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Article
Publication date: 1 November 2002

Peter J. Barry, Cesar L. Escalante and LeeAnn E. Moss

This study utilizes an expected utility framework to conceptualize the risk‐adjusted valuation of cash versus share leases for farmers and landowners. Farm‐level data then are…

Abstract

This study utilizes an expected utility framework to conceptualize the risk‐adjusted valuation of cash versus share leases for farmers and landowners. Farm‐level data then are used to empirically estimate the rental spread between these leases in Illinois, and to econometrically evaluate how these spreads are related to risks and other farm characteristics. The results indicate that non‐risk factors likely are the primary determinants of the magnitude and sign of the rental spread. In particular, high cash rent may be a bidding strategy to control additional leased acreage and thus expand farm size.

Details

Agricultural Finance Review, vol. 62 no. 2
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 3 May 2013

Nicholas D. Paulson and Gary D. Schnitkey

This article aims to explore recent trends in farmland rental markets using data for the state of Illinois. Trends in the types of rental agreements used and the relationship…

Abstract

Purpose

This article aims to explore recent trends in farmland rental markets using data for the state of Illinois. Trends in the types of rental agreements used and the relationship between the rental rate for those contracts, land values, crop revenues, production costs, and farm returns are examined.

Design/methodology/approach

Data from various sources and at different levels of aggregation for the state of Illinois are used to provide illustrations of historical trends in farmland rental agreements and rental rates, and how they are related to various market and industry factors. Focus is placed on the more recent period since 2005 characterized by high commodity price levels and volatility.

Findings

The majority of farmland in the Midwest is controlled under rental agreements which are increasingly of the fixed cash rent type. Rental rates have increased, but at a slower rate than farm returns. Average rental and interest rates imply that land values are consistent with the current market environment. Aggregate rental rates mask considerable variation in farm‐level rents, only a portion of which can be explained by differences in soil productivity. Given the current level of price volatility, the tenure position of a farm operation has a significant effect on downside risk exposure.

Originality/value

The illustrations provided in this paper should be of interest to researchers working in the area of farmland values and rental agreements, as well as to practitioners including farmers, landowners, and professional farm managers. The findings should motivate additional research and recognition of the importance of tenure position to the performance and risk exposure of grain farms.

Details

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

Keywords

Article
Publication date: 31 December 2002

Gary D. Schnitkey, Bruce J. Sherrick and Scott H. Irwin

This study evaluates the impacts on gross revenue distributions of the use of alternative crop insurance products across different coverage levels and across locations with…

Abstract

This study evaluates the impacts on gross revenue distributions of the use of alternative crop insurance products across different coverage levels and across locations with differing yield risks. Results are presented in terms of net costs, values‐at‐risk, and certainty equivalent returns associated with five types of multi‐peril crop insurance across different coverage levels. Findings show that the group policies often result in average payments exceeding their premium costs. Individual revenue products reduce risk in the tails more than group policies, but result in greater reductions in mean revenues. Rankings based on certainty equivalent returns and low frequency VaRs generally favor revenue products. As expected, crop insurance is associated with greater relative risk reduction in locations with greater underlying yield variability.

Details

Agricultural Finance Review, vol. 63 no. 1
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 5 May 2002

Cesar L. Escalante and Peter J. Barry

This study identifies key strategies employed by Illinois grain farms to prevent the erosion of their equity positions due to significant downturns in commodity prices during the…

Abstract

This study identifies key strategies employed by Illinois grain farms to prevent the erosion of their equity positions due to significant downturns in commodity prices during the implementation of the 1996 farm bill. The econometric results emphasize the collective importance of revenue enhancement, cost reduction, and capital management strategies. Nonfarm‐related strategies aimed at minimizing equity withdrawals through regulated family living expenditures, as well as supplementing low farm incomes with receipts from nonfarm employment and investments, significantly affect cost value equity growth rates. Moreover, significant financial and asset management strategies include those that minimize the costs of borrowing and maintain high asset productivity levels through elimination of excess farm capacity.

Article
Publication date: 28 October 2014

Todd H. Kuethe, Brian Briggeman, Nicholas D. Paulson and Ani L. Katchova

– The purpose of this paper is to compare the characteristics of farms who participate in farm management associations to the wider population of farms at the state level.

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Abstract

Purpose

The purpose of this paper is to compare the characteristics of farms who participate in farm management associations to the wider population of farms at the state level.

Design/methodology/approach

Farm-level records obtained from the USDA's Agricultural Resource Management Survey (ARMS) are compared to similar data obtained from farm management associations in three states: Illinois, Kansas, and Kentucky.

Findings

Data collected through farm management associations tend to represent larger farms and a greater share of crop producers as compared to livestock producers. Association data, however, capture a greater share of younger farm operators.

Originality/value

This is the first study to compare farm statistics from several farm management associations to ARMS, and the study confirms the findings of existing studies of prior USDA surveys.

Details

Agricultural Finance Review, vol. 74 no. 4
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 26 August 2014

Bruce J. Sherrick, Christopher A. Lanoue, Joshua Woodard, Gary D. Schnitkey and Nicholas D. Paulson

The purpose of this paper is to contribute to the empirical evidence about crop yield distributions that are often used in practical models evaluating crop yield risk and…

Abstract

Purpose

The purpose of this paper is to contribute to the empirical evidence about crop yield distributions that are often used in practical models evaluating crop yield risk and insurance. Additionally, a simulation approach is used to compare the performance of alternative specifications when the underlying form is not known, to identify implications for the choice of parameterization of yield distributions in modeling contexts.

Design/methodology/approach

Using a unique high-quality farm-level corn yield data set, commonly used parametric, semi-parametric, and non-parametric distributions are examined against widely used in-sample goodness-of-fit (GOF) measures. Then, a simulation framework is used to assess the out-of-sample characteristics by using known distributions to generate samples that are assessed in an insurance valuation context under alternative specifications of the yield distribution.

Findings

Bias and efficiency trade-offs are identified for both in- and out-of-sample contexts, including a simple insurance rating application. Use of GOF measures in small samples can lead to inappropriate selection of candidate distributions that perform poorly in straightforward economic applications. The β distribution consistently overstates rates even when fitted to data generated from a β distribution, while the Weibull consistently understates rates; though small sample features slightly favor Weibull. The TCMN and kernel density estimators are least biased in-sample, but can perform very badly out-of-sample due to overfitting issues. The TCMN performs reasonably well across sample sizes and initial conditions.

Practical implications

Economic applications should consider the consequence of bias vs efficiency in the selection of characterizations of yield risk. Parsimonious specifications often outperform more complex characterizations of yield distributions in small sample settings, and in cases where more demanding uses of extreme-event probabilities are required.

Originality/value

The study helps provide guidance on the selection of distributions used to characterize yield risk and provides an extensive empirical demonstration of yield risk measures across a high-quality set of actual farm experiences. The out-of-sample examination provides evidence of the impact of sample size, underlying variability, and region of the probability measure used on the performance of candidate distributions.

Details

Agricultural Finance Review, vol. 74 no. 3
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 5 May 2002

Peter J. Barry, Cesar L. Escalante and Paul N. Ellinger

The migration approach to credit risk measurement is based on historic rates of movements of individual loans among the classes of a lender’s risk‐rating or credit‐scoring system…

Abstract

The migration approach to credit risk measurement is based on historic rates of movements of individual loans among the classes of a lender’s risk‐rating or credit‐scoring system. This article applies the migration concept to farm‐level data from Illinois to estimate migration rates for a farmer’s credit score and other performance measures under different time‐averaging approaches. Empirical results suggest greater stability in rating migrations for longer time‐averaging periods (although less stable than bond migrations), and for the credit score criterion versus ROE and repayment capacity.

Details

Agricultural Finance Review, vol. 62 no. 1
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 1 November 2004

Cesar L. Escalante, Peter J. Barry, Timothy A. Park and Ebru Demir

Logistic regression techniques for panel data are used to identify factors affecting farm credit transition probabilities. Results indicate that most farm‐specific factors do not…

Abstract

Logistic regression techniques for panel data are used to identify factors affecting farm credit transition probabilities. Results indicate that most farm‐specific factors do not have adequate explanatory influence on the probability of farm credit risk transition. Class upgrade probabilities are more significantly affected by changes in certain macroeconomic factors, such as economic growth signals (from changes in stock price indexes and farm real estate values) and larger money supply that relax the credit constraint. Increases in interest rates, on the other hand, negatively affect such probabilities.

Article
Publication date: 5 May 2004

Jill M. Phillips and Ani L. Katchova

This study examines credit score migration rates of farm businesses, testing whether migration probabilities differ across business cycles. Results suggest that agricultural…

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Abstract

This study examines credit score migration rates of farm businesses, testing whether migration probabilities differ across business cycles. Results suggest that agricultural credit ratings are more likely to improve during expansions and deteriorate during recessions. The analysis also tests whether agricultural credit ratings depend on the previous period migration trends. The findings show that credit score ratings exhibit trend reversal where upgrades (downgrades) are more likely to be followed by downgrades (upgrades).

Details

Agricultural Finance Review, vol. 64 no. 1
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 9 November 2010

Nicholas D. Paulson, Gary D. Schnitkey and Bruce J. Sherrick

This study seeks to evaluate the impacts of land rental arrangements on crop insurance and grain marketing decisions.

Abstract

Purpose

This study seeks to evaluate the impacts of land rental arrangements on crop insurance and grain marketing decisions.

Design/methodology/approach

The analysis is conducted in an Illinois corn‐soybean setting in which optimal marketing and crop insurance decisions are estimated for a risk‐averse producer under typical cash rent and share rent agreements using numerical simulation methods.

Findings

Results indicate that the availability of crop insurance impacts the intensity of use of put options under both cash and share rent arrangements. Similar to previous work in this area, revenue insurance is found to cause a substitution away from marketing using put options, while yield insurance is complementary to price risk management alternatives. However, while insurance and marketing play a role under both types of land tenure arrangements, shifting from a cash rent to a share rent agreement provides a relatively greater degree of risk reduction.

Practical implications

The results suggest that additional research is needed to explain trends in land rental contracts. Crop insurance and other federal programs may provide incentives to switch from share leases to cash rent arrangements. Changes to the design of these programs could facilitate risk management for producers more efficiently.

Originality/value

The unique contribution of this study is the comparison of insurance and marketing decisions under both cash rent and share rent agreements for crop land.

Details

Agricultural Finance Review, vol. 70 no. 3
Type: Research Article
ISSN: 0002-1466

Keywords

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