Climate Variability and Agricultural Loan Delinquency in the US

Denis Nadolnyak, Valentina Hartarska () and Xuan Shen

International Journal of Economics and Finance, 2016, vol. 8, issue 12, 238-249

Abstract: Inter-annual climate variability in the Southeastern US that affects farm productivity and cash flows is largely dependent on the predictable El Nino Southern Oscillation (ENSO) phenomenon. In this paper, we estimate the association between the ENSO anomalies and the performance of agricultural loan portfolios of the Farm Credit System (FCS) institutions - the largest agricultural lender in this region. We find that, compared to neutral years, the share of delinquent loans in the FCS portfolio decreases by 1.5 to 2 percentage points following La Nina years and increases by 1.5 to 2 percentage points following El Nino years. These delinquencies are generally resolved because the impact on loan write-offs is much smaller, although statistically significant which suggests that the FCS institutions have well-diversified portfolios. The results also suggest that agricultural insurance markets are complementary to credit markets, that land values at loan origination have a positive impact on delinquencies, and that loan write-offs decrease with the lender¡¯s size.

Keywords: loan delinquency and default; farm credit system; climate variability and climate change; ENSO; farm debt; Southeastern USA (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ibn:ijefaa:v:8:y:2016:i:12:p:238-249

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