Is US farm sector debt underestimated? Evidence from equipment lending
ISSN: 0002-1466
Article publication date: 28 June 2024
Issue publication date: 13 August 2024
Abstract
Purpose
The growth of lending from nontraditional lenders may pose challenges for official US Department of Agriculture (USDA) farm sector debt estimates, but it is difficult to find data to assess official estimates. The purpose of this study is to examine whether debt provided by nontraditional lenders is accurately accounted for in official estimates.
Design/methodology/approach
We compare traditional and nontraditional lending data from farm equipment lien collateral values and the USDA Agricultural Resource Management Survey (ARMS). After analyzing trends in equipment lending implied by farm equipment lien data and ARMS, we estimate whether changes in farm equipment lien values predict changes in equipment debt reported in ARMS and whether lender type influences that relationship.
Findings
We find that credit provided by nontraditional lenders is likely underreported in ARMS. Our econometric model shows that equipment debt volumes for nontraditional lenders are consistently lower than traditional loan volumes in ARMS across a variety of model specifications. We also find that an increase in lien values for nontraditional lenders is less likely to predict an increase in ARMS equipment debt volumes than an increase for traditional lenders.
Practical implications
Official farm sector debt estimates may not fully account for nontraditional lenders.
Originality/value
This study demonstrates how the growth of nontraditional lending poses challenges for estimating US farm sector debt. We evaluate farm sector debt estimates and advance knowledge of the role of nontraditional lenders in farm equipment credit provision. The farm equipment lien dataset provides a rich source of novel data for research on local and national equipment debt and investment.
Keywords
Acknowledgements
We gratefully acknowledge funding from the USDA Office of the Chief Economist through a cooperative agreement. This research was also supported in part by effort from the Rural and Farm Finance Policy Analysis Center (RaFF) at the University of Missouri, which aims to help policymakers and stakeholders understand rural economic and financial conditions and trends and explore how existing and proposed policies affect rural and farm finances. We are grateful for editorial support from Carla Woodyear. Several agricultural lenders and equipment firms provided critical information on equipment lending norms. The farm equipment lien data used in this study was purchased from Equipment Data Associates (EDA) of Randall Reilly/Fusable.
ERS disclaimer: The findings and conclusions in this presentation are those of the authors and should not be construed to represent any official USDA or U.S. Government determination or policy.
NCUA disclaimer: This paper is the result of independent research. The findings and conclusions in this paper are those of the authors and should not be construed to represent those of NCUA or the U.S. Government.
Citation
Briggeman, B., Byers, L., Ifft, J., Kuhns, R., Miller, N. and Yu, J. (2024), "Is US farm sector debt underestimated? Evidence from equipment lending", Agricultural Finance Review, Vol. 84 No. 2/3, pp. 191-207. https://doi.org/10.1108/AFR-12-2023-0168
Publisher
:Emerald Publishing Limited
Copyright © 2024, Emerald Publishing Limited