Agricultural Finance Review

Nonqualified allocations offer an alternative to the method of allocating patronage refunds used by most farmer cooperatives. A simulation model was used to compare patron after-tax cash flows from qualified allocations with nonqualified allocations. This paper reports that the results are sensitive to changes in several parameters, and the suggest that neither method is clearly superior. Because of tax timing differences, present value of cash flows from nonqualified allocations often are comparatively greater than nominal values. Cooperatives may make less use of nonqualified allocations because managers and directors do not consider present values in making allocation decisions.

Penson / Evaluating Financial Trends in Agriculture <top>

Much attention has been given in recent years to the topic of financial stress in the farm economy. The most widely cited indicator of financial stress has been the debt-to-asset ratio. This study shows that other indicators of financial stress suggested that farmers' ability to service their farm debt was deteriorating long before the debt-to-asset ratio began to rise in the 1980s. Application of those indicators to trend analysis at the sector and subsector level is needed to monitor the ramifications of farmers' financial leverage position.

Robison, Koenig, and Kelsey / Farm Real Estate Prices and the Tax Reform Act of 1986 <top>

This article used recently constructed maximum bid and minimum sell price models to predict analytically and measure empirically the effects of the Tax Reform Act (TRA) of 1986 on farm real estate prices. Model results indicate that losing the preferential tax treatment of capital gains along with the increased tax life of depreciable assets and loss of investment tax credits (ITC) may lower farm real estate maximum bid prices by 13 to 17 percent and minimum sell prices by 5 to 8 percent.

Gustafson, Saxwosky, and Braaten / Economic Impact of Laws the Permit delayed or Partial Repayment of Agricultural Debt <top>

Laws designed to protect delinquent farm borrowers impact creditors and nondelinquent borrowers. Total economic impact to North Dakota agricultural lenders of such laws is estimated to be $172.2 million as of July 1, 1986. That estimate includes $23.9 million due to collection delays before acquisition of securing collateral, $62.2 million due to liquidation delays after acquisition, and $60.4 million of concessions associated with negotiated settlements. Also included in the total is $25.7 million that creditors cannot collect due to the lack of deficiency judgments. Nondelinquent farm borrowers are impacted by higher interest rates and lower capital availability.

Lins and Morehart / Financial Health of U.S. Farm Financial Businesses in 1984: A Region, Type, and Size Analysis <top>

Liquidity, solvency, and profitability indicators are used to develop a multidimensional ordinal measure of farm business financial health. Weighted ordinal logistic regression is employed to examine farm business financial health relative to region, type, and size of farm. Findings suggest the "farm crisis" in 1984 was more severs from a farm business perspective than previously reported.

Lins, Ellinger, and Lattz / Measurement of Financial Stress in Agriculture <top>

Classification of degree of financial stress has been widely used to judge the severity of the "financial crisis" in agriculture. Single classification criterion, such as the debt-to-asset ratio, however, do not adequately reflect the financial position of farm firms. Multiple classification criteria have often used a cash-based measure of income along with the debt-to-asset ration to measure financial stress. This study shows that cash-based measures of income can lead to serious classification errors when compared with accrual-based measurement of income.

Rossi / Cattle Feeding Investments: The Impact of the Tax Reform Act of 1986 <top>

The Tax Reform Act (TRA) of 1986 is expected to affect nonfarm investment in agricultural tax shelters. This study examines the effects of tax reform on nonfarm investment decisions in custom cattle feeding relative to five nonfarm assets. A mean-variance analysis is employed to compare optimal portfolio investment under pre-TRA, phase in, and fully implemented TRA provisions. Increased investment in cattle feeding programs is expected under the phase period of TRA compared with other tax scenarios. Full implementation of TRA should dramatically reduce nonfarm investment in cattle feeding for both active and passive investors.

Lemieux / The Impact of Federal Budget Deficits on the Cost of Agricultural Credit <top>

The impact of federal budget deficits on the cost of credit in the farm sector is examined using a dissagregated model of the U.S. financial sector. Budget deficits are shown to affect the level of structure of all interest rates in the economy. However, the interest rates on farm loans are shown to be more responsive to crowding out than interest rates in the nonfarm sector. Interest rates, in general, exhibit an inelastic response to changes in the budget deficit. In the short run, monetizing the deficit can partially counteract the effects of federal budget deficits on interest rates.

Moss, Featherstone, and Baker / Agricultural Assets in an Efficient Multiperiod Investment Portfolio <top>

The risk-return attractiveness of farm assets is investigated using a quadratic programming model with opportunities to invest in farm and nonfarm assets. The model incorporates a multiple-year planning horizon and captures correlations among asset returns over time by using an autoregressive expectations model. Agricultural assets enter the EV efficient portfolios estimated in this study at relatively high levels, implying that agricultural assets may have been underpriced relative to their risk and that nonfarm investors may gain from including farm assets in their portfolios.

Brubaker and Frey / Analyzing Change: The Statement of Changes in Financial Position<top>

A newly designed format for the "Statement of Changes in Financial Position" (SCFP) is proposed for use in agriculture. As a basis the the proposal, the article defines "funds", traces the history of the SCFP, and summarizes current requirements of Accounting Principles Board (APB) Opinion No. 19, the existing authoritative guide for the SCFP. Current proposals from the accounting industry are reviewed, and the proposal for agriculture is related to emerging trends and standards, as well as to existing standards. The proposed format is unique in that its design emphasizes direct use of the SCFP for analyses that could be used widely by farmers.

Ellinger and Barry / The Effects of Tenure Position of Farm Profitability and Solvency: An Application to Illinois Farms <top>

The financial crisis in agriculture has focused greater attention on measuring the financial performance of farm businesses with different structural characteristics. Data from the Illinois Farm Business Records and the Farm Credit System are used to measure the empirical relationships between tenure and two key performance measures: profitability and solvency. A microcomputer based model id used to simulate future performance. Results indicate that both accounting rates of return and debt-to-asset ratios increase as the ratio of leased land to total land operated increased.

Thompson and Whiteside / Effects of Market Channels on Prices of Farm Land in South Carolina <top>

The primary method of selling farm land in South Carolina is by private treaty. Sales by private treaty account for 62 percent of land transfers. Real estate firms account for 19 percent of the sales with auctions and family transfers accounting for the remainder. Market service vary with the method of transfer. Real estate firms provide a full array of marketing services. Empirical evidence from South Carolina indicates the price of farm land varies among the method of transfer with land marketed by real estate firms averaging $102 more per acre than land privately sold.

Hughes and Osborn / Measuring Federal Farm Subsidies <top>

This paper updates and extends previous work done in measuring the magnitude of government interventions in farm credit markets. Federal farm credit subsidies are measured for real estate and nonreal estate debt are found to be significant. Holding all else the same, farmers paid an average of $544 million less in interest on real estate debt and $1.4 billion less in interest on nonreal estate debt in the 1978 through 1985 period that they would have paid without the Farmers Home Administration (FmHA) and agency status for the Farm Credit System (FCS).

Robison, Lins, and Koeing / Refinancing Agricultural Loans <top>

Borrowers are aware that interest rate have fallen and that they may increase in the future. This situation offers borrowers the opportunity to lower financing costs by refinancing existing loans. In most cases, however, refinancing to obtain lower interest rates comes with significant closing fee costs. This paper explores break-even conditions and net present values associated with refinancing decisions under a variety of loan closing conditions for fixed payment loans.

Barry and Robison / Portfolio Theory and Financial Structure: An Application of Equilibrium Analysis <top>

This article applies equilibrium analysis under risk to analyze financial structure at the firm level. In a portfolio theory framework, concepts of business risk, financial risk, and risk balancing are used to evaluate the possible responses in financial structure to changes in a firms operating environment and in the investor's risk attitude. The results provide general guidelines for implementing portfolio adjustments and show the important linkages between theory and practice in financial responses to risk.

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Send questions and comments to Faye Butts: fsb1@cornell.edu

This page was last modified on: 04/06/04

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