Entry, Exit, and Structural Change in Pennsylvania's Dairy Sector

Data on the number of Pennsylvania dairy farms by size category are analyzed in a Markov chain setting to determine factors affecting entry, exit, expansion, and contraction within the sector. Milk prices, milk price volatility, land prices, policy, and cow productivity all impact structural change in Pennsylvania's dairy sector. Stochastic simulation analysis suggests that the number of dairy farms in Pennsylvania will likely fall by only 2.0 percent to 2.5 percent annually over the next 20 years, indicating that dairy farming in Pennsylvania is likely to be a significant enterprise for the state in the foreseeable future.dairy, maximum entropy, farm size, Markov chain, simulation, Farm Management, Industrial Organization,

A DERIVATIVE SECURITY APPROACH TO SETTING CROP REVENUE COVERAGE INSURANCE PREMIUMS

The nature of indemnities and reliance on futures price averaging during two distinct time intervals throughout the production year imply Crop Revenue Coverage (CRC) insurance behaves like an exotic put option. Treating this type of insurance as a derivative security, an analytical model is developed and an algorithm for solving the model to place a lower bound on insurance premiums is presented. Monte Carlo simulation, taking into account the path-dependent nature of an Asian-type option, is then used to determine lower-bound estimates for insurance premiums on corn gross revenue under specified price and yield distributions.Risk and Uncertainty,

VALUING AGRICULTURAL MORTGAGE-BACKED SECURITIES

A model to value Federal Agricultural Mortgage Corporation (Farmer Mac) agricultural mortgage-backed securities (AMBS) is developed and numerically solved. The results suggest prepayment penalties currently being used by Farmer Mac reduce yields on AMBS considerably. Even with prepayment penalties, it can be advantageous for profit maximizing mortgagors to optimally prepay or even default on agricultural mortgages. The model is used to quantify prepayment and default risk by valuing the embedded options in the mortgages. Monte Carlo simulation is also used to determine the probability to optimal prepayment given the term structure assumption used to develop the model.agricultural mortgage-backed securities, default, dynamic programming, simulation, prepayment, Agricultural Finance, G13, G21,

AN ANALYSIS OF BANK CONSOLIDATION TRENDS IN RURAL PENNSYLVANIA

U.S. banking markets have undergone important structural and institutional changes. Overall, the sector has experienced steady consolidation through mergers and acquisitions that have resulted in fewer banks holding a greater value of the total assets. Despite consolidation, new branch offices and the growth of alternative providers has increased the access to banking-type services. This paper documents and describes trends in the banking industry in Pennsylvania, with special emphasis on rural areas. The first section shows that while the number of "bricks and mortar" offices in the state's rural counties has grown, the distribution of the growth has been quite uneven. As a result, access has potentially declined for some of the state's rural residents. In the second section the analysis shows that consolidation is dramatically reducing the number of banks headquartered in Pennsylvania. The analysis shows that, should current trends continuethe loss of 1.25 banks per quarterthen there will be no banks headquartered in rural Pennsylvania in 2025. Consolidation appears to be having an effect on the competitiveness of rural banking markets. While the analysis suggests that urban county banking markets remain fairly competitive, it also suggests that the state's rural banking markets may have less competition.Financial Economics,

ECONOMIC EVALUATION OF INCOME PROTECTION CHOICES FOR WEST TENNESSEE CORN PRODUCERS

Farmers need information about the expected value and variability of net revenues for alternative crop insurance and futures hedging strategies to manage risk. Specifically, the model will determine which risk management strategies are most desirable under various levels of risk aversion. The unstable futures basis relation in the data used in the simulation model contributed to increased variability of net revenues. In general, none of the crop insurance or hedging strategies markedly reduced variability of net revenue and relative riskiness when compared with the cash strategy. Revenue Assurance strategies were the most effective at setting a floor on net revenues. As a result, Revenue Assurance products may perform well for extremely risk averse producers.Marketing, Risk and Uncertainty,

Nebraska Farm Real Estate Market Highlights 2019-2020

Introduction The Nebraska Farm Real Estate Market Highlights 2019-20 report represents the 42nd edition to the annual series. These reports provide an important insight on agricultural land market dynamics for stakeholders across Nebraska. In today’s market, where market transactions exceeding $1 million dollars are the norm, objective market information and analysis is more critical than ever. The focus of the report continues to be on providing unbiased information for agricultural land values and rental rates so industry participants can make educated and informed decisions. This year, the February 2020 survey of nearly 120 expert panel members from across the state provided current information and insight regarding the agricultural land market conditions in their areas. The panel members have been selected on the basis of being actively engaged in agricultural land markets as certified agricultural appraisers, professional farm managers, agricultural lenders primarily focused on agricultural land transactions, and other professionals engaged in the Nebraska agricultural land industry due to the inherit nature of their positions. The majority of panelists participating in the survey have reported annually for a considerable number of years, which provides valuable historical consistency and context to the agricultural land values and rental rates provided. Based on their knowledge of market activity, reporters provide point-in-time estimates of current agricultural land values and cash rental rates for a variety of land types and classes. Comparing these current measures against previous years’ results provides important trend analysis. The appendix in this report includes: the historical UNL data series for Nebraska agricultural land values dating back to 1978, the agricultural cash rental rate series dating back to 1981, and the USDA historical all-land value series. In addition to the point-in-time estimates, panel members provide details regarding actual sales transactions which have occurred over the previous 12 months. This year, the panel provided information on 447 sales that were considered representative of the recent agricultural land market. This gives insight into the characteristics of recent sales as well as benchmark indicators for studying trends. Changes in the nature of market participants engaged in land transactions from year to year may also be ascertained from evaluating this information

Nebraska Farm Real Estate Market Highlights 2019-2020

Introduction The Nebraska Farm Real Estate Market Highlights 2019-20 report represents the 42nd edition to the annual series. These reports provide an important insight on agricultural land market dynamics for stakeholders across Nebraska. In today’s market, where market transactions exceeding $1 million dollars are the norm, objective market information and analysis is more critical than ever. The focus of the report continues to be on providing unbiased information for agricultural land values and rental rates so industry participants can make educated and informed decisions. This year, the February 2020 survey of nearly 120 expert panel members from across the state provided current information and insight regarding the agricultural land market conditions in their areas. The panel members have been selected on the basis of being actively engaged in agricultural land markets as certified agricultural appraisers, professional farm managers, agricultural lenders primarily focused on agricultural land transactions, and other professionals engaged in the Nebraska agricultural land industry due to the inherit nature of their positions. The majority of panelists participating in the survey have reported annually for a considerable number of years, which provides valuable historical consistency and context to the agricultural land values and rental rates provided. Based on their knowledge of market activity, reporters provide point-in-time estimates of current agricultural land values and cash rental rates for a variety of land types and classes. Comparing these current measures against previous years’ results provides important trend analysis. The appendix in this report includes: the historical UNL data series for Nebraska agricultural land values dating back to 1978, the agricultural cash rental rate series dating back to 1981, and the USDA historical all-land value series. In addition to the point-in-time estimates, panel members provide details regarding actual sales transactions which have occurred over the previous 12 months. This year, the panel provided information on 447 sales that were considered representative of the recent agricultural land market. This gives insight into the characteristics of recent sales as well as benchmark indicators for studying trends. Changes in the nature of market participants engaged in land transactions from year to year may also be ascertained from evaluating this information

Evaluating the Impact of COVID-19 on Nebraska Land Auctions and Implications for Future Farm Real Estate Sales in 2021

The Nebraska Farm Real Estate Market Survey and Report 2020-2021 provides insight into recent trends on the market value of agricultural land and cash rental rates across the state. Each year, the special feature section from this report covers topics on new or emerging issues related to the agricultural land industry in Nebraska. These topics reflect interest expressed by panel members and readership of the Nebraska Farm Real Estate Market Highlights Reports. The special feature section in 2021 evaluates the effects of COVID-19 on Nebraska land auctions over the prior year and implications for this transaction method involving future agricultural real estate sales

Will Nebraska Farms and Ranches Be Ready for Double Digit Operating Line Rates?

For those involved in agriculture, it has been quite a while since interest rates on farm real estate, equipment, and operating lines have been as high as they are for the industry. As the fall harvest winds down and producers focus on next year, interest rates on operating lines may cause shock. It has been over 20 years since interest rates on operating lines exceeded 10%. To better understand what may be causing interest rates on operating lines to rise, it will be beneficial to understand some basic monetary policy tools the Fed has at its disposal. The tool receiving heavy attention of late, and the one (often incorrectly, but) frequently reported on by the media, is the fed funds rate

2022 Nebraska Farmland Values and Cash Rental Rates

The market value of agricultural land in Nebraska increased by 16% over the prior year to an average of $3,360 per acre, according to the 2022 Nebraska Farm Real Estate Market Survey (Figure 1 and Table 1). This marks the largest increase in the market value of agricultural land in Nebraska since 2014 and is the highest non-inflation-adjusted state-wide land value in the history of the surve