A rise in borrowings for buying tractors has raised the threat of agriculture insolvencies if the farmland market collapses, with large operations, and younger farmers, at greatest risk, America's central bank has warned.
The debt-to-asset ratio on farms run by bosses aged less than 35 has already reached nearly 40%, "a level that has signalled significant insolvency risk in the past", thanks to their greater willingness to run up debts, the Federal Reserve said.
The ratio could reach "dangerously high" levels if the farmland market suffers the kind of collapse today that did in the 1980s, the last major correction, when values halved during the decade.
With big enterprises also notable leveraged, "the number of large farmers facing insolvency could more than double, and the number of young operators [facing insolvency] could quadruple", the Fed's Kansas City bank said.
'Risks could intensify'
The bank said that the nature of debt was also behind them categorising large operations, or those with a youthful boss, as higher risk, with non-land loans - for buying items such as tractors, combines and silos - forming a bigger proportion of total borrowings.
"History has demonstrated that high debt levels are a concern, but high non-real estate debt levels can be devastating," the bank said.
And loans for farm equipment and machinery had been on the rise, up 73% in the January-to-March quarter, compared with the year before, according to official data.
"The industry's experience from the 1980s farm bust suggests that if the current run-up in non-real estate debt accelerates, the risks for farm bankruptcies could intensify should farmland values turn down abruptly."
'Air exiting bubble'
The comments come a month after the bank warned that US farmland prices "could fall sharply if crop prices sag or future interest rates rise".
Thomas Hoenig, the bank's president, has been for some while a sceptic of the rise in farmland prices, warning in February that ''history has taught us that it is nearly impossible to determine how much of the farmland boom may be an unsustainable bubble driven by financial markets".
Earlier this month, a much-watched survey from Nebraska's Creighton University showed a deceleration in price gains, concluding that "we are beginning to see some of the air exiting the farmland price bubble".
However, many observers have been critical of Mr Hoenig's comparisons of the current situation with that of the 1980s, which was accompanied by rises in US interest rates to levels in the high-teens.
The bank's report acknowledged that, in the last decade, the sector's "more modest debt accumulation has allowed the debt-to-asset ratio of less than 10%".