimister, 2002. "Does Capital Market Structure Affect Farm Investment? A Comparison using French and British Farm-Level Panel Data," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(4), pages 1115-1129.
    4. Raghuram Rajan & Rodney Ramcharan, 2015. "The Anatomy of a Credit Crisis: The Boom and Bust in Farm Land Prices in the United States in the 1920s," American Economic Review, American Economic Association, vol. 105(4), pages 1439-1477, April.
    5. Marvin R. Duncan, 1981. "The farm outlook: recovery in 1982?," Economic Review, Federal Reserve Bank of Kansas City, vol. 66(Dec), pages 15-25.
    6. Hubbard, R Glenn & Kashyap, Anil K, 1992. "Internal Net Worth and the Investment Process: An Application to U.S. Agriculture," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 506-534, June.
    7. Alston, Lee J., 1983. "Farm Foreclosures in the United States During the Interwar Period," The Journal of Economic History, Cambridge University Press, vol. 43(4), pages 885-903, December.
    8. Stock, James H., 1984. "Real Estate Mortgages, Foreclosures, and Midwestern Agrarian Unrest, 1865–1920," The Journal of Economic History, Cambridge University Press, vol. 44(1), pages 89-105, March.
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    Cited by:

    1. Hardin, Erin M. & Penson, John B., 2017. "Ability to Pay and Agriculture Sector Stability," 2017 Annual Meeting, February 4-7, 2017, Mobile, Alabama 252829, Southern Agricultural Economics Association.
    2. Grout, Travis & Ifft, Jennifer & Malinovskaya, Anna, 2021. "Energy income and farm viability: Evidence from USDA farm survey data," Energy Policy, Elsevier, vol. 155(C).

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