As analysts have noted, the parallels between agricultural conditions in the early 1980s and those of today are valid only up to a point. In the earlier period, many farmers were undone by rising interest rates, which doubled or even trebled the cost of financing and automatically deflated the value of the land that secured that debt. By comparison, largely as a result of today's benign interest rate environment, land values are holding firm, despite depressed commodity prices. That's a big reason why farmers' total equity rose last year for the tenth straight year even as real farm income was trending downward. Farmers are also benefiting from the general economic prosperity and low inflation of our times, which stand in sharp contrast to the deep recession of the early 1980s.
Credit is just one farm input whose cost has been stable of late.
In 1998, total farm expenses dropped for the first time in more than a decade, and the preliminary 1999 data suggest an increase for last year of barely one percent. Even the recent run-up in energy prices should affect operating balance sheets only at the margin. But perhaps the key variable is the fact that, no matter how you choose to measure it, farmers today are substantially less leveraged than they were in the early '80s. In 1981, farmers carried debt equal to about five and a half times their cash income. Today the ratio is about three to one.