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Economie Viability

Variability in export demand is important to
southern agriculture as it affects the economic
viability of the region’s farms. An indicator of the
economic status of farms is the relative value of
their assets and debts. The data in Table 7 indi-
cate that during the decade of the 1970s, nominal
asset values increased 126 percent throughout
the region; however, in this same period, debt
increased 159 percent. Debt-to-asset ratios in-
creased by 1 percent in the Southern Plains
states, 13 percent in the Southeast states, 24 per-
cent in the Appalachian states, and 31 percent in
the Delta states. For southern agriculture as a
whole, the debt to asset ratio increased from 14.8
in 1970 to 17.0 in 1979, a 15-percent increase.
While the rate of increase and the absolute level
of the ratio are not atypical of U.S. agriculture,
they do signal a diminished equity position for at
least some southern producers and a greater cash
flow need simply to meet debt service. Such
conditions could very well affect the ability of
farmers in the South to deal with volatility in
export demand.

Which southern farmers are most likely to be
adversely affected by volatility in export de-
mand? Casual observation would suggest that
new farmers, or those who assumed new debt for
land or irrigation systems in response to in-
creases in real crop prices during the 1970s would
be most vulnerable. More generally, however,
the debt-to-asset ratio is highest for the larger or
“primary” farms. Information available at the
national level supports this observation (Table
8). These data also suggest that, while the debt-
to-asset ratio in the South was somewhat lower
in 1970 than for the country as a whole, it was at
least as great by the end of the decade.

With the increased assumption of debt during
the 1970s, cash flow has assumed an even greater
role in the economic status of southern farms. As
reported in Table 9, during 1979, cash expenses
as a percent of cash receipts ranged from 67 to 74
percent across the region. However, again, the

TABLE 7. Total Assets, Total Debts, and Debt
to Asset Ratio, Southern Region, 1970 and 1979

Source: Calculated from Balance Sheet of the Farming
Sector, 1979, AIB 430, ESCS, USDA, and Economic Indi-
cators of the Farm Sector: State Income and Balance Sheet
Statistics, 1979, SB 661, ESS, USDA.

TABLE 8. Debt to Asset Ratio, by Farm Size,
United States, Selected Years, 1960-78

Source: Balance Sheet of the Farming Sector, 1976, 1978
and 1979 Supplement, U.S. Department of Agriculture.

TABLE 9. Cash Receipts and Expenses,
Southern Region, 1979

^a Includes cash receipts from farm marketings, government
payments, and other sources.

Source: Economic Indicators of the Farm Sector: State
Income and Balance Sheet Statistics, U.S. Department of
Agriculture, 1979.

proportion that cash expenses constitute of cash
receipts tends to be greater, the larger the farm
business. Data for U.S. agriculture illustrate this
point with the ratio of cash expenses to cash re-
ceipts at 72.1 for all farms; 57.4 for farms with
less than $40,000 in annual sales; 63.5 for farms
with sales from $40,000 to $100,000; and 81.3 for
farms with sales of more than $100,000 (Penn p.
48). It seems likely that this pattern also holds for
southern farms.

In summarizing this perspective, southern ag-
riculture has come to be characterized by a
smaller number of farms producing on more
acres. A large number of “rural residence” and
“small” farms remain, but production has gener-
ally become concentrated among the 15 percent
of the region’s farms that produce 80 percent of
its output. This tends to be somewhat less true
for farms producing corn and tobacco, many of
which also feed livestock. Debt-to-asset-ratios,
particularly for the “primary” farms, have in-
creased, as have cash flow needs. Research sug-
gests that “primary” farms operate on limited
cash flow margins (Penn, p. 48). While a 10- or
20-percent increase in prices and cash receipts
make world trade attractive, unexpected declines
of this same magnitude can bring severe hard-
ship. Research (Penn, pp. 42-43) also suggests
that while “small” farms may have somewhat
larger cash margins within which to operate,
those in the $20,000 to $40,000 annual sales range

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