Young farmers face financing challenges

Hoard's Dairyman: 

Young farmers face financing challenges

Date: 
Tue, 07/09/2013

Owning a farm is a dream for many young farmers, but it might not be a reality due to financing that is hard to obtain.

by Abby (Huibregtse) Bauer, Hoard's Dairyman Associate Editor

Farming may be considered a young man’s job in regards to physical demands, long hours and stressful days. In reality, the average age of farmers has actually climbed steadily over the past few decades. From 1940 to 2007, the average age of farmers rose from 48 to 57, and age 65 and older was the fastest growing group of farmers.

Quite possibly the biggest challenge facing young agriculturalists today is financing. This topic was discussed in The Main Street Economist, a newsletter released by the Federal Reserve Bank of Kansas City, in an article titled “Financing Young and Beginning Farmers.” As explained in the article, agricultural prices have always fluctuated, but now more than ever they seem to present a challenge for young producers.

The past decade saw production costs rise at the fastest pace since the 1970s. From just 2006 to 2011, average annual fertilizer costs jumped by 17 percent and seed costs surged by an annual average of nearly 20 percent.

Young farmers have less equity and higher debt ratios. Farmers under the age of 35 had 20 percent less equity per farm than the average of all farms in 2012, according to USDA data. Likewise, these young producers had more than twice the farm liabilities than the average. The result is a debt-to-asset ratio of farm enterprises managed by operators under 35 to be more than four times higher than those 65 or older.

This makes young farmers a distinct risk to lenders. Farmers in a high debt-to-asset situation are less likely to be able to repay loans when agricultural prices take a downward turn. A solution is to build more equity, but with soaring land prices it is often hard for younger producers to compete for farm and land purchases.

In the early 1900s, most young farmers were not landowners but instead farmed on rented land and facilities. Over the next century, the trend was for young farmers to have partial ownership of land but it wasn’t that common to have full farm ownership. By the 2000s, things changed. Farm Credit System loans for young, beginning and small farming operations roughly doubled between 2001 and 2007, and by 2007, more than half of U.S. farmers under the age of 35 were full owners of farmland.

However, the most recent trend has been a steep decline in land ownership for young farmers. Many aspire to own land, but with the sky-high prices for land and inputs and the difficulty in securing financing, other rental and ownership options need to be considered again. It’s certainly not easy, but thankfully young producers are finding ways to enter into production agriculture. We’re hopeful that most can find success and stay farming until they reach that 65-and-up age bracket.


Abby blog footer
The author is an associate editor and covers animal health, dairy housing and equipment, and nutrient management. She grew up on a dairy farm near Plymouth, Wis., and previously served as a University of Wisconsin agricultural extension agent. She received a master’s degree from North Carolina State University and a bachelor’s from University of Wisconsin-Madison.

Click to subscribe to the HD Notebook RSS.