Emanuel Melichar

Financing Agriculture: Demand for and Supply of Farm Capital and Credit

N this paper, I discuss aggregate farm financial relationships and trends and then project a large further increase in farm debt. Along the way, I note some interesting findings bearing on the underlying causes of the debtincrease process-findings that raise questions about the completeness of the popular current assessment of that process. Where my story differs from the standard analysis, I take the liberty of stating the differences boldly--perhaps more boldly than they deserve to be advanced, given deficiencies of the data base and the fact that current econometric work on aggregate postwar farm financial behavior is still in the exploratory stage. But since my projections do not differ significantly from those emanating from the standard analysis, I thought it best to emphasize the analytical differences lest they be overlooked when, as usually happens, the numerical projections attract the limelight. To whet your appetite for the analysis, therefore, let me momentarily depart from orderly presentation of the subject to look at the main components of the standard analysis of most farm economists and lenders. A statement by Evans on the agricultural finance outlook for 1972, presented at the USDAs National Outlook Conference last February, is representative of this genre:

Characteristics and Salaries of Agricultural Economists

Employment and salary characteristics for agricultural economists as of 1966 differ from those of general economists and other scientists in several respects. Educational institutions employed 58 percent of agricultural economists as against 45 percent of economists generally and 36 percent of all scientists. Only 9 percent were employed by business and industry as compared with a third of all economists and 41 percent of all scientists. The geometric mean basic salary received by agricultural economists was

Farm Capital and Credit Projections to 1980

13,000 as compared with

Condition of Rural Financial Intermediaries

13,600 for all economists and

Capital Gains versus Current Income in the Farming Sector

12,100 for all scientists. Academic degree attained and length of service have a greater influence on salary variation than age, type of employer, or primary work activity.

Some Current Aspects of Agricultural Finance and Banking in the United States

W ITH the approach of a new decade, several projections of farm capital in 1980 have appeared. Conceptually, such long-run capital projections ought to be particularly useful to agencies that can influence the volume and terms of credit available to agriculture. For instance, availability of bank credit might be increased by developing secondary markets for farm loan paper, improving access of rural banks to discount facilities of the Federal Reserve Banks and Federal Intermediate Credit

Factors Related to Farmers' Use of Credit: Least-Squares Analysis of Sample Survey Data

Financial institutions serving agricultural areas are experiencing impacts of severe financial stress among farmers for the second time in this century. In both instances, stress resulted mainly from the burden of large amounts of debt-financed land purchases and other farm investments, based on price and income expectations that were not realized. In the current episode, a large rise in interest rates also reduced the optimal degree of financial leverage. Consequently, many indebted farmers needed to adjust the financial structure of their businesses. Some have been able to do so, while others cannot. While total farm debt apparently peaked in mid-1983, it had dropped only 2% by the end of 1984. At some financial institutions serving farmers and agribusinesses, a large proportion of farm debt is owed by customers who require partial or total liquidation at a time when asset prices and markets are refltiecting sharply reduced expectations. The resulting loan delinquencies and losses far exceed risk premiums incorporated in interest rates, eroding loss reserves and threatening capital positions. The impact is multiplied by the normally high degree of leverage of financial institutions themselves.