search has found that 10 to 20 percent of the farmland in the United States is effected by population expansion. This may seem like a small percentage of the total farmland in this country but in many instances in urban areas land is valued at five times it’s production capability, or higher. This however is not taken into consideration when valuing the real estate in the farm sector as a whole. This problem is most prevalent in the Northeast United States. Total U.S. farm debt rose from $32 billion at the start of the decade to $170 billion at the end of 1998. Who is holding this debt? The attached chart shows debt structure amongst major lenders until calendar year 1996, the trends have continued and now in 1998 commercial banks supply 45 percent of all farm debt, this up from 25 percent in the mid 1980’s.Farm Credit Services is second holding approximately 1/3 of all farm debt.Examination of bank farm loan portfolios should give some indication of the financial condition of farm operations. Bankers have reported that, using market prices prevailing in the late summer of 1999, current credit analysis of producers of many commodities suggests that a growing number of borrowers may have difficulty cash flowing loans in the absence of additional government assistance. Aiming to prevent a repeat of the farm real estate disaster of the1980’s when lending institutions were holding debt that exceeded the value of the land that was securing that debt, commercial lending institutions developed a new method of appraising farming operations for credit. It no longer uses the appraised or potential sale value of the farmland, as mentioned earlier it uses a method that measures rates of return for productivity. Farm Credit Services was one of the first lenders to adopt a new credit scoring system, Appraisal Practices of Farm Credit Services(Omaha District)- Used since 1988- Estimate returns using both cash & crop share approaches-...
