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
| Identifer | oai:union.ndltd.org:ORGSU/oai:ir.library.oregonstate.edu:1957/26854 |
| Date | 17 June 1987 |
| Creators | Hewlett, John P. |
| Contributors | Musser, Wesley N. |
| Source Sets | Oregon State University |
| Language | en_US |
| Detected Language | English |
| Type | Thesis/Dissertation |
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