Evaluating financial stress and performance of beginning farmers during the agricultural downturn

Abstract

Purpose

The purpose of this paper is to examine the financial performance and stress of beginning farmers in the USA with emphasis on the agricultural downturn experienced since 2013.

Design/methodology/approach

Using the US Department of Agriculture’s Agricultural Resource Management Survey (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 as defined by the Farm Financial Standards Council. The financial ratios involve liquidity, solvency, profitability, efficiency, and repayment capacity.

Findings

Beginning farmers are at a greater risk of financial stress on average, with higher likelihood of financial stress in liquidity and efficiency. Further, the recent agricultural downturn has negatively affected liquidity, solvency, and profitability for farmers while repayment capacity does not appear to be affected. During the downturn, beginning farmers are better positioned than the general farming population with respect to liquidity and repayment capacity.

Originality/value

This paper applies current lending practices to a nationally representative sample of farms over a time of changing economic conditions for the agricultural sector.

Citation

Katchova, A.L. and Dinterman, R. (2018), "Evaluating financial stress and performance of beginning farmers during the agricultural downturn", Agricultural Finance Review, Vol. 78 No. 4, pp. 457-469. https://doi.org/10.1108/AFR-08-2017-0074