Loan Repayment Problems of Farmers in the Mid-1980's

The inability of many farmers to repay debt obligations--due to falling commodity prices, stagnant farm income, and declining land values (the collateral securing much of the debt)--is probably the clearest example of the extent of the farm financial crisis of the early and mid-1980's. The problems of that period have since eased. Total outstanding farm debt fell $58 billion, from $206.5 billion at the beginning of 1984 to $148.5 billion by the end of 1988. Farmers used earnings retained from previous periods and increased cash incomes during 1984-87 to reduce their existing debts by more than $38 billion. Some of the adjustment occurred among agricultural lenders, who wrote off $20 billion in defaulted farm debts, about 10 percent of outstanding farm loans. The worst problems were thus resolved for most farmers but not all: agricultural lenders still face more than $2 billion in potential losses of principal and interest payments (loan losses). This report reviews the bottom line of the 1980's farm financial crisis: farmers' loan defaults and subsequent loan losses. These problems are also examined by location, farm size, farm type, and socioeconomic characteristics.