Today, the farm real estate debt landscape has changed. Farm real estate debt is now heavily concentrated, about 80 percent, in the Farm Credit System and commercial banks as opposed to individuals (Figure 2). This shift is likely due to the hardships of the 1980s moving most real estate loans to institutions with a regulator. While inflation adjusted farm real estate debt has risen since 2000, its 25 percent increase is modest compared to the steep rise experienced during the 1970s.

However, the amount of farm debt may be understated. Reported data by the two biggest agricultural lending institutions suggests that real estate debt may be rising. According to the 2010 Farm Credit System’s Annual Report and commercial banks’ reports of condition and income, both lenders reported $141 billion of outstanding farm real estate debt, while USDA reported $132 billion. Explaining why lender reported debt levels are $9 billion higher than USDA reported debt levels is beyond the scope of this paper. This finding does, however, imply that debt levels may be higher than what the USDA reports.

Even if debt levels are indeed lower than what Farm Credit and commercial bank data would suggest, risks still surround farm real estate debt because it is also concentrated among a few borrowers. According to the USDA’s 2009 Agricultural Resource Management Survey (ARMS), about 33 percent of all producers reported some farm debt.

Of these producers, large farming operations and livestock producers pose significant risks to lenders. In particular, a small subgroup of agricultural borrowers holds a relatively large share of farm real estate debt. While large farming operations with more than $1 million in farm sales only comprise 1.4 percent of the entire farm sector, they hold 20 percent of total farm real estate debt (2009 ARMS). Fortunately, these large farm borrowers—who also account for 30 percent of total agricultural production—have ample farm income with which to repay their sizable amount of farm debt (Briggeman, 2010).

Another group of producers that could be a potential risk to lenders are livestock producers. Lenders are more exposed to livestock operators because 52 percent of all farm real estate debt is held by livestock producers with crop producers holding the remaining 48 percent. Given this larger exposure, livestock losses leading to debt repayment stress could strain a lender’s financial health.