Agricultural Finance Review

volume 45, 1985

Grisley / Financial Distress on Pennsylvania Dairy Farms

Hardsety and Carman / Income Tax Simplification Effects on Crop Farm Decision Making

Attkinson, Brown, and Cook / Do FmHA Employees Undervalue Land? A Test in Indiana

Larson, Vergara, and Lee / A Linear Programming Analysis of the Regulatory Response of Rural Banks in the Philippines

Thompson and Kaiser / Effects of Seller Financing on Prices Paid for Farmland

Ahmad, Duft, and Mittelhammer / Multiperiod Linear Programming Simulation of Cooperatives Loans for Analyzing Equity Capital Programs

Perry, Rister, Richardson, and Leatham / The Effects of Equity Position, Credit Policy, and Capital Gains on Farm Survival

Pederson / Machinery Lease Versus Purchase Decision Under Risk

Hughes and Penson / Effects of Selected Macroeconomic Policies on Agriculture: 1984-1990

Lines and Zulauf / Debt-to-Asset Ratios of Ohio Farmers: A Polytomous Multivariate Logistic Regression of Associated Factors

Barnard and Barry / Interest Rate Deregulation and Agricultural Banking: A Risk Programming Analysis

Abstracts

Grisley / Financial Distress on Pennsylvania Dairy Farms <top>

The financial position of a large sample of Pennsylvania dairy producers is examined for 1983 and projected to 1985. Five different debt assistance programs are investigated to determine the number of severely and moderately distressed farms that would be assisted enough to remain in business. The direct costs of these programs to lending institutions are calculated. Per farm costs ranged from 19,589 to $58,977 for the severely distressed group and from $14,764 to $39,305 for the moderately distressed group.

Hardsety and Carman / Income Tax Simplification Effects on Crop Farm Decision Making <top>

The impact of the U.S. Treasury Department's 1984 proposed income tax simplification provisions on crop farm decision making is examined using a dynamic non-linear optimization model. The model incorporates the integrated nature of the firm's production, investment, and financing decisions, controls income tax liabilities as part of the overall optimization problem. The results indicate that extending depreciation periods, eliminating the investment tax credit, and consolidating tax brackets will result in lower total taxes, increased net worth, increased farm investment in land, and decreased investment in machinery.

Attkinson, Brown, and Cook / Do FmHA Employees Undervalue Land? A Test in Indiana <top>

Land value survey respondents differ in affiliation and job classification from survey to survey. Do these variations bias the survey results? A test of the Indiana Land Value Survey indicates that and apparent undervaluation of farm land by FmHA employees and an apparent overvaluation by bankers disappears when correction is made for geographical location.

Larson, Vergara, and Lee / A Linear Programming Analysis of the Regulatory Response of Rural Banks in the Philippines <top>

The Philippine government through the Central Bank has tried to influence the rural banks' allocation of funds in favor of small farmer loans through changes in regulatory policy. A linear programming model was developed to evaluate changes in regulatory policy. A linear programming model was developed to evaluate changes in the small farm loan portfolio resulting from selected regulatory changes. Results indicate that neither seed funds to support supervised credit programs nor preferential interest rates on rediscounted funds for agricultural loans increase the flow of credit to small farmers. Such policies increase bank profits, discourage banks from mobilizing local deposits, and increase dependence on Central Bank rediscount funds.

Thompson and Kaiser / Effects of Seller Financing on Prices Paid for Farmland <top>

Seller financing on farmland has been hypothesized as contributing to high farmland prices. Net present value models have shown that sellers may find financing the transfer to be more profitable than a cash sale. Results of this study show the per acre price of seller financed farmland was higher than the price paid for land financed by the Federal Land Bank, Farmers' Home Administration, or commercial banks.

Ahmad, Duft, and Mittelhammer / Multiperiod Linear Programming Simulation of Cooperatives Loans for Analyzing Equity Capital Programs <top>

Increased demand for debt capital, inflation, and the advent of expanded borrower eligibility have prompted Banks for Cooperatives to implement new equity capital programs or adjust the comments of pre-existing programs. This paper describes the use of a multiperiod linear programming model for selecting optimum equity capital program components and also describes the means by which the true financing rate can be measured. Results suggest that programs can be structured to the advantage of the borrower while protecting the debt-to-equity positions of cooperative lenders.

Perry, Rister, Richardson, and Leatham / The Effects of Equity Position, Credit Policy, and Capital Gains on Farm Survival <top>

The RICESIM model was used to evaluate the impact of beginning equity, minimum required equity, and land capital gain rates on survival of a representative Upper Gulf Coast Texas rice and soybean farm for the period of 1984-1988. Credit policy was important to farmers at intermediate beginning equity positions. Credit policies that allowed leverage ratios in excess of 2.0 increased producers' profitability of survival but also significantly increased the potential for lenders to incur large losses.

Pederson / Machinery Lease Versus Purchase Decision Under Risk <top>

Recent changes in tax treatment of financial leases and the cost of debt financing have altered the incentives to lease machinery. Conventional lease versus purchase analyses have not considered risk associated with fluctuating taxable income (hence, tax benefits under each financing alternative) and changing interest rates. A simulation model was developed to evaluate the distribution of net present costs under various taxable income-interest rate scenarios. Results indicate that fluctuation of taxable income, interest rate movements, and risk preferences of lessees alter the preferred financing alternative.

Hughes and Penson / Effects of Selected Macroeconomic Policies on Agriculture: 1984-1990 <top>

This paper describes the likely financial implications for farmers if three different macroeconomic policies are pursued to the end of the decade. The scenarios studies are intended to aid in identifying the causes of current financial difficulties in the sector rather than as forecasts of the future. Two of the scenarios assume continuing large government deficits. In both, financial conditions for farmers continue to deteriorate. An expansionary monetary policy, without deficit reductions, provides only a brief respite from current problems. Substantial improvements could be expected however, if deficits are reduced and a moderate monetary policy is pursed.

Lines and Zulauf / Debt-to-Asset Ratios of Ohio Farmers: A Polytomous Multivariate Logistic Regression of Associated Factors <top>

This paper describes an analysis of the relationship between debt-to-asset ratios and selected socioeconomic characteristics obtained from a sample of Ohio farm operator. The analysis was based on polytomous multivariate logit regression. A statistically significant relationship was found between debt-to-asset ratio and operator age, farm size, and percent of land farmed that was owned. No statistically significant relationship was found between debt-to-asset ratio and major source of farm income and off-farm income as a percent of family income.

Barnard and Barry / Interest Rate Deregulation and Agricultural Banking: A Risk Programming Analysis <top>

The impact of deposit interest rate deregulation on small agricultural banks is analyzed using a quadratic programming model that incorporates both risk and market imperfection. The model was used to generate efficient bank portfolios before, during, and after deregulation. Parameter variations were used to analyze portfolio adjustments resulting from improved matching of liabilities with nonloan assets, adoption of floating loan rates, and increased interest rates on loans. To cope with the riskier environment, agricultural banks must either accept greater portfolio risks, adopt more conservative portfolios, or more vigorously manage interest rate risks.