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An Analysis of Optimal Farm Capital Structure

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  • Musser, Wesley N.
  • White, Fred C.
  • McKissick, John C.

Abstract

Use of debt in financing agricultural firms is an issue of perennial interest. Much of this interest reflects farmers’ disastrous experience with debt during the Great Depression. The foreclosed mortgages and bankruptcies of that era reaffirmed an historical feeling that achieving a level of zero debt or financial leverage was a high priority goal. E. G. Johnson, who was Chief of the Economic and Credit Research Division of the Farm Credit Administration, articulated the position in the 1940 Yearbook of Agriculture that this goal is even more important than increasing profits: “It may be well to emphasize again that while credit properly used may help farmers to increase their income and raise their standard of living, the fact must not be overlooked that more credit will not cure all the ills of agriculture. The greatest need is to assist the farmers in getting out of debt, not deeper into it,†[6, p. 754]. As memories of the Great Depression faded, agricultural economists tended to emphasize the effect of debt on farm size and therefore net income.

Suggested Citation

  • Musser, Wesley N. & White, Fred C. & McKissick, John C., 1977. "An Analysis of Optimal Farm Capital Structure," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 9(1), pages 163-168, July.
    • Handle: RePEc:cup:jagaec:v:9:y:1977:i:01:p:163-168_01
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    References listed on IDEAS

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    1. Boehlje, Michael, 1973. "The Entry-Growth-Exit Processes in Agriculture," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 5(1), pages 23-36, July.
    2. Lins, David A., 1972. "Determinants of Net Changes in Farm Real Estate Debt," Journal of Agricultural Economics Research, United States Department of Agriculture, Economic Research Service, vol. 24(1), pages 1-8, January.
    3. John B. Penson, 1972. "Demand for Financial Assets in the Farm Sector: A Portfolio Balance Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 54(2), pages 163-174.
    4. Lins, David A. & Donaldson, Timothy R., 1976. "Explaining Farm Operators Debt: An Application Of The Automatic Interaction Detector Technique," 1976 Annual Meeting, August 15-18, State College, Pennsylvania 283940, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. Boehlje, Michael, 1973. "The Entry-Growth-Exit Processes In Agriculture," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 5(1), pages 1-14, July.
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    1. Sonka, Steven T. & Dixon, Bruce L., 1979. "Determinants Of Lender Response To Short-Term Credit Needs Of Small Commercial Farmers," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 11(1), pages 1-5, July.
    2. Laura Brad & Gabriel Popescu & Alina Zaharia & Maria Claudia Diaconeasa & Daniela Mihai, 2018. "Exploring the Road to Agricultural Sustainability by Assessing the EU Debt Influencing Factors," Sustainability, MDPI, vol. 10(7), pages 1-46, July.

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