Master of Agribusiness / Department of Agricultural Economics / Allen M. Featherstone / This thesis examines the effect of off-farm income on a farming operation’s ability to repay their debt. The thesis develops a regression model that includes net farm income, debt repayment capacity with carryover working capital, off-farm income sources and a number of other independent variables that help define each individual borrower. The model provides an evaluation of the current farming environment and examines various income opportunities available to borrowers affects repayment capacity. This study found that the presence of off-farm income can increase the probability that the operation will be able to repay their debts. The model indicates that if off-farm income is present, the borrower’s debt repayment capacity ratio increases. This thesis further explores the model and the results produced from not only off-farm income but several different variables within the borrower’s scope of business. Results suggest that many other factors that are not available in the sample also play a large role in predicting an operation’s ability to repay debt. The study determined that the presence of one source of off-farm income was positive and statistically significant in explaining repayment capacity. An operation with a strong outside income source and one spouse working full time on the farm is more financially stable and will likely be more successful at repaying their debts.

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