THE FARM DIVERSIFICATION DISCOUNT

This paper examines the effect of diversification on farm value by comparing values of diversified farms to a portfolio of comparable specialized farms. Using data from the Agricultural Resource Management Study, this study finds a diversification discount in agriculture similar to the discount found for corporate firms. The results show that diversified crop/livestock farms have a value loss of 5.8% in comparison with specialized crop or livestock farms for 1999-2001. Farms with commodity diversification have a value loss of 9.4% in comparison with commodity specialized farms. The results also show that the value loss due to diversification is larger for leveraged farms.Farm Management,

Are Local Corn Prices Affected by the Location of Ethanol Biorefineries?

This study examines whether the local competition for corn to produce ethanol has lead to significantly higher prices for farmers located close to ethanol biorefineries. If any, such price premiums for spatial closeness would be in addition to the general level of corn price changes experienced by farmers throughout the U.S. The difference-in-differences estimation method is used to account for both time and spatial differences in order to measure the interaction of time and spatial effects. Using the USDA’s ARMS data, the results show that while prices in real terms have changed over time, farmers located close to ethanol biorefineries have not received significantly higher prices than farmers living farther away from biorefineries. These findings indicate that there is a lack of evidence for price premiums due to spatial closeness to ethanol plants.corn prices, ethanol, ethanol plant location, difference-in-differences., Agribusiness, Demand and Price Analysis, Resource /Energy Economics and Policy,

Agricultural Contracts and Alternative Marketing Options: A Matching Analysis

The increasing use of agricultural contracts and processor concentration raises concerns that processors may offer lower contract prices in absence of local competition. This study examines the price competitiveness of marketing and production contracts depending on the availability of alternative marketing options. A propensity score matching method is used to compare prices using contract data from a farm-level national survey. The results show that the absence of other contractors or spot markets in producers’ areas does not lead to statistically significant price differences in agricultural contracts for most commodities, providing evidence that most agricultural processors do not exercise market power by reducing prices when other local buyers are not available.agricultural prices, alternative marketing options, local competition, marketing contracts, production contracts, propensity score matching, Agribusiness, Agricultural and Food Policy, Community/Rural/Urban Development, Consumer/Household Economics, Demand and Price Analysis, Financial Economics, Marketing, Q13,

The Economic Well-Being of Farm and Nonfarm Households: Evidence from Two National Surveys

This study compares the economic well-being of farm and nonfarm households using data from the 2004 Agricultural Resource Management Survey and the 2004 Survey of Consumer Finances. Comparisons are made in terms of income and wealth using Tukey-Kramer mean separation tests, regression analysis, and inequality distributions. The results show that the economic well-being of households differs based on their degree of involvement in business activities and their life-cycle stages. The most interesting conclusion is that the well-being of rural residence and intermediate farms is comparable to that of wage-earning nonfarm households, while commercial farms are similar in well-being to nonfarm households with businesses.International Development,

The Spatial Effect of Ethanol Biorefinery Locations on Local Corn Prices

This study examines whether the local competition for corn to produce ethanol has lead to significantly higher prices for farmers located close to ethanol plants. If any, such price premiums for spatial closeness would be in addition to the general level of corn price changes experienced by farmers throughout the U.S. The difference-in-differences estimation method is used to account for both time and location differences in order to measure the interaction of time and location effects. Using the USDA’s ARMS data, the results show that while prices in real terms have risen over time, farmers located close to ethanol plants have not received significantly higher prices than farmers living farther away from plants. These findings indicate that there is a lack of evidence for price premiums due to the spatial closeness to ethanol plants.corn prices, ethanol, ethanol plant location, difference-in-differences., Agribusiness, Marketing, Q13,

Structural changes in U.S. agriculture: Financial performance of farms in transition

This study examines the financial performance and stress experienced by beginning and retired farms in the U.S. Using USDA’s 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. The results show that older farmers and larger farms are less likely to experience financial stress while hobby farms and livestock farms are more likely to experience financial stress. The results for beginning and retired farmers indicate fewer significant effects.beginning farmers, financial performance, financial stress, retired farmers, transitioning farmers, Agricultural and Food Policy, Farm Management, Land Economics/Use,

CREDIT SCORE MIGRATION ANALYSIS OF FARM BUSINESSES: CONDITIONING ON BUSINESS CYCLES AND MIGRATION TRENDS

This study examines credit score migration rates of farm businesses. We test whether migration probabilities differ across business cycles. Our results suggest that agricultural credit ratings are more likely to improve during expansions and deteriorate during recessions. We also test whether agricultural credit ratings depend on the previous period migration trends. Our results show that credit score ratings exhibit trend reversal where upgrades (downgrades) are more likely to be followed by downgrades (upgrades).business cycle, credit migration, migration trend, path dependence, rating drift, trend reversal, Agricultural Finance,

Credit Risk Migration Analysis of Illinois Farm Business: Possible Impacts of Farm Business Cycle

This study uses the cohort approach to estimate the credit risk migration probability of farm business. Using data from the Farm Business and Farm Management, this study rates the credit risk into 10 risk levels plus a default level, defines a farm business cycle with peak, normal and trough periods and evaluates the effect on farm financial performance of the farm business booms and slumps. The results show that the farms with low credit risk are more likely to stay in the same risk level but the farms with high credit risk have the trend to improve their risk situation and move upwards. The results also show that the credit risk ratings are more likely to move upgrade during farm business cycle peaks.Agricultural Finance,

BUSINESS GROWTH STRATEGIES OF ILLINOIS FARMS: A QUANTILE REGRESSION APPROACH

This study examines the business strategies employed by Illinois farms to maintain equity growth using quantile regression analysis. Using data from the Farm Business Farm Management system, this study finds that the effect of different business strategies on equity growth rates differs between quantiles. Financial management strategies have a positive effect for farms situated in the highest quantile of equity growth, while for farms in the lowest quantile the effect on equity growth is negative. Cost reduction, asset management and revenue enhancement strategies all proved to have important effects on the determination of growth equity rates.Farm Management,

An Analysis of the Financial Performance of Beginning Farmers

This study examines the financial performance and stress experienced by beginning farmers in the U.S. Using the USDA’s 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. The results show that older farmers and larger farms are less likely to experience financial stress while hobby farms and livestock farms are more likely to experience financial stress. The results for beginning farmers indicate fewer significant effects. These findings point out the characteristics that agricultural lenders need to consider when evaluating farmers’ loans.beginning farmers, financial performance, financial stress, Agricultural Finance,