Bruce L. Ahrendsen

Credit Constraints, Farm Characteristics, and the Farm Economy: Differential Impacts on Feeder Cattle and Beef Cow Inventories

A recurrent topic in the macroeconomic literature is the financial accelerator—the notion that informational asymmetries introduce inefficiencies to financial markets which amplify and propagate the effects of real or monetary shocks. With the purpose of finding empirical evidence that is consistent with a financial accelerator operating in the cattle sector, inventory investment models are estimated with an appended cash flow variable. The inclusion of cash flow is motivated by the notion that investment by credit-constrained farms should be sensitive to movements in internal funds. Results are consistent with the financial accelerator operating in the feeder cattle but not in the cow-calf sector. Copyright 1998, Oxford University Press.

THE 1996 FAIR ACT: MEASURING THE IMPACTS ON LAND LEASING

Using a 1997 survey of Arkansas farm operators, Federal Agricultural Improvement and Reform (FAIR) Act impacts on changes in cropping mixes on leased land, operator attitudes concerning the sharing of FAIR Act benefits with landlords, and changes in leasing arrangements due to the FAIR Act are investigated. Operators indicated that the FAIR Act caused cropping-mixchanges on 24% of surveyed leases. Although some operators believe that landlords disproportionately benefit from the FAIR Act, about three-quarters feel that there was no change or had no opinion. Similarly, we find little evidence that leasing arrangements changed as a result of the FAIR Act.

Research on USDA farm credit programs: past, present, and future

Federal farm credit programs currently administered by the USDA were initiated in the early 1900s to help the farm sector cope with natural disasters, and these programs have continued to evolve. There has been a rich history of research analyzing USDA farm credit programs and the effects they have had on farmers, ranchers, and credit markets. This paper highlights past research and offers a view of the future direction of research on federal farm credit programs.

Financial ratio analysis using ARMS data

Purpose - The purpose of this research is to evaluate the financial performance measures calculated and reported by the Economic Resource Service (ERS) from Agricultural Resource Management Survey (ARMS) data. The evaluation includes the calculation method and the underlying assumptions used in obtaining the reported values. Recommendations for improving the information reported are proposed to ERS. Design/methodology/approach - The financial measures calculated and reported are compared with those recommended by the Farm Financial Standards Council (FFSC). The underlying assumptions are identified by analyzing the software code used in calculating the values reported. The values reported by ERS are duplicated and alternative methods for calculating the financial performance measures are considered. The values obtained from the various calculation methods are compared and contrasted. Findings - Recommendations for ERS include: calculate and report the financial measures recommended by FFSC, note values that are imputed, periodically update and validate assumptions used in calculating imputed values, review its policy for flagging estimates as statistically unreliable, report medians and other select percentiles, and consider reporting the percent of farm businesses that have values within critical zones. Originality/value - A total of four methods for calculating financial performance measures are compared and contrasted. These are the aggregate mean, sample mean, sample median, and percentage of farm businesses with values in critical zones.

FSA Direct Farm Loan Program Graduation Rates and Reasons for Exiting

Farm Service Agency (FSA) direct loans are intended to provide transitory credit to creditworthy borrowers unable to obtain conventional credit at reasonable terms. Farm loan program (FLP) effectiveness is measured in part by how readily direct loan borrowers graduate to conventional credit. A survey of FSA borrowers originating direct loans during fiscal years 1994-1996 is used to estimate graduation rates. A majority of 1994-1996 loan originators did exit the direct FLP by November 2004. A multinomial logit model indicates financial strength at origination resulted in greater likelihood of farming without direct loans approximately 9 years after loan origination.

FSA direct loan targeting: successful and financially necessary?

The Farm Service Agency (FSA) direct farm loan program provides credit to family‐sized farms including those operated by beginning farmers and socially disadvantaged applicants. Approximately 37% of all U.S. farms are estimated to be eligible for FSA direct loans when farm size, credit needs, farming experience, and occupation are taken into account. However, market penetration rates for various borrower cohorts range from 0.8% to 4.6% for FY 2000S2003. In general, beginning farmers have weaker financial characteristics than non‐beginning farmers. Yet, the same result is not found when comparing socially disadvantaged farmers with non‐socially disadvantaged farmers, such that there are few significant differences or the differences in financial characteristics are mixed. Overall, results indicate FSA direct farm loan borrowers have weaker financial characteristics than eligible, non‐FSA direct farm loan borrowers, implying FSA is serving farmers likely to be denied credit by commercial lenders.

Independent Commercial Bank Mergers and Agricultural Lending Concentration

In an era of rapid consolidation in banking, the effect of mergers on the availability of credit to agricultural businesses is unclear. Commercial bank mergers have profoundly altered the urban credit marketplace and are positioned to do the same for the agricultural credit marketplace. Adjustment models are estimated with data on independent bank consolidations from 1988 through 1995. The regression results bode well for agricultural lending if acquiring banks have larger concentrations of assets in agriculture than acquired banks. Conversely, if acquiring banks have smaller concentrations than acquired banks, acquisitions have a negative impact on agricultural lending. Since most acquiring banks have smaller agricultural loan concentrations than acquired banks, there is concern for agricultural lending. However, other lenders are likely to fill credit gaps that develop.

Impacts Of Financial Characteristics And The Boom-Bust Cycle On The Farm Inventory-Cash Flow Relationship

The sensitivity of farm inventory investment to movements in cash flow is tested. Inventories should be sensitive to shifts in cash flow because inventory investment is readily reversible and inventories are a significant portion of assets. Investment models estimated with Kansas farm panel data indicate that: (a) farms absorb internal finance shocks by adjusting inventories, (b) the inventory investment of livestock and high-debt farms are more sensitive to movements in cash flow than crop and low-debt farms, and (c) inventory investment is more sensitive to cash flow during the 1981-86 bust and the 1987-92 recovery than during the 1975-80 boom.

GROWTH IN AGRICULTURAL LOAN MARKET SHARE FOR ARKANSAS COMMERCIAL BANKS

Changes in commercial bank market shares of farm debt are decomposed into portfolio decisions loanable funds availability and loan market size for 64 counties in Arkansas from 1986 through 1990. A seemingly unrelated regression model is hypothesized to identify county characteristics that are related to changes in commercial bank market shares. Regression results indicate that county differences in economic activity, the relative risk associated with agriculture, farm structure and regional location contributed to changes in commercial bank market shares. The results imply a market niche for rural commercial banks emphasizing agricultural loans in the presence of unlimited branch banking.

Competing risks models of Farm Service Agency seven-year direct operating loans

Purpose - The purpose of this paper is to apply duration methods to a sample of Farm Service Agency (FSA) direct, seven-year operating loans to identify those variables that influence the time to loan termination and type of termination. Variables include both those known at time of loan origination and those that characterize the changing economic environment over the life of the loan. Also, to examine the impact of various FSA programs promoting policy objectives. Design/methodology/approach - A systematic sample of 877 seven-year, FSA direct loans originated between October 1, 1993 and September 30, 1996 was collected. Cox regression, competing risks models are estimated as a function of borrower and loan characteristics observable at loan origination. Economic indicator variables emphasizing the farm economy and observed quarterly over the life of the loan are also included as explanatory variables. Findings - Loan characteristics, borrower financial characteristics and degree of borrower interaction with FSA observable at origin are significant variables in determining type of loan outcome (default or paid-in-full) and time to outcome. Changes in the economic environment and farm economy during the life of the loan are significant. Research limitations/implications - The sample consists only of FSA direct loans which implies borrowers are at financial margin. Application of method to agricultural loans from conventional commercial lenders could identify different significant factors. Practical implications - Using length of time to loan termination instead of just type of outcome provides for a richer analysis of loan performance. Loan performance over time is influenced by the larger economy and should be incorporated into loan performance modeling. Originality/value - The study described in the paper demonstrates use of competing risks models on intermediate agricultural loans and develops how this technique can be used to learn about dynamic aspects of loan performance. Sample consists of observations on individual FSA direct loan borrowers. The FSA direct loan program is the major source of credit for agricultural borrowers at the financial margin.