Agricultural Finance Review

volume 48, 1988

Fischer and Pederson / PCA Costs and Differential Pricing

Adelaja and Rose / Farm Viability Revisited: a A Simultaneous-Equation Cash Flow Approach

Gineo, Bravo-Ureta, and Wadsworth / Financial Stress in Dairy Farming: Evidence from New England

Skees and Nutt / The Cost of Purchasing Crop Insurance: Examining the Sensitivity of Farm Financial Risk

Wilson and Barkley / Commercial Bank Market Shares: Structural Factors Influencing Their Decline in the Agricultural Sector

Mortensen, Watt, and Leistritz / Predicting Probability of Loan Default

White and Lyu / An Analysis of Debt Financing in U.S. Agriculture

Leistritz, Ekstrom, Leholm, and Wanzek / Farm Liquidations in North Dakota: Consequences for Operators and Lenders

Carley and Fletcher / Financial Soundness of Southern Dairy Farmers Participating in Dairy Termination Program

Abstracts

Fischer and Pederson / PCA Costs and Differential Pricing <top>

Some cooperative have interpreted the principle of service at cost to mean equal pricing for all customers. However, differential pricing based on costs of servicing different customers may be more equitable. For this reason cooperatives- Production Credit Associations (PCSs) in particular- need to understand and measure costs of serving different customers. A method of allocating PCA operating expenses to customers of different size and credit quality is developed and applied to PCAs in the St. Paul Farm Credit District. Pricing issues are disuses in light of empirical results.

Adelaja and Rose / Farm Viability Revisited: a A Simultaneous-Equation Cash Flow Approach<top>

A simultaneous-equation cash flow (SECF) model was used to evaluate the sources of short-run economic viability for farm households. Due to its simultaneity the model provided a better approximation of the financial behavior of farmers and more explanatory power than previously used single-equation models.

Empirical findings for a group of farm households in southern New Jersey suggested that economic viability is positively related to size, gross farm income, off-farm income. operator's education and experience, and the number of adult family members, but it is inversely related to debt and the age of the operator. Tree fruit farms were the most economically viable and grain farms the least. Off-farm income was important to farm households because it was used to retire debt and, thus, to reduce financial stress.

Gineo, Bravo-Ureta, and Wadsworth / Financial Stress in Dairy Farming: Evidence from New England <top>

This study examines the financial position of a selected sample of New England dairy farms for the years 1982, 1983, and 1984. Criteria developed by Melichar are used to classify dairy farms according to their financial position. It was found that the financial ratios of Vermont dairy farms were stronger than those of the entire region. The results suggest that smaller farms may be financially weaker than larger farms. The data also showed that, for the most part, the New England dairy farms in the sample were not severely stressed in any of the three years analyzed.

Skees and Nutt / The Cost of Purchasing Crop Insurance: Examining the Sensitivity of Farm Financial Risk <top>

This research uses a Monte Carlo simulation model to examine how the cost of crop insurance affects farms with different initial debt loads. Crop insurance premium rates at and below a break-even level (i.e., where long-run indemnities are equal to premium costs) are examined. It is determined that the cost of crop insurance becomes an important issue as yield risk and initial debt levels increase. The results raise serious questions regarding credit policies that require debtors to purchase crop insurance without consideration of expected farm-level loss ratios.

Wilson and Barkley / Commercial Bank Market Shares: Structural Factors Influencing Their Decline in the Agricultural Sector <top>

Declining agricultural-lending market shares for commercial banks for the period 1969-85 are investigated using cross-sectional data for forty-eight states. Factor analysis and multiple regression techniques reveal nonagricultural economic activity, risk, and bank structure are significant variables in explaining the differences in changing market shares across states.

Mortensen, Watt, and Leistritz / Predicting Probability of Loan Default <top>

A model demonstrating the estimation of crucial financial characteristics of farmers that determine loan delinquency is developed using a multivariate logistic regression model. The model is then used in conjunction with a loan-pricing model to determine the optimum breaking point where lender revenue is maximized. Results indicate that the debt-to-asset ratio and the operating ratio are most indicative of loan default for the population surveyed.

White and Lyu / An Analysis of Debt Financing in U.S. Agriculture <top>

For almost half a century, debt and equity levels in U.S. agriculture had mounted. Then in the 1980s agriculture's financial structure was adjusted significantly. This study analyzes the sources of variation in agriculture's financial structure. A model of time-varying parameters is used in econometric analysis. Farmer's investment responses in the 1970s appear to have brought agriculture's financial structure more in line with long-term trends.

Leistritz, Ekstrom, Leholm, and Wanzek / Farm Liquidations in North Dakota: Consequences for Operators and Lenders <top>

This article examines socioeconomic characteristics of North Dakota families who have left farming since 1980, analyzes the circumstances of their exit from farming, and describes their transition to new occupations and/or residential locations. The study is based on a survey of 169 former farm operators. Results indicate that most started farming during the 1970s. About 28 percent of the total loan dollars owed was left unpaid when they quit farming, and 42 percent of the former operators incurred contingent tax liabilities averaging $20,000. At the time of the survey their assets averaged $164,000, and debts averaged $166,000.

Carley and Fletcher / Financial Soundness of Southern Dairy Farmers Participating in Dairy Termination Program <top>

A high percentage of southern dairy farmers exited dairy farming through the Dairy Termination Program (DTP). In the analysis each farmer was placed in a discrete financial category based on more than one measure of financial soundness. A multiresponse ordered model was used to examine the factors that determined financial soundness of the dairy farmers participants. Results indicated that older dairy farmers, with smaller herds, and with relatively high production efficiency were in best financial condition. Younger farmers, farmers with larger herds, or with lower producing cows were in a poor financial condition. A policy that pays farmers to exit will include farmers with a wide range of financial conditions.