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

Author

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  • Featherstone, Allen M.
  • Schroeder, Ted C.
  • Burton, Robert O.

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.

Suggested Citation

  • Featherstone, Allen M. & Schroeder, Ted C. & Burton, Robert O., 1988. "Allocation of Farm Financial Stress Among Income, Leverage, and Interest Rate Components: A Kansas Example," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 20(2), pages 15-24, December.
    • Handle: RePEc:cup:jagaec:v:20:y:1988:i:02:p:15-24_01
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    Cited by:

    1. Burns, Christopher & Tulman, Sarah & Harris, J. Michael, 2015. "Farm Financial Stress in a Changing Economic Environment: Simulating Credit Risk with New Imputed ARMS Data on Farm Debt," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205295, Agricultural and Applied Economics Association.
    2. Leslie, J. R. & Darroch, M. A. G., 1992. "Income And Debt Components Of Farm Financial Stress: A Natal Example," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 31(4), December.

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