Agricultural economists have devoted considerable attention to the financial stress situation of agricultural producers. Many studies have been conducted in various regions of the U.S. in an attempt to better understand the causes of the problem. The costs associated with farm financial stress imply corresponding benefits to be realized by its reduction. Benefits of studying and resolving farm financial stress reach beyond the farms and ranches to many related sectors such as rural communities, agribusinesses, and lending institutions. The specific hypothesis tested in this thesis is as follows: some but not all farms and ranches which have undergone serious financial stress in the early part of the 1980's in Oregon can be assisted in withstanding fluctuations in economic conditions by adopting specific strategies which promote financial stability and profitability. One of the specific objectives of this thesis was to evaluate the level of financial stress for two different agricultural production units in Oregon under differing leverage positions, and macroeconomic conditions. The production units selected for study were a cattle ranch and a wheat farm, based on their relative importance to Oregon. This first objective was satisfied through analysis of a baseline scenario, which was essentially a continuation of current conditions. Debt levels and growth rates were then altered to reflect the desired study conditions. Changing and considering three leverage ratios (20%, 40%, and 70%) and three sets of macroeconomic conditions (baseline, pessimistic, and optimistic) allowed studying of nine alternative situations to the base firm type or a total of 18 alternatives. Analysis of these different alternative production units was accomplished through a deterministic computer-based simulation model. The model simulates the financial structure and performance of a farm business over a transition period of four years with emphasis placed on the financial transactions of the firm. These transactions include purchases and sales of farm assets, financing terms, debt management, cash flows, tax obligations, consumption levels, and growth rates. The computer-based model made necessary calculations of cash flows and changes in financial statements to derive the ratios used for financial analysis over the planning horizon of four years beyond the present input case and is deterministic in the sense that all essential variables are entered by the researcher. Output from this model includes a set of coordinated financial statements for the firm over the planning horizon: a balance sheet, an income statement, statements for changes in net worth, flow of funds statement, and a fund availability report. The model also calculates profitability, liquidity, and solvency ratios used in financial ratio analysis which are provided on a summary sheet. These statements and reports are provided on an annual basis; thus, financial information is provided on yearly changes in financial position over the four year horizon. Another objective of this thesis was to evaluate various policy and management strategies designed to reduce financial stress. This objective was achieved by analysis of various scenarios designed to reduce stress simultaneously with the baseline case, which served for comparison. The specific scenarios considered were: 35% reduction of debt, 35% reduction of interest rates, two year deferral of debt, sales of 35% of total assets with no lease back, sales of 35% of total assets with lease back arrangements, and an infusion of equity capital equal to 35% of total debt. Results from this analysis were intended to show what, if any, courses of action could be pursued by agricultural firm managers and policy makers to reduce farm financial stress. The best test of the ability of these scenarios to reduce financial stress occurred in application to the high leverage wheat farm situations, as these were the cases with the most financial stress. Appropriate programs could be adopted to strengthen the financial position of the farm; in the case of low liquidity, asset sales-lease back; in cases of low solvency, equity infusions; and in circumstances where profitability needs to be enhanced, interest reductions would be the best choice. The results also seemed to suggested that public programs can maintain current levels of financial performance for producers under financial stress but do little to improve those positions. / Graduation date: 1988

Financial stress in agriculture has been a concern over the past century. Agrarian values and "love of the land" seem to yield public conclusions for the support of the industry. Much of this support is in the interest of preserving a viable food producing sector in an volatile world climate. High interest rates, declining land values and highly competitive export markets have spurred renewed concern for farm survival in the past ten years. One alternative to traditional price supports and tariffs for farm household support is off-farm income. This may take many forms including off-farm wages and salaries, rental income, interest and dividend income and, retirement or pension funds. Central to the analysis of nonfarm income generation is the allocation of time by farm households. For farmers who place a high value on the farm lifestyle, occupational choice is embedded in the time decision to such an extent that the resource allocations based on economic efficiency criteria may be altered. Tobit techniques offer a new approach to the analysis of farm household decisions on time allocation. The procedure allows the investigator to estimate and evaluate parameters that may affect the amount of off-farm work by farm household members. The Tobit analysis is designed for censored data sets. The data in this study were censored because there were missing observations on the quantity of off-farm work for those individuals who did not work off-farm in 1986. Results of Tobit analyses of off-farm work by farm operators and spouses in three Oregon counties indicated that high levels of gross farm income reduce the likelihood and extent of off-farm work. Middle-aged operators worked off-farm more while the presence of small children and elderly dependents in the farm household inhibited off-farm work. The allocation decisions of the spouse and the operator appeared to be independent; this supports a nonsimultaneous Tobit specification like the one used in this research. / Graduation date: 1988