Despite facing less than robust grain markets and smaller tobacco crops, farmers in Kentucky are in pretty good financial position. Farmers have seen their farm equity increase for most of the 1990s except for a slight dip in 1998. Equity levels are more than $4 billion higher than 10 years ago, says Gregg Ibendahl, an Extension agricultural economist with the University of Kentucky College of Agriculture. Debts to asset ratios, a good indication of financial leverage, are near their lows for the past three decades.
The current debt to asset ratio of 15 percent is well below the peak of 22 percent reached in 1984. Since that time, farmers have experienced the risk of too much financial leverage and haven't taken on as much debt.
Interest expenses are not too heavy a burden for Kentucky farmers, Ibendahl said. Producers pay six cents in interest for every dollar they bring into the farm. In the 1980s that reached 15 cents.
In 2000, the net farm income is expected to be $1.4 million.
But much of the income in 2000 is from government payments and tobacco payments. These payments account for more than 50 percent of the gross income in 2d000 and will be a key factor again in 2001, Ibendahl says.
These payments are supporting net farm income and are also being capitalized back into farmland values. As long as government payments continue, Ibendahl says, Kentucky producers should have strong enough financial positions to handle periods of low grain prices.
The low debt levels and strong equity positions of these producers show that reserves are available to help meet cash flow needs. In 1998, farmers used some equity to live on, he says. That's okay as long as they don't do that too many years and eliminate their land equity and other equity.
One thing to worry about is the effect of expenses on net farm income, he says. For the past 10 years, expenses really haven't changed a great deal but because of increased fuel prices, farmers will pay higher prices for fuel, fertilizer and shipping.
"Most farmers are in pretty good shape financially," Ibendahl says. "But we have got to remember that these are averages and there may be individual farmers Out there where this does not apply and we're going to have to watch out for them in the next couple of years."