Adverse Selection Problems in Loan Markets: Some Evidence from the Farm Credit System

Since the farm financial crisis of the 1980s, Farm Credit System banks continue to merge and consolidate to enhance competitiveness. Two mixed-integer programming models of AgChoice Agricultural Credit Association (ACA), a recently merged ACA in Pennsylvania, were developed to determine the optimal number, location, and territory of branches. The approach suggests useful information can be determined regarding the reconfiguration process after bank mergers, especially given the fact that the current AgChoice ACA configuration is available for comparison purposes.

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Managing Price Risk in Volatile Grain Markets, Issues and Potential Solutions

Journal of Agricultural and Applied Economics ◽

10.1017/s1074070800002832 ◽

2009 ◽

Vol 41 (2) ◽

pp. 353-362 ◽

Cited By ~ 4

Author(s):

Andrew M. McKenzie ◽

Eugene L. Kunda

Keyword(s):

Price Volatility ◽

Price Risk ◽

Credit System ◽

Over The Counter ◽

Grain Markets ◽

Lines Of Credit ◽

Farm Credit ◽

Farm Credit System ◽

Simulation Results ◽

Sources Of Capital

During 2008 extreme price volatility in grain markets led to country elevators incurring unprecedentedly large margin calls on their futures hedges. As a result elevators' traditional liquidity sources and lines of credit were stretched to breaking point. This article explores the potential liquidity benefits of making available an Over-the-Counter Margin Credit Swap contract to grain hedgers. The swap would enable hedgers to draw upon sources of capital outside the farm credit system to provide liquidity needed to make margin calls. Simulation results clearly show that a Margin Credit Swap contract would provide significant liquidity benefits to hedgers during volatile periods.

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Market microstructure and the historical relationship between the US farm credit system, farm service agency and commercial bank lending

Agricultural Finance Review ◽

10.1108/afr-06-2020-0089 ◽

2020 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Calum G. Turvey ◽

Amy Carduner ◽

Jennifer Ifft

Keyword(s):

Market Microstructure ◽

Credit System ◽

Agricultural Credit ◽

Agricultural Finance ◽

Content Type ◽

Demand Elasticities ◽

The Us ◽

Farm Credit ◽

Farm Credit System

PurposeThe purpose of this paper is to investigate the market microstructure related to the Farm Credit System (FCS), Commercial Banks (CB) and Farm Services Administration (FSA). The commercial banks frequently call out the FCS as having an unfair advantage in the agricultural finance market place due to tax exempt bonds, and an implied guarantee of those bonds. This paper addresses the issue by examining the interrelationships since 1939, while addressing the historically distinctive roles that the FCS, CB and FSA have played in the US agricultural credit market.Design/methodology/approachThere are two components to our model. The first is the estimation of short and long run credit demand elasticities, as well as land elasticities. These are estimated from a dynamic duality model using seemingly unrelated regression. The point elasticity measures are then used as independent variables in least square regressions, combined with farm specific and related macro variables, for the Cornbelt states. The dependent variable is the year-over-year changes in paired FCS, CB and FSA loans.FindingsThe genesis of the FCS was to provide credit to farmers in good and bad years. Therefore, we expected to see a countercyclical relationship between FCS and CB. This is found for the farm crisis years in the 1980s but is not a continuous characteristic of FCS lending. In good times the FCS and CB appear to compete, albeit with differentiated market segmentation into short- and long-term credit. The FSA, which was established to provide tertiary support to both the FCS and CB, appears to be responding as designed, with greater activity in bad years. The authors find the elasticity measures to be economically significant.Research limitations/implicationsThe authors conclude that the market microstructure of the agricultural credit market in the US is important. Our analysis applies a broader definition of market microstructure for institutions and intermediaries and reveals that further research examining the economic frictions caused by comparative bond vs deposit funding of agricultural credit is important.Originality/valueThe authors believe that this is the first paper to examine agricultural finance through the market microstructure lens. In addition our long-term data measures allow us to examine the economics through various sub-periods. Finally, we believe that our introduction of credit and land demand elasticities into a comparative credit model is also a first.

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The Farm Credit System as a Government-Sponsored Enterprise

Review of Agricultural Economics ◽

10.1111/1058-7195.00025 ◽

2000 ◽

Vol 22 (2) ◽

pp. 326-335 ◽

Cited By ~ 8

Author(s):

Farrell E. Jensen

Keyword(s):

Credit System ◽

Farm Credit ◽

Farm Credit System

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Historical developments in agricultural finance and the genesis of America’s farm credit system

Agricultural Finance Review ◽

10.1108/afr-09-2016-0076 ◽

2017 ◽

Vol 77 (1) ◽

pp. 4-21 ◽

Cited By ~ 9

Author(s):

Calum G. Turvey

Keyword(s):

Rural Communities ◽

Banking System ◽

Credit System ◽

Agricultural Credit ◽

Agricultural Finance ◽

Content Type ◽

Farm Credit ◽

Farm Credit System ◽

Historical Developments

Purpose The purpose of this paper is to provide a review of major historical developments in agricultural finance, with particular emphasis on agricultural credit. It reviews the development of Raiffeisen and related banks that emerged in Germany and Europe throughout the nineteenth century and how the cooperative banking system made its way into the banking system of the USA in the early twentieth century. The paper emphasizes the role of the state in the developing of agricultural credit, especially with respect to farm mortgages, securitization, and bond structures. Design/methodology/approach This paper presents a historical synthesis of historical literature on agricultural credit. Findings This paper shows the direct linkage between the developments in Raiffeisen credit cooperatives and the Farm Credit System (FCS) and details the emergence of the land banks, farm credit banks, agricultural bonds and the role of joint-stock banks in agricultural credit policy. Originality/value In total, 2016 marks the 100th anniversary of the passing of the 1916 Federal Farm Loan Act which set in motion the USs’ first Government Sponsored Enterprise and catalyzed the formation of the FCS as it operates today to provide credit to farmers and rural communities on a cooperative basis. Although there are a few wonderful books written on certain aspects of the FCS the story of how the FCS was initiated and the many struggles it faced up to the 1933 Act has not been told often enough. This paper tells the story of the evolution of agricultural credit that ultimately led to the formation of the FCS.

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