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Credit Scoring Models in Illinois by Farm Type: Hog, Dairy, Beef and Grain

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  • Durguner, Seda
  • Katchova, Ani L.

Abstract

Employing a logit model and farm-level data for Illinois from 1995 to 2004, this study explores the importance of farm-type differences in the development of credit scoring models. Apart from the conclusion that regional credit scoring models specific to each farm type are needed, the following are identified as the most pertinent factors for explaining creditworthiness: previous year's working capital to gross farm return, the debt-to-asset ratio, and return on farm assets. Furthermore, beef farms have a larger marginal effect compared to grain farms on the probability of the farmer being highly creditworthy. Hog farms differ from grain farms in how the following financial characteristics affect farmer creditworthiness: solvency, profitability, and financial efficiency. These separate credit scoring models result in increased expected profit for the lender, better capital management, less bankruptcy, and less burden on the government and tax payers.

Suggested Citation

  • Durguner, Seda & Katchova, Ani L., 2007. "Credit Scoring Models in Illinois by Farm Type: Hog, Dairy, Beef and Grain," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon 9356, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea07:9356
    DOI: 10.22004/ag.econ.9356
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    Cited by:

    1. Frederick Murdoch Quaye & Denis Nadolnyak & Valentina Hartarska, 2017. "Factors Affecting Farm Loan Delinquency in the Southeast," Research in Applied Economics, Macrothink Institute, vol. 9(4), pages 75-92, December.
    2. Yeager, Elizabeth A. & Banard, Freddie L., 2014. "Effectiveness of Increasing Liquidity as a Response to Increased Repayment Risk: A Case Study," Journal of the ASFMRA, American Society of Farm Managers and Rural Appraisers, vol. 2014, pages 1-19.
    3. Alan Reichert & Raymond Posey, 2011. "Using Financial Ratios And Lender Relationship Theory To Assess Farm Creditworthiness," Accounting & Taxation, The Institute for Business and Finance Research, vol. 3(1), pages 45-56.
    4. Barnard, Freddie L. & Ellinger, Paul N. & Wilson, Christine A., 2010. "Measurement Issues in Assessing Farm Profitability through Cash Tax Returns," Journal of the ASFMRA, American Society of Farm Managers and Rural Appraisers, vol. 2010, pages 1-11.
    5. Quaye, Frederick & Hartarska, Valentina & Nadolnyak, Denis, 2015. "Farmer Credit Delinquency in Southeastern US: Factors and Behavior Prediction," 2015 Annual Meeting, January 31-February 3, 2015, Atlanta, Georgia 196914, Southern Agricultural Economics Association.

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    Keywords

    Agricultural Finance;

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