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Agricultural credit risk and the macroeconomy

Agricultural credit risk and the macroeconomy <jats:sec> <jats:title content-type="abstract-subheading">Purpose</jats:title> <jats:p>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.</jats:p> </jats:sec> <jats:sec> <jats:title content-type="abstract-subheading">Design/methodology/approach</jats:title> <jats:p>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.</jats:p> </jats:sec> <jats:sec> <jats:title content-type="abstract-subheading">Findings</jats:title> <jats:p>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.</jats:p> </jats:sec> <jats:sec> <jats:title content-type="abstract-subheading">Originality/value</jats:title> <jats:p>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.</jats:p> </jats:sec> http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Agricultural Finance Review CrossRef

Agricultural credit risk and the macroeconomy

Agricultural Finance Review , Volume 77 (1): 164-180 – May 2, 2017

Agricultural credit risk and the macroeconomy


Abstract

<jats:sec>
<jats:title content-type="abstract-subheading">Purpose</jats:title>
<jats:p>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.</jats:p>
</jats:sec>
<jats:sec>
<jats:title content-type="abstract-subheading">Design/methodology/approach</jats:title>
<jats:p>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.</jats:p>
</jats:sec>
<jats:sec>
<jats:title content-type="abstract-subheading">Findings</jats:title>
<jats:p>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.</jats:p>
</jats:sec>
<jats:sec>
<jats:title content-type="abstract-subheading">Originality/value</jats:title>
<jats:p>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.</jats:p>
</jats:sec>

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References (24)

Publisher
CrossRef
ISSN
0002-1466
DOI
10.1108/afr-06-2016-0057
Publisher site
See Article on Publisher Site

Abstract

<jats:sec> <jats:title content-type="abstract-subheading">Purpose</jats:title> <jats:p>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.</jats:p> </jats:sec> <jats:sec> <jats:title content-type="abstract-subheading">Design/methodology/approach</jats:title> <jats:p>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.</jats:p> </jats:sec> <jats:sec> <jats:title content-type="abstract-subheading">Findings</jats:title> <jats:p>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.</jats:p> </jats:sec> <jats:sec> <jats:title content-type="abstract-subheading">Originality/value</jats:title> <jats:p>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.</jats:p> </jats:sec>

Journal

Agricultural Finance ReviewCrossRef

Published: May 2, 2017

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