Volume 65, Number 1, Spring 2005
Research
"Credit Risk Migration and Downgrades
Experienced by Agricultural Lenders" authored by Brent
A. Gloy, Eddy L. LaDue, and Michael A. Gunderson
Abstract
Agricultural credit risk migration is examined using loan records gathered
from four agricultural lenders. Results indicate that lender risk ratings
are much more stable than ratings based on credit scores estimated from
financial statements, highlighting the importance played by nonfinancial
factors such as management capacity, character, and collateral in assessing
credit risk. Additionally, the borrower's risk tier, personal characteristics,
and the stage of the business life cycle provide useful information
in predicting credit quality downgrades, while the primary agricultural
enterprise does not impact the likelihood of a downgrade.
Key words:
agricultural lending, credit quality, credit risk, credit risk migration
"Factors
Affecting Farm Credit Use" authored by Ani L. Katchova
Abstract
This study analyzes the personal and farm characteristics that influence
the use of farm credit, the degree of indebtedness, and debt consolidation
for U.S. farms. Whereas previous studies have examined the supply side
of agricultural credit using lender-based data, this study considers
the demand side of agricultural credit using representative farm-level
data from the USDA's 2001 Agricultural Resource Management Study (ARMS).
The results show that gross farm income, risk management strategies,
and operator's age and risk aversion had significant influences on the
likelihood of farm credit use by rural residence, intermediate, and
commercial farms.
Key words:
credit, debt, debt consolidation, farm indebtedness
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"The
Sustainability of Return on Assets Among Sectors in the Food Economy"
authored by Michael Boland and Sara Schumacher
Abstract
Using return on assets as a proxy for profitability, this study evaluates
the sustainability of profits in the food economy with respect to industry,
corporate, and business-specific effects for low- and high-performing
firms. The food economy is broken into its four major sectors: food
processing, wholesale grocery, retail supermarket, and restaurant. Industry
incremental effects are not significantly different between low and
high performers except in processing. On average, high performance has
been more sustainable than low performance. Corporate and segment sustainability
rates were larger for high performers as compared to low performers.
Within the retail industry, there is no significant difference between
sustainability rates of high and low performers. High performers in
the retail industry had significantly greater industry, business-segment,
and total-sum sustainability rates than the other three sectors, suggesting
the retail sector has important characteristics that merit further research.
Key words:
agribusiness, food, profitability
"Rural
Small Business Trade Credit: A Paradox" authored by
Cole R. Gustafson
Abstract
This article examines trade credit practices of rural small business
firms. The results show that these firms borrow money and then re-lend
it to others in the form of trade credit. There is a strong direct relationship
between various forms of debt held by these firms and their level of
accounts receivable (e.g., trade credit extended to customers). The
actual level of re-lending varied among firms depending on their adoption
level of computer usage for cash management and credit services. Accounts
receivable balances were also dependent on sales levels, costs of doing
business, and other income.
Key words:
credit, finance, rural small business, trade
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"The
Pricing of Degree-Day Weather Options" authored by Calum
G. Turvey
Abstract
This paper presents a model and framework for pricing degree-day weather
derivatives when the weather variable is a non-traded asset. Using daily
weather data from 1840S1996, it is shown that a degree-day weather index
exhibits stable volatility and satisfies the random walk hypothesis.
The options prices from the recommended model are compared to a typical
insurance-type model. The results show that the insurance model overprices
the option value at-the-money, and this may explain why the bid-ask
spread in the weather derivatives market is sometimes very large.
Key words:
degree-day options, weather derivatives, weather risk
"Mean
Reversion and Autocorrelation in Profitability of Illinois Farms" authored by Jill M. Phillips and Ani L. Katchova
Abstract
Economic
theory implies that firms in a competitive market will adjust to long-run
equilibrium levels of profitability, resulting in mean reversion of
profitability. Partial adjustment models are applied to farm-level data
from Illinois to test for mean reversion and autocorrelation in profitability.
Results show that farm businesses revert to individual levels of expected
profitability at an annual rate of 0.5, while the annual rate of negative
autocorrelation is 0.175.
Key words: autocorrelation, mean reversion, partial adjustment, profitability
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