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Returns to Equity Capital by Economic Class of Farm

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  • Hottel, J. Bruce
  • Reinsel, Robert D

Abstract

Estimates of returns to equity capital invested in U.S. farm production are developed by using 1970 census benchmark data, which are the latest data available on farm finance. The rate of returns ranged from negative on farms with less than $10,000 gross farm sales to near 7 percent on the largest economic class farms. Only one-third of the farms had gross sales over $10,000, but accounted for 71 percent of all assets and earned returns above the composite average of 2.1 percent. This illustrates the problem inherent in using a composite average for "all farms" to represent the entire industry. The importance of off-farm income and additional returns to equity due to land appreciation probably explains why smaller farm units can exist on low farm returns. The difference in returns may help explain the increase in farm size, particularly for commercial units. Demands for loan funds will also substantially increase with the upward mobility in size classes and the tendency for larger farms to incur more debts. Higher capital requirements on larger units could also bring more equity financing in agriculture.

Suggested Citation

  • Hottel, J. Bruce & Reinsel, Robert D, 1976. "Returns to Equity Capital by Economic Class of Farm," Agricultural Economic Reports 307617, United States Department of Agriculture, Economic Research Service.
    • Handle: RePEc:ags:uerser:307617
    DOI: 10.22004/ag.econ.307617
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    Citations

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    Cited by:

    1. Boehm, William T. & Penn, J.B., 1978. "Research Issues Reemphasized by 1977 Food Policy Legislation," Economics Statistics and Cooperative Services (ESCS) Reports 142841, United States Department of Agriculture, Economic Research Service.
    2. Knutson, Ronald D., 1979. "The structure of agriculture: An evaluation of conventional wisdom," Agricultural Outlook Forum Archive 1923 - 1997 325902, United States Department of Agriculture, Agricultural Outlook Forum.
    3. Blandford, David, 1978. "Regional Impact Of Trade Liberalization On The Income Of U.S. Grain/Livestock Farmers," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 3(1), pages 1-8, July.
    4. Economics, Statistics, and Cooperatives Service, 1978. "Proceedings of Workshop on Farm Sector Financial Accounts, April 14-15, 1977," Agricultural Economic Reports 307690, United States Department of Agriculture, Economic Research Service.
    5. West, Jerry G., 1979. "Agricultural Economics Research And Extension Needs Of Small-Scale, Limited-Resource Farmers," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 11(1), pages 1-8, July.
    6. Mason, Bert, 1978. "Causes Of Low Returns To Farm Labor In The U.S.: An Analysis Of Factor Market Interactions," Northeastern Journal of Agricultural and Resource Economics, Northeastern Agricultural and Resource Economics Association, vol. 0(Number 1), pages 1-6, April.
    7. Mason, Bert, 1978. "Causes Of Low Returns To Farm Labor In The U.S.: An Analysis Of Factor Market Interactions," Journal of the Northeastern Agricultural Economics Council, Northeastern Agricultural and Resource Economics Association, vol. 7(1), pages 1-6, April.

    More about this item

    Keywords

    Agricultural Finance; Financial Economics;

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