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

Allen Featherstone, Ted Schroeder and Robert O. Burton

Journal of Agricultural and Applied Economics, 1988, vol. 20, issue 2, 15-24

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.

Date: 1988
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Journal Article: ALLOCATION OF FARM FINANCIAL STRESS AMONG INCOME, LEVERAGE, AND INTEREST RATE COMPONENETS: A KANSAS EXAMPLE (1988)
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