Ability to Pay and Agriculture Sector Stability

The recent reduction in commodity prices and farmland values following the substantial growth in the agriculture sector has called into question the risk profile of agricultural enterprises. Following the boom witnessed in the 1970’s, the sector witnessed a contraction in prices, demand for goods, and asset values that led many farm enterprises and commercial, agricultural banks to bankruptcy. Many factors of the current evolution of the sector have proven different than those of previous sector cycles yet understanding the reoccurring timeline of events and considering possible causal relationships between major drivers of stability prove pertinent to the continued operation of the most vulnerable farm operations and agricultural lenders. Substantial debt accumulation and repayment capacity have been a precursor and likely catalyst of the previous so called “busts” of farm sector cycles. The analysis performed will address drivers of debt accumulation and the ability of the agriculture sector to service debt. Specifically, the leverage ratio, debt relative to assets, and the debt-burden ratio, debt relative to income, are analyzed. These ratios signal vulnerability to changes in performance of a sector or a specific enterprise’s ability to endure a downturn in the market.


Issue Date:
2017
Publication Type:
Conference Paper/ Presentation
PURL Identifier:
http://purl.umn.edu/252829




 Record created 2017-04-01, last modified 2017-04-26

Fulltext:
Download fulltext
PDF

Rate this document:

Rate this document:
1
2
3
 
(Not yet reviewed)