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Effectiveness of Increasing Liquidity as a Response to Increased Repayment Risk: A Case Study

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  • Yeager, Elizabeth A.
  • Banard, Freddie L.

Abstract

Volatile net farm incomes and potential for higher interest rates has strengthened the importance of managing liquidity. This paper evaluates the effectiveness of increasing liquidity levels as a means of reducing repayment risk for agricultural firms. Using a base case farming operation and three interest rate scenarios, eight potential changes in the operating situation, and two leverage levels, it was found increasing the level of liquidity was an effective means of reducing repayment risk. The management practice was found to be more effective for offsetting the adverse effects of increasing interest rates and operating expenses than for decreasing gross farm revenue and increasing leverage levels.

Suggested Citation

  • Yeager, Elizabeth A. & Banard, Freddie L., 2014. "Effectiveness of Increasing Liquidity as a Response to Increased Repayment Risk: A Case Study," Journal of the ASFMRA, American Society of Farm Managers and Rural Appraisers, vol. 2014, pages 1-19.
    • Handle: RePEc:ags:jasfmr:197094
    DOI: 10.22004/ag.econ.197094
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    File URL: https://ageconsearch.umn.edu/record/197094/files/400-Barnard.pdf
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    References listed on IDEAS

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    1. Unknown, 2014. "Department Publications 2013," Publications Lists 206935, University of Minnesota, Department of Applied Economics.
    2. Durguner, Seda & Katchova, Ani L., 2007. "Credit Scoring Models in Illinois by Farm Type: Hog, Dairy, Beef and Grain," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon 9356, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. Barnard, Freddie L. & Yeager, Elizabeth & Miller, Alan, 2013. "New Features Added to the Purdue Farm Financial Analysis Spreadsheet," Journal of the ASFMRA, American Society of Farm Managers and Rural Appraisers, vol. 2013, pages 1-14, June.
    4. Barnard, Freddie L. & Ellinger, Paul N. & Wilson, Christine A., 2010. "Measurement Issues in Assessing Farm Profitability through Cash Tax Returns," Journal of the ASFMRA, American Society of Farm Managers and Rural Appraisers, vol. 2010, pages 1-11.
    5. Jason Henderson & Nathan Kauffman, 2013. "The wealth effect in U.S. agriculture," Main Street Economist, Federal Reserve Bank of Kansas City, issue 1.
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    Keywords

    Farm Management; Financial Economics;

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