LOUISVILLE, Ky. — While farmers’ debt load increased last year, it seems to be leveling off to start 2013, according to an official with Farm Credit Mid-America.

The total loan portfolio for Farm Credit Mid-America grew 7.7 percent from December 2011 to the end of last year, said Phil Kimmel, senior vice president and chief credit officer for the cooperative. In the first quarter of this year, however, loan closings were down over the same period in 2012.

“If the issue is rising farm debt, it’s not rising as fast as last year,” Kimmel noted. “It doesn’t seem as if farm debt is increasing at a straight-up vertical rate. There seems to be some moderation.”

The loan portfolio increase in 2012 was fueled by growth on the mortgage side, as farmers continue to purchase farmland, Kimmel said. While Farm Credit Mid-America also financed many equipment purchases, growth in operating and equipment loans was basically flat last year, he added.

“There is a lot of liquidity on farmers’ balance sheets right now,” he said. “They’re bringing more cash into the deal.”

Farmers are also interested in paying down their debt faster, he noted. For example, in 2009, 37 percent of mortgage loans were written to be paid off in 15 years or fewer. Last year, that number jumped to 52 percent.

“I believe they’re saying now is our opportunity to take advantage of high commodity prices to pay down the debt faster,” he said. Many farmers are also taking advantage of having extra cash to pay off equipment loans more quickly, he said.

Farm Credit Mid-America serves customers in Kentucky, Indiana, Ohio and Tennessee.

Last year, there was a 5 percent increase over 2011 in farm debt outstanding at commercial banks, said Jason Henderson, vice president of the Federal Reserve Bank of Kansas City. This was the first major increase since 2009.

The increase is attributable to a fourth-quarter increase in farm equipment purchases, though there were also increases in real estate loans, he said.

“We’re hearing there’s a lot of cash out there, yet we’re seeing the debt levels rise,” he said. “You talk to the banks and they say everyone is paying in cash, so why are we seeing more of a (debt load) increase? We’re trying to get our hands on this.”

Henderson was recently named the latest director of Purdue University extension. He’ll begin his new duties in May.

The first three months of this year, sales of self-propelled combines were up nearly 57 percent over the same time last year, according to figures from the Assoc. of Equipment Manufacturers (AEM). Sales of all farm tractors were up about 11 percent, with four-wheel-drive tractors up nearly 25 percent.

The numbers are a little surprising because previous expectations were that sales might be flat to slightly higher this year, said Charlie O’Brien, senior vice president of AEM. Balance sheets, buoyed by continued increases in land values, low interest rates and good commodity prices, remain strong, he noted.

O’Brien said there isn’t a concern from equipment manufacturers over the increased debt load. The presence of available cash plus those strong balance sheets are positives.

“The debt-to-asset and debt-to-equity ratios are all very low and that’s what a lender would look at,” he said. “Those ratios will probably be at an all-time low this year.”

Lenders and farmers learned lessons from the 1980s, when land prices and interest rates both went up, he said. “Today, lenders have requirements such as crop insurance,” he explained. “Those types of safeguards were not put into place then.

“Crop insurance helps mitigate the risk. Because of that, farmers are probably in a better financial situation to weather things such as a drought.”

AEM, based in Milwaukee, Wis., represents about 400 agricultural equipment manufacturers and suppliers.

Farmers taking delivery of new equipment this year would have made the decision to purchase at the end of last year, said Kim Rominger, executive vice president and CEO of the Ohio-Michigan Equipment Dealers Assoc. (OMEDA). Farmers who had extra cash, along with manufacturers programs, contributed to the increase in sales last year, he noted.

“Based on everything I’ve seen – grain prices, farmers with grain in storage, plus crop insurance – I see sales continuing to be strong,” he said. “There are a lot of cash sales going on. There’s a lot of cash out there.”

Manufacturers, who are offering incentive programs such as no-interest financing, are producing more equipment by order as a way to control inventory, Rominger explained. “There could be an extension in delivery time,” he said. “Farmers who want a new combine at the end of the summer should have ordered it by now.”

OMEDA and its sister organization, the Mid-America Equipment Retailers Assoc., represent more than 400 agricultural equipment dealers in Ohio, Michigan, Indiana and Kentucky.

Farmers will keep making land and equipment purchases as long as they see the current economic situation continuing, Kimmel said. “I’m not sure I’d be buying more land, but I’m not a farmer,” he said. “But they will if they believe commodity prices will continue to provide higher-than-historical returns.

“The balance sheets of farmers are very good, but what they will have to do is adjust to the situation as it unfolds. It’s a matter of how do they adjust, what will the returns be over the next three years? Interest rates will have to go up at some point. But, they have a lot of liquidity and other financial resources in their balance sheets.”

The debt-to-asset ratio for farmers has been dropping, he noted. It peaked in 1984 at 30 percent and is at 10 percent now. “Debts are going up, but asset values are going up faster,” he said. “It’s a matter of how much debt can they afford.”

Despite the historically low debt-to-asset ratio and fairly strong balance sheets, farmers should be aware things could change in the next couple of years, Henderson said.

”We could go back to normal interest rates and could see lower farm incomes,” he said. “The USDA is predicting a 20 to 24 percent decrease in farm income in 2014, with corn prices going back to the $4.50 to $5 range. In 2015 and beyond, that could be when today’s environment changes.”