A REPRESENTATIVE MARKET MODEL OF FARMLAND BID PRICES

A land bid-price model is formulated which integrates asset pricing models form prior studies to illustrate the singular and joint effects of ordinary and capital gains taxes, growth of returns, diseconomies of size, and risk behavior on farmland prices. An application of the model to primary data from cash grains farms illustrates that the ceteris paribus effect of increased marginal tax rates on a perpetual, growing income stream is to increase its present value. Larger farms in higher marginal tax brackets are shown to have a competitive advantage over smaller, lower tax bracket farms.Land Economics/Use,

AGRICULTURAL LOAN REVIEW AND RISK RATING FOR COMMUNITY BANKS

Agricultural Finance,

Using Real Options to Evaluate Investments in Ethanol Facilities

This paper uses real option analysis to evaluate investment decisions in ethanol facilities. First, we consider the option to expand the scale of a conventional ethanol plant. Second, we evaluate the option to choose a production technology given three drymilling choices – a conventional natural gas-fueled plant, a stover-fueled plant, and a stover-plus-syrup-fueled plant. We develop input-output coefficients and annual cash flow projections for a hypothetical small ethanol plant (50 million gallon capacity) using available industry and market price data. Scenario analysis is done to evaluate the effect of profitability and volatility on the option to expand. We find that the best decision during 2001-07 is often to expand, since the net present values of the investment project are positive. However, there are states in the binomial tree where it is best to wait. In relatively few such states the expansion project is simply rejected. During the early part of the period low profitability and high volatility more frequently favor strategies of waiting to invest until prices and profitability improve. During the latter part of the period (2005-07), profitability is sharply higher and most often the best strategy is to invest in the expansion. This result is consistent with the observed rapid increase in industry production capacity during 2005- 07. However, more recent market developments, sharply higher corn and natural gas prices and slightly higher ethanol prices during late 2007-early 2008, have combined to sharply reduce expected plant cash flow and profitability and cash flow volatility. The implication is that plant investment plans in 2008 would be increasingly placed on hold, which the real option model correctly predicts. The real option analysis of technology choice indicates that the stover-fueled technologies are most often chosen when compared to a natural gas-fueled conventional technology based on the prices that existed during 2001-2007.Financial Economics, Resource /Energy Economics and Policy,

TRADE AND MACROECONOMIC POLICY: WHAT DOES IT MEAN FOR FARMERS AND LENDERS?

International Relations/Trade,

Determinants of Foreign Direct Investment in the Food Manufacturing Industry

This paper examines firm-specific characteristics in the food manufacturing industry that affect firms' decisions in accessing foreign markets via foreign direct investment (FDI). It also seeks to assess variations in the intensity level of multinational firm involvement in FDI given these characteristics. It finds that capital-intensive firms with higher levels of intangible assets, profitability, and knowledge capital are more likely to be MNEs. It also finds that intangible assets and knowledge capital underline the tendency of MNEs to invest more intensively abroad. Furthermore, firm size is found to play an important but not necessarily dominant role in FDI propensity and intensity.Agribusiness,

Economic Effects of Minnesota’s Basic and Seller Assisted Loan Program on Farm Profitability and Investment

Agricultural Finance,

CHALLENGES OF AGRICULTURAL AND RURAL FINANCE IN CEE, NIS AND BALTIC COUNTRIES

Initially, we explore the attitudes and perceptions of farmers and low farm profitability as potential constraints to rural financial intermediation and investment in agriculture. As part of this discussion we consider what is factual about the "access to credit problem." Second, we summarize recent changes in agricultural finance and credit conditions in the CEE, NIS, and Baltic countries. The focus here is on observed financing patterns, sources of credit, and the set of constraints which are thought to affect the level of rural financial intermediation. Third, we consider how banks are adapting to the new farming structures. Fourth, we review the primary modes of government intervention in financial markets and the role of government in dealing with the bad loans problem by providing "soft credits" via the banks. We conclude by suggesting the means by which governments can foster development of effective rural financial markets.Agricultural Finance,

FINANCIAL RISK MANAGEMENT ALTERNATIVES IN A WHOLE-FARM SETTING

Risk programming and simulation methods are used to analyze the opportunity to reduce whole-farm risk in a diversified cash crop farm through reduced leverage and/or adjustments in rental arrangements. These two financial strategies are shown to extend the ability of the farm operator to manage downside risk beyond the singular effects of a diversified farm plan. The analysis indicates that a trade-off occurs between these strategies, but that the reduction of debt has a greater impact on the distributions of net cash flow (before taxes) and outstanding term debt.Agricultural Finance, Risk and Uncertainty,

Estimation of Farmland Values for Assessment and Property Taxation in North Dakota

Land Economics/Use,

MINNESOTA'S FARMER-LENDER MEDIATION PROGRAM: CASE CHARACTERISTICS AND RESULTS

Agricultural Finance,