FSA farm loan repayment under economic recession and drought conditions

Abstract

Purpose The purpose of this paper is to analyze the repayment records of Farm Service Agency (FSA) borrowers in two distinct US farming regions that have been experienced serious drought conditions even as the US economy was going through a recession. The analysis will identify factors that significantly influence both the probability of FSA borrowers’ survival (capability to remain in good credit standing) and temporal endurance (or length of period of good standing with creditor). Design/methodology/approach This analysis utilizes a data set of farm borrowers of the Farm Service Agency that regular farm lenders have classified as “marginal” relative to other borrowers. The research goal is addressed by confining this study’s regional focus to the Southeast and Midwest that have both dealt with financial stress arising from abnormal natural and economic conditions prevailing during the same time period. A split population duration model is employed to separately identify determinants of the probability and duration of survival (condition of good credit standing). Findings This study’s results indicate that larger loan balances, declining commodity prices, and the severity of drought conditions have adversely affected both the borrowing farms’ probability of survival and temporal endurance in terms of maintaining non-delinquent borrower standing. Notably, Midwestern farms have been relatively less affected by drought conditions compared to Southeastern farms. This study’s results validate the contention that the farms’ capability to survive and the duration of their survival can be attributed to differences in regional resource endowments, farming activities, and business structures. Originality/value This study’s analytical framework departs from the basic duration model approach by considering temporal endurance, in addition to survival probability analysis. This study’s original contributions are enhanced by its specific focus on the contrasting farm business structures and operating environments in the Midwest and Southeast regions.

Mapping Stress in Agricultural Lending

“…For example, the marginal effect of the annual change in crop revenues is −0.0011, suggesting that a 1 percent decrease in crop revenue would lead to a 0.11 percent increase in the probability that a banker would report lower repayment rates. These results are consistent with previous studies: for example, Escalante, Song, and Dodson (2016) show that declining commodity prices and increasing severity of drought adversely affect farmers' ability to repay loans.…”

“…Stress in agricultural lending has been measured in several different ways. The most common measures of stress in agricultural lending are loan repayment rates, loan delinquency rates, and loan defaults (Escalante, Song, and Dodson 2016;Featherstone, Roessler, and Barry 2006;Kim 2005;Oladeebo and Oladeebo 2008;Quaye, Nadolnyak, and Hatarska 2017;Singh 2017). Loan repayment rates track the pace at which borrowers repay loans, taking into account both the timing and amount of payments.…”

Investigation on Various Aboveground Traits to Identify Drought Tolerance in Cowpea Seedlings

“…Significant industry dealing with cowpea cultivation has been noticed in the southern and western parts of the United States, because cowpea is an economically profitable crop to grow (Okiror et al, 2008). Evidence of drought conditions has been reported in these areas (Escalante et al, 2016), which could limit cowpea production; however, little has been done toward advancing breeding programs for drought tolerance in cowpea compared with other legumes (Specht et al, 2001).…”

Ad hoc government payments impact on non-real estate farm debt

“…The MFP and CFAP ad hoc government programs aided US net and gross farm income; however, several important questions remain unanswered about the effects of these payments on other indicators of the financial health for agriculture, such as nonreal estate agricultural debt. Producer's ability to repay debt, especially non-real estate agricultural debt, is an important indicator of farm financial stress (Briggeman, 2011;Escalante et al, 2016;Featherstone et al, 2006;Prager et al, 2018). This paper attempts to provide insight into the association of MFP and CFAP payments on nonreal estate agricultural debt.…”