Farm survival and performance under alternative financial conditions and credit policies

Abstract

The impact of beginning equity, credit limits imposed by lenders, and changes in land values on farm survival, changes in equity position and farm success (measured by the probability of a positive net present value of returns) are evaluated. Whole-farm, Monte Carlo simulations for Texas part-owner and tenant rice-soybean operations were completed over the period 1984 through 1988. Results indicate that extending additional credit to part-owner and tenant operators in a high debt position (over 50%) will allow continued operation, but continued operation significantly increases the likelihood of a loss of farm equity and loan losses to agricultural lenders. Deterioration in land values increases the need for a higher equity base.