Agricultural Finance Review

This study presents an evaluation of the North Dakota Agricultural Mediation Service from borrower and creditor perspectives. Data was gathered by mail survey of borrower and creditor mediation participants. Farm borrowers in particular, and creditors in general, furnished favorable evaluations of the mediation process and the mediation service.

Plumly and Hornbaker / Financial Management Characteristics of Successful Farms <top>

Second degree stochastic dominance is used to identify three levels of financial success for 123 cash grain farms. Four annual observations of four performance measures are used in analysis. Differences in financial ratio characteristics between the varying levels of success are examined. Overall, characteristics of successful farms, identified by net farm income per tillable acre, include higher liquidity, a fairly balanced composition of assets, lower debt, and higher profitability than the least successful farms. Successful farms ranked by management returns per tillable acre, net farm income per dollar of farm equity, and management returns per dollar of farm equity are inherently less liquid, have a lower level of farm real estate ownership, a range of debt levels, and are somewhat more profitable than least successful farms.

Johnson, Mittelhammer, and Blayney / The Impact of Regulation on Shareholder Wealth in the Tobacco Industry: An Event-Study Approach <top>

The event-study approach is offered as a tool that can be useful for measuring the impact of changes in government agricultural-commodity programs and other regulations on processors of those commodities. The event-study approach measures this impact through the use of financial data, namely, common stock prices. Product labeling requirements and advertising restrictions of the 1960s, and changes in agricultural policy of the 1980s were examined using two alternative models, the market-adjusted-return approach and the risk-adjusted CAPM approach. Support was found for the prior belief that events of the 1960s decreased firm value and the agricultural-policy changes of the 1980s had little impact on firm value.

Saunders / An Empirical Investigation of Casual Relationships between the Money Supply, Prices. and Wages in the U.S. Agricultural Sector <top>

The effects of monetary changes on agricultural food prices, farm prices, and wages are investigated within the Granger casualty testing framework. Causality testing relying upon the minimum final prediction error (FPE) method is carried out within the trivariate model specifications. While the tests indicate no empirical evidence of casual impact on monetary growth on farm-level prices and wages, monetary changes are found to have statistically significant effect on retail-level food prices and the overall agricultural sector's wages.

Turvey / Credit Scoring for Agricultural Loans: A Review with Applications <top>

This paper reviews four alternative credit scoring models: the linear probability model, discriminate analysis, LOGIT, and PROBIT. The econometric models are based on 9,403 loan application observations from Canada's Farm Credit Corporation. Results indicate that there is not a great deal of predictive accuracies in the four model types, despite differences in underlying assumptions and statistical properties. The prediction accuracies of the four models are as follows: discriminant analysis, 71.5$; LOGIT, 69.7%; PROBIT, 69.4%; and linear probability model, 67.1%. The paper stresses the point that both qualitative and quantitative considerations should be given to the choice of credit scoring model.

Gustafson, Beyer, and Saxowsky / Credit Evaluation: Investigating the Decision Processes of Agricultural Loan Officers <top>

A personal survey of ten Red River Valley agricultural lenders provides insight on credit evaluation procedures and lending heuristics used to analyze loan applications. Lenders utilize conservative credit evaluation procedures and base credit-granting decisions, including level of compensating balances and character. These variables are assessed primarily through lender judgment of real estate and chattel asset values and credit history provided by the applicant's other creditors.

Ellinger and Barry / Agricultural Credit Delivery Costs at Commercial Banks <top>

In light of the competitive forces in the agricultural financial-service industry, increasing attention has focused on the cost effectiveness in the management of lending programs and in the delivery of agricultural credit. This study measures the accounting cost relationships at agricultural banks using functional cost analysis, call report, and survey information. The results suggest bank size, bank holding company affiliation, agricultural dependence, and location in a metropolitan area may impact the cost structure of agricultural banks.

Mjelde, Nixon, and Conner / Impacts of Tax Low on Marketing Rangeland Calves and Yearlings <top>

A dynamic programming model of marketing calves and yearlings from a rangeland cow-calf operation is developed. Tax and equity considerations were incorporated into the marketing model. The results suggest that both considerations have an effect on the optimal marketing strategy. Given certain conditions, retaining weaned calves and selling them as yearlings is optimal. The optimal strategy indicates that in the fall, in general, enough yearlings should be sold to cover the current year's tax deductions. Furthermore, major differences are noted between marketing strategies that consider and that so not consider taxes.

Johnston and Frengley / A Note on Household Consumption Stress on New Zealand Sheep and Beef Farms <top>

We previously, in this journal, examined financial performance of sheep and beef farms and the extenuated adjustment process following the 1984 deregulation of New Zealand economy (Johnston and Fregley). Programs introduced during the 1970s and early 1980s promoted high levels of financial leverage in New Zealand's agricultural sector. Problems quickly befell the sector when government removed assistance to agriculture in the post-1984 period, leaving significant financial stress and debt burdens.

The analysis of financial stress used aggregate survey data for the New Zealand Meat and Wool Board's Economic Service (NZMWBES) representative weighted-average "all-classes" sheep and beef over the two-decade period of the 1970s and 1980s (NZMWBES, various issues). The empirical evidence dealt primarily with declining net incomes and asset values, increased indebtedness, reduces equities, and negative cash surpluses for NZMWBES all-classes farms. Financial ratios facilitated the analysis of those changes as they affected the financial performance of those farms over time.

Whitaker and Morehart / Measuring the Effect of Farm Financial Structure on Cost Efficiency <top>

With the objective of measuring the relationship between farm financial structure and production organization, a sample of Midwestern cash grain farms was analyzed using data envelopment analysis (DEA). DEA techniques were used to establish a cost-efficiency frontier. One out of five farms was constrained from achieving the best-practice cost-efficient frontier by debt and/or asset-value constraints. The results of this study confirm that farm financial structure must be take into account in an analysis of efficiency in agricultural production. The data envelopment analysis employed is a promising alternative to econometric estimation.

Fischer and Pederson / Evaluating Annually Repriced Adjustable-Rate Mortgages <top>

Analytical methods are increasingly used by real estate lenders to evaluate and price adjustable-rate mortgages (ARM). One such model is presented and used to illustrate the interplay between teased first-year rates, rate-adjustment caps, repricing margin, buy-down points, prepayment, and uncertain behavior of future interest rates. Information is produced about the expected annual return and risk for annually repriced adjustable-rate mortgages using a rural residence lending situation faces by the St. Paul Farm Credit Bank.

<top>

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

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

Topics

Back Issues

AEM Home Site Map Contact Us Cornell