Michael A. Gunderson

Credit risk migration and downgrades experienced by agricultural lenders

Agricultural credit risk migration is examined using loan records gathered from four agricultural lenders. Results indicate that lender risk ratings are much more stable than ratings based on credit scores estimated from financial statements, highlighting the importance played by nonfinancial factors such as management capacity, character, and collateral in assessing credit risk. Additionally, the borrower’s risk tier, personal characteristics, and the stage of the business life cycle provide useful information in predicting credit quality downgrades, while the primary agricultural enterprise does not impact the likelihood of a downgrade.

The Costs and Returns of Agricultural Credit Delivery

Borrower-level data from 963 agricultural lending relationships are used to examine how several factors influence the costs and returns of extending agricultural credit. The results provide estimates of the costs and returns of agricultural lending and the extent to which these costs and returns are influenced by factors such as loan volume, lender/borrower relationship factors, and contract terms. The findings indicate that economies of size exist in agricultural credit delivery and that lenders pass most of these benefits on to borrowers through lower interest rates. In addition, the impacts of lender/borrower relationship factors were relatively small.

Agribusiness Organization and Management

The agribusiness sector is comprised of interrelated subsectors working in concert to provide goods and services to consumers around the world. With the need to accommodate economic, social, and environmental concerns, organizations and managers in the sector share many of the challenges that exist in other business value chains.

Accounting for loan amount and credit rating when calculating lifetime value of agricultural lending relationships

Using empirical default probabilities and profitability distributions, a simulation model is developed to identify the long‐term value of relationships among differing credit rating and loan amount groups. According to the results generated from a set of lending relationships, agricultural lenders are pricing low and moderate credit rating customers such that similar long‐term values are found among the groups. Also, large loan amount relationships generate more dollars of lifetime value. The large relationships, however, earn fewer dollars of lifetime value per dollar of loan amount among risk peers. Implications are also drawn for the retention rates of existing customers.

The impact of board of director characteristics on Farm Credit Association performance: REGULAR ARTICLES

Purpose - The purpose of this paper is to identify how board size and board member compensation impact the operating performance of Farm Credit Associations. Cooperatives are a unique business structure that might not have profit maximization as a goal. Thus measures of performance other than return on equity are used to establish the link. Design/methodology/approach - The paper uses regression to explain the relationship between board characteristics and performance. Findings - The results of the models of return on assets and equity indicated that board size and compensation explain little of the variability in performance in these profitability measures. The results of the models of operating efficiencies explained a greater proportion of the variability in the operating efficiency and operating expenses-to-average assets ratios. In both models the relationship exhibited diminishing returns to board size and per member compensation. Research limitations/implications - The data are based on just one year of performance, limiting the generalizability of the results. Practical implications - The paper includes implications for the size of boards of directors and director compensation. Originality/value - This paper fulfils an identified need to study the impacts of boards of directors for cooperatives.

Prioritization of farm success factors by commercial farm managers

This study elicits U.S. agricultural producer preferences for five key management success factors: managing output prices; managing production; controlling costs; managing land/equipment/facilities...

Agricultural credit risk and the macroeconomy: Determinants of Farm Credit Mid-America PD migrations

Purpose - The purpose of this paper is to explore the linkage between agricultural sector and macroeconomic factors with farm financial health. It considers whether agricultural lenders can more accurately anticipate changes in the credit quality of their portfolios by considering broad economic indicators outside the agriculture sector. Design/methodology/approach - This paper examines firm, sector, and macroeconomic drivers of probability of default (PD) migrations from a sample of 153 grain farms of actual lender data from Farm Credit Mid-America’s portfolio. A series of ordered logit models are developed. Findings - Farm-level and sector-level variables have the most significant impact on PD migrations. Equity to asset ratios, working capital to gross farm income ratios, and gross corn income per acre are found to be the most significant drivers of PD migrations. Macroeconomic variables are shown to unreliably forecast PD migrations, suggesting that agricultural lenders should emphasize firm and sector variables over macroeconomic factors in credit risk models. Originality/value - This paper builds the literature on agricultural credit risk by testing a broader set of sector and macroeconomic variables than previous articles. Also, prior articles measured the direction but not magnitude of PD migrations; the ordered model in the analysis measures both.

Accounting for complex entities: implications for ARMS

Purpose - The purpose of this research is to examine the effect of accounting for complex organizational forms on data collection with the Agricultural Resource Management Survey (ARMS). Design/methodology/approach - This research reviews the literature from accounting theory along with the goals of data collection for policy analysis to draw conclusions about the applicability of accounting pronouncements. Findings - Historically, the financial data collected in ARMS were based on financial accounting standards which were adequate for most purposes. However, this study develops the fact that many of these financial accounting standards were created to provide information for equity market transactions. The complexities of accounting for consolidations will provide valuable information, but implementing these standards will require accounting sophistication that is not prevalent in agriculture. Originality/value - By drawing accounting theory together with the targeted use of data, this study offers guidelines to improve the data quality for a growing complex US agriculture.

Corporate Cash Holdings and Economic Crises in Mexico

We study cash holdings for firms listed on the Mexican Stock Exchange for 24 years, rendering special attention to changes in cash holdings during economic crises. By using fixed-effects panel regression models, two alternative model specifications are adapted to analyze the effects of economic crises in Mexico on cash holdings. The first model relates cash and contemporaneous firm characteristics mainly. A second model relates lead and lag firm characteristics and macroeconomic factors. The results suggest that growth opportunities, firm size, operating cash flow, free cash flow, volatility of cash flows, net working capital, leverage, dividends paid, bank loans, and economic crises are statistically significant related to cash holdings. Particularly important is the positive relation of size and dividends with cash holdings in this emerging economy, which is contrary to the prediction by financial theory and findings in developed countries, but is in line with findings in developing markets studies.

A Functional Evaluation of Business Models in Fresh Produce in the United States

Marketing in the food system has at least three broad categories: physical functions, exchange functions, and facilitating functions. Physical functions include those activities that alter the form or place utility of produce. Form utility refers to the appearance the produce will have. Manufacturing, processing, and packaging create additional value for the consumer that prefers the product in an altered state. Place utility refers to the time and location at which the produce is consumed. Some degree of physical transportation and storage is used in selling fresh produce. Exchange functions are activities related to the possession utility of a product. Individuals or firms with knowledge of buyers and sellers can facilitate exchange between these two groups. Buyers and sellers must agree on setting a price for the product and ownership transfer. Fluctuation risks are borne by the owner. In the case of fresh produce, facilitating functions can be thought of as the actions that allow the system to function at peak efficiency. Such types of actions provide conduits for information and capital flows in the produce supply chain. Private firms, government, and industry groups have all historically served in facilitating roles for fresh produce. Standards and grades can ensure the flow of uniform products; financing provides the capital needed to operate the system; market intelligence can drive competition and communication efforts serve to inform the final consumer.