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Evaluating financial stress and performance of beginning farmers during the agricultural downturn

Evaluating financial stress and performance of beginning farmers during the agricultural downturn The purpose of this paper is to examine the financial performance and stress of beginning farmers in the USA with emphasis on the agricultural downturn experienced since 2013.Design/methodology/approachUsing the US Department of Agriculture’s Agricultural Resource Management Survey (ARMS) data, probit models are estimated to study the personal and farm characteristics that affect whether or not the financial ratios fall into critical zones as defined by the Farm Financial Standards Council. The financial ratios involve liquidity, solvency, profitability, efficiency, and repayment capacity.FindingsBeginning farmers are at a greater risk of financial stress on average, with higher likelihood of financial stress in liquidity and efficiency. Further, the recent agricultural downturn has negatively affected liquidity, solvency, and profitability for farmers while repayment capacity does not appear to be affected. During the downturn, beginning farmers are better positioned than the general farming population with respect to liquidity and repayment capacity.Originality/valueThis paper applies current lending practices to a nationally representative sample of farms over a time of changing economic conditions for the agricultural sector. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Agricultural Finance Review Emerald Publishing

Evaluating financial stress and performance of beginning farmers during the agricultural downturn

Katchova, Ani L.; Dinterman, Robert
Agricultural Finance Review , Volume 78 (4): 13 – Jul 30, 2018
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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
0002-1466
DOI
10.1108/afr-08-2017-0074
Publisher site
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Abstract

The purpose of this paper is to examine the financial performance and stress of beginning farmers in the USA with emphasis on the agricultural downturn experienced since 2013.Design/methodology/approachUsing the US Department of Agriculture’s Agricultural Resource Management Survey (ARMS) data, probit models are estimated to study the personal and farm characteristics that affect whether or not the financial ratios fall into critical zones as defined by the Farm Financial Standards Council. The financial ratios involve liquidity, solvency, profitability, efficiency, and repayment capacity.FindingsBeginning farmers are at a greater risk of financial stress on average, with higher likelihood of financial stress in liquidity and efficiency. Further, the recent agricultural downturn has negatively affected liquidity, solvency, and profitability for farmers while repayment capacity does not appear to be affected. During the downturn, beginning farmers are better positioned than the general farming population with respect to liquidity and repayment capacity.Originality/valueThis paper applies current lending practices to a nationally representative sample of farms over a time of changing economic conditions for the agricultural sector.

Journal

Agricultural Finance Review – Emerald Publishing

Published: Jul 30, 2018

Keywords: Financial ratios; Financial stress; Financial performance; Beginning farmers; Critical zone

References

  • Beginning farmers and ranchers
    Ahearn, M.; Newton, D.
  • Financial ratio analysis using ARMS data
    Ahrendsen, B.L.; Katchova, A.L.
  • Financial stress and farm bankruptcies in US agriculture
    Dinterman, R.; Katchova, A.L.; Harris, J.M.
  • Predicting financial stress in farm businesses
    Franks, J.R.
  • Dynamics of farmland ownership and leasing: implications for young and beginning farmers
    Katchova, A.L.; Ahearn, M.C.
  • Farm entry and exit from US agriculture
    Katchova, A.L.; Ahearn, M.C.
  • Credit markets and land ownership for young and beginning farmers
    Kauffman, N.S.
  • The effects of direct payments on liquidity and repayment capacity of beginning farmers
    Kropp, J.D.; Katchova, A.L.
  • Fixed cash rental rates diverge from farm earning since 2013
    Lattz, D.
  • Factors affecting financial performance of new and beginning farmers
    Mishra, A.; Wilson, C.; Williams, R.
  • The downturn in agriculture: implications for the midwest and the future of farming
    Oppedahl, D.B.
  • Agricultural Resource Management Survey
  • Who does not respond to the agricultural resource management survey and does it matter?
    Weber, J.G.; Clay, D.M.
  • Following beginning farm income and wealth over time: a cohort analysis using ARMS
    Williamson, J.M.
  • Tax-exempt bond financing for beginning and low-equity farmers: the case of ‘Aggie Bonds’
    Williamson, J.M.; Katchova, A.L.