WEST LAFAYETTE, Ind. (RFD News) — Higher borrowing costs are increasing financial risk for crop farms carrying heavier debt, even when leverage supports faster growth. Agricultural economist Michael Langemeier says farms with debt-to-asset ratios above 0.40 should use added caution when financing expansion or major purchases.
FINBIN records from 2007 through 2025 show highly leveraged farms averaged retained earnings equal to 10.7 percent of net worth. Lower-debt farms averaged 8 percent, but their earnings and net-worth growth were considerably less volatile.
Lower-debt operations also kept more income in the business and posted stronger financial efficiency. Net farm income equaled about 23 percent of gross income for those farms, compared with 15 percent among higher-debt operations.
Leverage performed especially well when borrowing costs remained historically low. Agricultural operating and prime rates climbed above 8 percent during 2023 and 2024 before easing near 7.5 percent in 2025.
Rates are expected to remain above levels common from 2008 through 2022. Producers should reevaluate purchases, repayment capacity, liquidity, income stability, and whether projected investment returns still exceed borrowing costs.
Farm-Level Takeaway: Higher debt can accelerate growth, but elevated interest rates leave less room for weaker income or unexpected costs.
