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Allocation of Farm Financial Stress Among Income, Leverage, and Interest Rate Components: A Kansas Example

Published online by Cambridge University Press:  28 April 2015

Allen M. Featherstone ,
Ted C. Schroeder  and
Robert O. Burton Jr.
Allen M. Featherstone
Affiliation:
Department of Agricultural Economics, Kansas State University, Manhattan, Kansas
Ted C. Schroeder
Affiliation:
Department of Agricultural Economics, Kansas State University, Manhattan, Kansas
Robert O. Burton Jr.
Affiliation:
Department of Agricultural Economics, Kansas State University, Manhattan, Kansas
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Abstract

Suggested methods to reduce farm financial stress have included interest rate buy-downs and debt forgiveness. This study develops a method to estimate the proportion of individual farm financial stress attributable to an income problem, a leverage problem, and an interest rate problem. Of the Kansas Farm Management Association farms with a financial problem, 30 percent of the total financial problem is caused by an interest rate problem, 28 percent by a leverage problem, and 42 percent by an income problem. A reduction of leverage or interest rate to the level attained by the average nonstressed farms would make 31 percent and 32 percent of the stressed farms profitable, respectively. Therefore, in the short run, an interest rate buy-down or a debt reduction would be equally effective.

Keywords

financial stressallocationincomedebt
Type
Submitted Articles
Information
Journal of Agricultural and Applied Economics , Volume 20 , Issue 2 , December 1988 , pp. 15 - 24
Copyright
Copyright © Southern Agricultural Economics Association 1988

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