Interest Expense Ratio for Agriculture Stays Even with 20-year Average
According to ERS, the interest expense ratio of farms in 2020 was 0.04, remaining in line with the long-term trend and initial forecasts, despite the pandemic. The COVID-19 pandemic reduced demand for agricultural commodities. The interest expense ratio is calculated by dividing interest expenses by the sum of the value of production and Government payments for a given year. Interest expenses are the costs incurred by farm operations when debt is used to finance farm activities.
A USDA forecast in February 2020 predicted interest expenses for 2020 at $18.0 billion, with a predicted interest expense ratio of 0.04. By February 2022, interest expenses for 2020 were estimated to be slightly higher than predicted at $19.4 billion. The February 2022 estimates also showed that while the value of production was lower than initially forecast, government payments were higher.
The interest expense ratio was highest at 0.06 in 2000 and trended downward to a low of 0.03 multiple times from 2000 to 2020.
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