Debt use by farms with crop insurance

decrease font size  Resize text   increase font size       Printer-friendly version of this article Printer-friendly version of this article

There is a growing concern over the recent rise in farm debt use, largely based on the role farm debt played in the sector-wide boom and bust of the 1970's and early 1980's. This post addresses the link between Federal Crop Insurance (FCI) and farm debt use.


We examine several uses of debt at the farm level using data from the USDA's Agricultural Resource Management Survey (ARMS). ARMS is an annual survey of farm and ranch operators jointly sponsored by the Economic Research Service (ERS) and the National Agricultural Statistics Service (NASS) of the USDA. The survey collects farmer-reported information on farm finances, resource use, and household economic wellbeing. The primary sampling unit is all establishments that sold, or normally would have sold, at least $1,000 of agricultural products during the year.

We limit our analysis to farms with over $250,000 in sales and farms for which the primary operator's principal occupation is farming (or "farm businesses" in USDA nomenclature). We further limit our sample to farm businesses that specialized in field crop production, including wheat, corn, soybeans, sorghum, rice, tobacco, cotton, peanuts, other cash grains, and oilseeds. In other words, we limit our analysis to farms that are most likely to participate in FCI. The survey respondents represent a population of approximately 228,000 farm businesses, and these farms can be further classified into three categories by acreage: click image to zoom

Farm Debt use by farm size with Federal Crop Insurance 

Our analysis shows that farms are more likely to participate in FCI as acreage increases. Approximately 62% of small field crop farms participated in FCI. However, 85% of medium farms and 92% of large farms participated in FCI in 2011. Farm debt is highly concentrated in farms that participated in FCI. Among field crop farm businesses, roughly 88% ($47.9 billion) of farm debt was held by farms that participated in FCI. Small-acreage farms that participated in FCI held $5.6 billion in debt, comprising almost 80% of all debt held by small-acreage farms. Medium-acreage farms that participated in FCI held $16.7 billion in debt, accounting for about 82% of total debt in that acreage category. Large-acreage farms participating in FCI accounted for $25.6 billion in debt, or approximately 95% of all debt held in the large-acreage category. click image to zoom

Probability of Default

We calculated the probability of default for field crop farm businesses using a measure similar to a credit score (Brewer et al., 2012 here). The probability of default is influenced by the farm's repayment capacity, solvency, and liquidity. Using this measure, farms that participated in FCI had a higher default risk. About 36% of FCI-participating farms had greater than 1% probability of default compared to about 22% of non-FCI-participants.  The average probability of default was 1.9% for farms without FCI compared to 2.2% for those farms with FCI coverage. click image to zoom


An increasing share of U.S. farms use Federal Crop Insurance as a risk management tool, and the majority of field crop farm debt is held by farms that participate in FCI. As farms increase in acreage size, debt is increasingly concentrated in farms with FCI coverage. Farms that participate in FCI are more leveraged and have a higher probability of default. FCI participation and its relation to farm debt use could have positive or negative effects on the farm sector. There is a potential increase in access to credit by creditworthy farmers which would increase investment and add value to the farm economy. Alternatively, farmers may take on higher levels of debt than they would have without FCI which potentially leads to repayment issues.

This post is based on a recent Choices article published by the Agricultural and Applied Economics Association. It is available here: Ifft, J., T.H. Kuethe, and M. Morehart (2012) "Farm Debt Use by Farms with Crop Insurance" Choices 28 (3).

The views expressed are those of the authors and should not be attributed to ERS or the USDA.

Buyers Guide

Doyle Equipment Manufacturing Co.
Doyle Equipment Manufacturing prides themselves as being “The King of the Rotary’s” with their Direct Drive Rotary Blend Systems. With numerous setup possibilities and sizes, ranging from a  more...
A.J. Sackett Sons & Company
Sackett Blend Towers feature the H.I.M, High Intensity Mixer, the next generation of blending and coating technology which supports Precision Fertilizer Blending®. Its unique design allows  more...
R&R Manufacturing Inc.
The R&R Minuteman Blend System is the original proven performer. Fast, precise blending with a compact foot print. Significantly lower horsepower requirement. Low inload height with large  more...
Junge Control Inc.
Junge Control Inc. creates state-of-the-art product blending and measuring solutions that allow you to totally maximize operating efficiency with amazing accuracy and repeatability, superior  more...
Yargus Manufacturing
The flagship blending system for the Layco product line is the fully automated Layco DW System™. The advanced technology of the Layco DW (Declining Weight) system results in a blending  more...
Yargus Manufacturing
The LAYCOTE™ Automated Coating System provides a new level of coating accuracy for a stand-alone coating system or for coating (impregnating) in an automated blending system. The unique  more...
John Deere
The DN345 Drawn Dry Spreader can carry more than 12 tons of fertilizer and 17.5 tons of lime. Designed to operate at field speeds up to 20 MPH with full loads and the G4 spreader uniformly  more...
Force Unlimited
The Pro-Force is a multi-purpose spreader with a wider apron and steeper sides. Our Pro-Force has the most aggressive 30” spinner on the market, and is capable of spreading higher rates of  more...
BBI Spreaders
MagnaSpread 2 & MagnaSpread 3 — With BBI’s patented multi-bin technology, these spreaders operate multiple hoppers guided by independent, variable-rate technology. These models are built on  more...

Comments (0) Leave a comment 

e-Mail (required)


characters left


Made of high quality 304 stainless steel, the Quickveyor is one of the strongest trailers on the market. It’s belt ... Read More

View all Products in this segment

View All Buyers Guides

Feedback Form
Feedback Form