Performing Department
Agri Economics & Agribusiness
Non Technical Summary
The primary activity of this regional research group is our annual meeting held each year in conjunction with the National Agricultural Credit Committee (NACC) and hosted by the Federal Reserve Bank of Kansas City. The meetings therefore represent one of the few opportunities to bring together members of academia, industry, and government to discuss important issues in agricultural finance. Each of the objectives will be explicitly addressed in the call for papers for the academic portion of the meetings. In addition, the industry and government panels of the combined sessions with the NACC will address each of the objectives. The objectives will be evaluated based on the research projects presented and the discussion between the various parties attending. Further, a number of the research projects are expected to be published in peer-reviewed academic journals and the extension service of the various states represented by the meeting. This will provide a quantitative measure of the impact of the research generated and the reach of the findings in academic, policy, and business communities.Upon completion of the project, insights will be gained to ultimately improve the functioning of agricultural and rural financial markets. Producers, rural residents, and businesses should benefit through increased performance and reduced business risk. The lending sector will become more stable and better prepared to face future policy, portfolio and structure-related challenges. The value of this work to stakeholders is evidenced by the large number of non-station members who actively participate in annual meetings and desire to keep abreast of research results via listserve communication. There are no apparent barriers hindering the technical feasibility of the proposed research project.
Animal Health Component
0%
Research Effort Categories
Basic
(N/A)
Applied
50%
Developmental
50%
Goals / Objectives
Evaluate the management strategies, capital needs, and policy impacting the financial performance and long-term sustainability of firms in the food and agribusiness sector
Identify financial institutions and services that benefit agricultural producers and rural communities and expand agricultural markets, especially those producers that are beginning, young, from socially disadvantaged groups, and/or involved in producing specialty crops
Project Methods
The primary concern of the agricultural finance community during the last proposal was the sector's ability to withstand the Great Recession. There were a number of concerns about how disturbances in the banking and credit industries, as well as the broader economy as a whole, may spill over to the agricultural sector. Research coming out of the previous regional research project demonstrated that the agricultural sector enjoyed a period of relative prosperity following the Great Recession, marked by high commodity prices, rising farm incomes, and record agricultural asset values. This occurred as the economy as a whole experienced a recession and slow recovery. The phenomenon raised a number of important questions going forward related to the linkages between agricultural and the broader economy, as well as the importance of policy in agricultural finance.Presently, the primary concern is whether the agricultural sector will continue to experience high growth, income levels, and healthy credit markets relative the broader economy. Previous research of this regional research group suggests that the financial health of the agricultural sector should be closely monitored as the risk of a decline in agricultural incomes and asset values appears likely. While the agricultural sector appears decoupled from the broader economy, declining commodity prices and increasing costs of borrowing may be a harbinger of a significant decline in the farm financial conditions.The theoretical basis used to frame the research outputs of this regional research group are drawn from theory of finance and credit markets. According to the simplest model of asset valuation, the present value model, the value of an asset is determined by the discounted stream of expected future returns. As a result, the major areas of concern for agricultural finance are (i) expected farm income, (ii) interest rates (the discount factor), and (iii) asset values. These three components comprise the tenants of agricultural finance research and are the primary topics of inquiry for this regional research group.