THE RELATIONSHIP BETWEEN INCOMES, FARM CHARACTERISTICS, COST EFFICIENCES, AND RATE OF RETURN TO CAPITAL MANAGED

Abstract

Abstract Farm-level, cross-section and panel data were used with econometric methods to examinerelationships between variability in the rate of return to capital managed and explanatory variablesincluding government payments per crop acre, gross crop income, gross livestock income, costs,efficiency measures, and other socioeconomic characteristics. Quantifying the impacts ofsocioeconomic factors on variability of the rate of return was difficult. Increasing the standard deviationof gross revenue and government payments increased the variability in rate of return to capital managed. An increase in the variability of labor, crop & equipment, livestock, and interest costs had the oppositeeffect. In addition, increase in labor and livestock costs to gross revenue increases variability in the rateof return. The smaller the amount of land rented and the larger the number of acres, the higher thevariability in rate of return. The panel data results indicated that annual changes in rate of return had apositive relationship with increases in gross revenues, government payments, and decreased changes incosts. Decreases in the efficiency of interest cost resulted in a larger change in the annual rate of return,whereas crop & equipment and livestock costs caused the opposite effect. Age and diversification hadpositive effects. The above findings reaffirmed that reducing the variation in government payments andgross revenue, and increasing the variation in costs, will lower the variability in the rate of return tocapital managed. Cost efficiency measures were also important, but with the previous model, theeffects on the rate of return were uncertain.keywords: rate of return, financial variability, diversification, farm planning, panel data, risk