Search results

1 – 8 of 8
Per page
102050
Citations:
Loading...
Access Restricted. View access options
Article
Publication date: 17 February 2025

Charles B. Moss and Jaclyn D. Kropp

While the average cost of debt capital can be calculated from historical financial statement data by dividing the interest paid each year by the total level of debt, this average…

1

Abstract

Purpose

While the average cost of debt capital can be calculated from historical financial statement data by dividing the interest paid each year by the total level of debt, this average cost of debt provides little information regarding the true cost of acquiring additional debt capital, and hence, its use is potentially problematic in financial decision-making. This study focuses on the linkage between observed changes in the average interest rates calculated from financial statements (balance sheet and income statement) and the marginal cost of borrowing or the cost of acquiring new debt. Motivated by the capital asset pricing model (CAPM), the marginal cost of capital is modeled as a function of a risk-free interest rate (the return on Moody’s Aaa bonds), returns on the S\&P stock index capturing overall market returns and a portfolio of agricultural stocks to represent farm sector-specific risks.

Design/methodology/approach

Using a unique dataset constructed from United States Department of Agriculture (USDA) state-level Financial Performance of the Farm Sector data for the years 1960 through 2003 and state-level Agricultural Resource Management Survey (ARMS) data for the years 2003–2014 and Bayesian methods, we model the observed interest rate as an autoregressive function controlling for changes in debt and key rates of return in the general economy.

Findings

The results indicate that the marginal interest rate is a function of the Aaa corporate bond rate and the stock market. We also find evidence of a negative relationship between returns to a portfolio of agricultural stocks and the marginal interest rate. Overall, the findings suggest that the imputed interest rate frequently misrepresents the marginal cost of debt capital.

Originality/value

Most farm financial datasets allow for the analysis of the farm firm’s average interest rate. However, farmers make decisions based on the marginal cost of credit – the interest rate on a newly issued note. This study estimates this marginal interest rate for the 15 states for which the ARMS data are representative for the years 1960 through 2014 and compares the estimated marginal interest rate with the imputed average interest rate.

Details

Agricultural Finance Review, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0002-1466

Keywords

Access Restricted. View access options
Article
Publication date: 8 November 2011

Jaclyn D. Kropp and Ani L. Katchova

US decoupled direct payments, paid to farm operators based on historic yields and base acreage under the 2002 Farm Bill, may alter a farmer's access to credit or his ability to…

755

Abstract

Purpose

US decoupled direct payments, paid to farm operators based on historic yields and base acreage under the 2002 Farm Bill, may alter a farmer's access to credit or his ability to meet debt servicing obligations. More specifically, direct payments might improve the farmer's liquidity position or repayment capacity enabling the farmer to obtain more favorable credit terms. In turn, more favorable credit terms might allow a farm to remain in business or expand production, leading to current production distortions. Since direct payments are based on historic production, beginning farmers tend to receive lower levels of direct payments and hence these payments might impact beginning farmers differently than more experienced farmers. The purpose of this paper is to investigate the effects of direct payments on liquidity and repayment capacity for experienced and beginning farmers.

Design/methodology/approach

Given the manner in which direct payments are calculated and administered, it is likely that direct payments affect beginning farmers and more experienced farmers differently; hence the authors analyze the impacts of direct payments on the current and term debt coverage ratios for these two groups separately. In the analysis, the authors control for farm financial characteristics, farm operator characteristics, and other factors. Data from the US Department of Agriculture (USDA) Agricultural Resource Management Survey (ARMS) for the years 2005, 2006, and 2007 were used in the weighted regression analysis and jackknifed standard errors computed.

Findings

A positive significant relationship was found between the level of direct payments (in dollars) and the term debt coverage ratio for experienced farmers, suggesting that direct payments improve repayment capacity. However, this relationship is not significant for beginning farmers. Also, a negative significant relationship was found between the number of base acres and the current ratio for experienced farmers, while this relationship lacks significance for beginning farmers.

Originality/value

The paper provides evidence that decoupled direct payments impact a farmer's liquidity and repayment capacity. Furthermore, direct payments impact beginning and experienced farmers differently. This paper also contributes to the growing body of research investigating the mechanisms by which decoupled payments have the potential to distort current production.

Access Restricted. View access options
Article
Publication date: 7 September 2015

Thomas W. Sproul, Jaclyn D. Kropp and Kyle D. Barr

Community supported agriculture (CSA) programs allow consumers to buy a share of a farm’s production while providing working capital and risk management benefits for farmers…

1010

Abstract

Purpose

Community supported agriculture (CSA) programs allow consumers to buy a share of a farm’s production while providing working capital and risk management benefits for farmers. Several different types of CSA arrangements have emerged in the market with terms varying in the degree to which consumers share in the farm’s risk. No-arbitrage principles of futures and options pricing suggest that CSA shares should be priced to reflect the degree of risk transfer. The paper aims to discuss these issues.

Design/methodology/approach

The authors evaluate the three most common share types using a cross-sectional data set of 226 CSA farms from New England to determine if there is empirical evidence in support of the theoretical price relationship between share types.

Findings

The degree of risk transfer from farmers to consumers has a significant effect on the share price. There are statistically significant returns to scale and higher prices for organics. Farm characteristics and product offerings predict which type of shares is offered for sale.

Research limitations/implications

The data set does not contain information pertaining to actual deliveries, expected deliveries, variance of expected deliveries, or covariance information; thus differences in share prices could be due to differences in these uncontrolled factors.

Originality/value

This paper provides empirical evidence that CSA share prices reflect the degree of risk transferred from the producer to the consumer. It also highlights challenges in conducting empirical work pertaining to CSA contracting.

Details

Agricultural Finance Review, vol. 75 no. 3
Type: Research Article
ISSN: 0002-1466

Keywords

Access Restricted. View access options
Article
Publication date: 10 May 2011

Jaclyn D. Kropp and James B. Whitaker

The purpose of this paper is to investigate how decoupled direct payments, paid to farm operators based on historical yields and base acreage, may lead to production distortions…

663

Abstract

Purpose

The purpose of this paper is to investigate how decoupled direct payments, paid to farm operators based on historical yields and base acreage, may lead to production distortions by altering a farmer's access to credit or enabling the farmer to receive more favorable credit terms. The authors estimate the impact of decoupled direct payments under the 2002 Farm Bill on the credit terms of farm operators, specifically the interest rate on short‐term operating loans. If farm operators are able to obtain more favorable credit terms and reduce their operating cost, then this offers an additional mechanism through which decoupled payments may distort current production.

Design/methodology/approach

The authors estimate the impact of decoupled direct payments on the interest rate on short‐term operating loans. In the analysis, the authors control for farm financial characteristics, farm operator characteristics, and other factors. Data from the Agricultural Resource Management Survey for the years 2005‐2007, are used in the weighted regression analysis. Jackknifed standard errors are also computed.

Findings

As the proportion of base acres to total operated acres increases it is found that interest rates decline by a small but statistically significant amount. This implies that direct payments lead to lower operating costs through better credit terms.

Research limitations/implications

Lower operating costs may in turn allow some farmers to expand production or produce on land that would otherwise be unprofitable to operate and hence left idle. Ultimately, this distorts current production. However, the small magnitude of the authors' results suggests that the reduction in interest rates, though positive, may have limited distortionary impacts.

Originality/value

The paper provides evidence that decoupled payments alter a farm operator's credit terms and hence could lead to current production distortions. The paper contributes to the growing body of research investigating the mechanisms by which decoupled payments have the potential to distort current production.

Details

Agricultural Finance Review, vol. 71 no. 1
Type: Research Article
ISSN: 0002-1466

Keywords

Access Restricted. View access options
Article
Publication date: 8 May 2009

Jaclyn D. Kropp, Calum G. Turvey, David R. Just, Rong Kong and Pei Guo

This paper aims to clarify the relationship between wealth and trustworthiness with the goal of understanding why micro‐lending institutions grant loans to poor individuals…

1145

Abstract

Purpose

This paper aims to clarify the relationship between wealth and trustworthiness with the goal of understanding why micro‐lending institutions grant loans to poor individuals countering well‐known models of credit markets and credit rationing, such as those proposed by Stiglitz and Weiss. Micro‐credit markets appear to be based on two conjectures: the poor are trustworthy, and their willingness to pay for credit is relatively high.

Design/methodology/approach

The paper simulates trust‐based lending in an experimental setting to determine whether the conjecture that the poor are trustworthy is plausible. By conducting the experiments in the USA, a wealthy developed country, and China, a developing country where formal micro‐finance institutions have not established a visible presence, it is possible to test the conjecture and draw cross‐cultural comparisons.

Findings

The paper finds that while the absolute level of family income had no significant effect on repayment behavior, US borrowers that perceived themselves as having a family income that was relatively lower than other US households repaid at higher rates. Therefore, evidence was found that trustworthiness might be a function of perceived relative wealth or social status rather than the absolute level of wealth or income.

Research limitations/implications

The research results may be difficult to generalize because of the experimental approach and use of students as participants.

Practical implications

The paper includes implications for the administration of micro‐credit loans in China and other developing nations.

Originality/value

This paper experimentally tests a conjecture which appears to be the foundation of micro‐credit markets.

Details

Agricultural Finance Review, vol. 69 no. 1
Type: Research Article
ISSN: 0002-1466

Keywords

Available. Content available
Article
Publication date: 3 May 2013

Glenn Pederson

188

Abstract

Details

Agricultural Finance Review, vol. 73 no. 1
Type: Research Article
ISSN: 0002-1466

Access Restricted. View access options
Article
Publication date: 15 February 2018

Gulcan Onel, Jaclyn Kropp and Charles B. Moss

Over the past four decades, real values of farm real estate and the share of assets on farmers’ balance sheets attributed to farm real estate have increased. The purpose of this…

187

Abstract

Purpose

Over the past four decades, real values of farm real estate and the share of assets on farmers’ balance sheets attributed to farm real estate have increased. The purpose of this paper is to examine the factors that explain the concentration of the US agricultural balance sheet around a particular asset, farm real estate, and the extent to which the degree of asset concentration varies across United States Department of Agriculture production regions.

Design/methodology/approach

State-level data from 48 states and entropy-based inequality measures are used to examine changes in asset distributions (real estate vs non-real estate assets) both within and between regions over time.

Findings

The agricultural balance sheet is found to concentrate into real estate in the USA over the period 1960-2003 with the rate of concentration varying across production regions. In some regions, the concentration is mainly due to changes in real estate prices, while in other regions concentration is also driven by changes in real estate holdings or changes in total factor productivity.

Originality/value

This study formally estimates the degree to which the concentration of balance sheet items can be explained by the observed changes in farm real estate prices relative to observed changes in agricultural factor productivity or changes in farm real estate holdings. The computed regional differences in asset concentration and its main drivers have implications for changes in equity and solvency positions of farmers as well as agricultural lenders’ risk exposure.

Details

Agricultural Finance Review, vol. 78 no. 4
Type: Research Article
ISSN: 0002-1466

Keywords

Access Restricted. View access options
Article
Publication date: 6 July 2015

Jaclyn Kropp and Janet G. Peckham

In recent years, prices for prime farmland have increased substantially, begging the question is the dramatic increase the result of a speculative bubble or consistent with market…

474

Abstract

Purpose

In recent years, prices for prime farmland have increased substantially, begging the question is the dramatic increase the result of a speculative bubble or consistent with market fundamentals with increases driven by increased global demand, low interest rates, and recent changes to US agricultural and energy policies. The purpose of this paper is to investigate the impacts of recent agricultural support policies and ethanol policies on farmland values and rental rates.

Design/methodology/approach

Farm-level Agricultural Resource Management Survey data collected by the United States Department of Agriculture (USDA) between 1998 and 2008 as well as county-level data collected by the USDA, US Census Bureau, and Bureau of Economic Analysis are used to determine the impacts of recent agricultural support policies and ethanol policies on farmland values and rental rates, while controlling for parcel characteristics and urban pressure. Specifically, weighted ordinary least squares and two-stage least squares are used to investigate the impact of various governmental agricultural support policies, corn ethanol facilities location, and local corn ethanol production capacity on farmland values and rental rates.

Findings

The results indicate that government payments, urban pressure, and the proximity of the parcel to an ethanol facility have a positive impact on both farmland values and rental rates. More specifically, parcels located in the same county as at least one corn ethanol facility are more valuable and command higher rental rates. In addition, county-level ethanol production capacity is positively associated with farmland values and rental rates. An inverse relationship between distance of the parcels from an ethanol facility and farmland values is also found; a similar result is found for rental rates.

Research limitations/implications

The findings suggest that agricultural support payments and ethanol policies are capitalized into farmland values. These findings have important implications for the formulation of future farm policy. A limitation of the analyses is that farmland values are estimated by landowners; future research could utilize farmland transaction data to overcome potential biases generated by using landowner estimates. In addition, while our study period covers 11 years, future research could expand the time period further to analyze the effect of more recent agricultural and ethanol policies.

Originality/value

This paper extends prior research pertaining to factors influencing farmland values and rental rates by also examining the proximity of the parcel to an operating ethanol facility using a unique data set.

Details

Agricultural Finance Review, vol. 75 no. 2
Type: Research Article
ISSN: 0002-1466

Keywords

1 – 8 of 8
Per page
102050