IMPACT OF SELECTED FINANCIAL MEASURES ON THE DEBT REPAYMENT ABILITY OF ILLINOIS GRAIN FARMS
A clear and accurate assessment of the financial performance of the farm business is an important component of financial management at any time, but becomes even more crucial in periods of economic downturn in the sector. Continued periods of low commodity prices coupled with rising interest rates and high input costs have negatively affected the financial performance of farm businesses in the past five years. In addition, high and not declining family living expenses place additional financial pressure on farms. Equity withdrawals from farm businesses to cover family living expenses have also been identified as one of the key drivers of cash flow depletion (Scott, 2016). Farmers continue to increase their debt even though the prices of commodities are low, and inputs are high (Krapf, Raab, & Zwilling, 2017). Moreover, the lower commodity prices, higher cost and level of borrowing, and higher equity withdrawals will most likely deplete cashflows, deteriorate farm liquidity and worsen debt repayment capacity. Between 2016 and 2017, agricultural loan delinquency rates increased by an average of 14.1 percent quarterly (Board of Governors of the Federal Reserve System, 2017). On the other hand, default rates of agricultural loans in general are increasing steadily; this further supports the hypothesis for a weakening debt repayment capacity of farm businesses. Recently, lenders have started restructuring farm loans and tightening collateral requirements in periods of low commodity prices and declining farm incomes for grain farms. Fully understanding and realizing the impact of certain financial measures of the business and equity withdrawals from the farm on its ability to service debt will help both agricultural producers and lending community to make more effective production, investment and spending decisions. This study will however employ the farm-level data obtained from Illinois Farm Business Farm Management . The dataset includes the relevant financial variables in the 2017 financial statements (Income Statement, Balance Sheet, and the Statement of Sources and Uses of Funds) of Illinois grain farms. The goal of the study is to examine the impact of selected farm financial measures as identified in existing literature on the ability of Illinois grain farms to service debt. The inclusion of the family living expenses in the analysis is expected to shed light on the importance of these equity withdrawals on the farm's debt repayment ability.
Johnson, Samuel, "IMPACT OF SELECTED FINANCIAL MEASURES ON THE DEBT REPAYMENT ABILITY OF ILLINOIS GRAIN FARMS" (2019). University Research Symposium. 196.