Debt, Liquidity, and the Financial Constraints of Conservation Adoption: Evidence from Kansas Commercial Farms

Weather-induced cash flow shocks pose significant risks to agricultural producers through their effects on crop yields, farm income, and financial decision-making. This study examines how Kansas commercial farms respond to weather-driven cash flow shocks—both contemporaneous and persistent—using farm-level panel data from the Kansas Farm Management Association (KFMA) and county-level temperature data from PRISM for the period 2013 to 2020. We find that exposure to extreme degree days above 32◦C (EDD) increases total loan volume and long-term borrowing, consistent with producers using debt to manage operational costs and minimize rollover risk following cash flow shocks. We extend this framework by examining consecutive shock exposure—classifying farm-years by their position within multi-year above-threshold heat streaks. Farms in the first consecutive shock year significantly increase current borrowing, while farms in the second consecutive shock year significantly increase machinery investment, revealing a two-stage adaptation sequence invisible to single-year analysis. Young producers are unable to access current credit in consecutive shock years at the same rate as the average farm, consistent with tighter credit constraints for operators with shorter financial histories. No-till adopters expand their total credit relationships in the onset year of a consecutive streak, suggesting that conservation tillage signals balance sheet quality to lenders under recurring heat stress. These findings are robust to Conley spatial standard errors and inverse hyperbolic sine transformation of outcomes. Our results indicate that producers use external finance to navigate weatherinduced cash flow shocks, with the persistence of these shocks generating distinct financial adaptation responses beyond what contemporaneous heat intensity alone predicts.