Farm financial liquidity describes how easily members of the farm sector can convert assets to cash in order to meet short term debt obligations. One measure of liquidity is working capital, which is the difference between current assets like cash and inventory, and short term debt. Higher working capital means much better financial health for the farm sector. The USDA Economic Research Service expects that capital to shrink to $48 billion by the end of this year.
The lower amount of working capital is a result of a reduction in assets values ($87 billion lower since 2012), and growing current debt, which is up $30 billion since 2012. Even though that capital is lower since the ERS started tracking it in 2012, the decline followed record highs in net cash farm income from 2011 to 2013. Farm solvency ratios measure whether debt can be met in a timely manner, and the current ratio is favorable compared to the last 25 years. But solvency has been weakening over the last five years, and combined with lower working capital, reflects a modest increase in risk across the farm sector.
From the National Association of Farm Broadcasting news service.