Brief Summary of Minutes of Annual Meeting

The 2010 NC-1177 meetings were held September 30th and October 1st at the Federal Reserve Bank of Kansas City. A part of the meeting was held jointly with the National Ag Credit Committee. During the meeting, members presented completed and ongoing research. Presentations were organized in four sessions aligned with the following objectives: 1) Examine the impact of recent fluctuations in capital and commodity markets on the performance, management, and regulation of agricultural financial institutions. 2) Evaluate the management strategies, capital needs, and policy impacting the financial performance and long-term sustainability of firms in the food and agribusiness sector. 3) Identify financial institutions and services that benefit agricultural producers and rural communities and expand agricultural markets, especially those producers that are beginning, young, from socially disadvantaged groups, and/or involved in producing specialty crops. 4) Investigate capital structure, financial performance, and investment strategies of firms producing renewable energy in context of long term climate change. Implications of these findings for agriculture and rural communities will be delineated.

Accomplishments: The newly formed NC-1177 Agricultural and Rural Finance Markets in Transition had a productive year. A new approach was adopted for the structure of the 2010 meeting. A large emphasis was placed the projects new four objectives. That is, each paper presented during the meeting is grouped under each of the four objectives. This format was well received and was very productive as it highlighted the work the group is doing towards completing/addressing each objective and stimulated discussion around the objective with the group. This annual report will summarize some of the work that is just beginning in completing our four objectives. As such, progress toward the NC-1177 objectives is discussed in turn. Objective 1. Examine the impact of recent fluctuations in capital and commodity markets on the performance, management, and regulation of agricultural financial institutions Given recent market fluctuations, it is important for the group to consider the impact of capital and commodity market volatility on the performance, management and regulation of agricultural financial institutions. Initial work in this area has considered the implications of evolving regulatory capital requirements on the Farm Credit System. These implications were assessed through a simulation model that considered the impact of various regulatory changes including potential changes stemming from Basel III. Other work has considered the impact of changes of land values on the financial health of commercial banks and Farm Credit Associations. Moreover, this work has explored the drivers of change in farmland values, including commodity prices influence on farmland values. In addition, risk management for financial institutions is critical during times of market volatility. However, it is also important for lenders to consider ways to help their borrowers mitigate risk. Additional work has started considering the benefits of coupling options (to mitigate a producers price risk) with a dairy loan. 2. Evaluate the management strategies, capital needs, and policy impacting the financial performance and long-term sustainability of firms in the food and agribusiness sector. Work towards completing objective two has also started. Research has started considering the implications of fluctuating cash rents on farm profitability. Examination of cash rents of a nationally representative survey has started among a couple of land grant universities. Another collaborative effort has started with determining the financial health of farms by using a multi-state and nationally representative data sets. This research is unique in that it is developing a set of credit risk ratings for producers. Off-farm income is important for most farm households, but what impact does it have on farmland values? Work has started considering the role of off-farm income on changes in farmland values or the most important asset on a farmers balance sheet. 3. Identify financial institutions and services that benefit agricultural producers and rural communities and expand agricultural markets, especially those producers that are beginning, young, from socially disadvantaged groups, and/or involved in producing specialty crops. Work towards completing objective three is well underway. Work is considering the importance of debt usage and access in growing the farm business, especially with regard to beginning and young farmers. Research was also conducted that considered the effect of direct farm payments on the credit access for beginning farmers. Also, a national survey was conducted that assessed agricultural lenders perspectives of the skill gap between new employee hires and expectations of what skills these new employees should have. This survey will benefit agricultural finance professors in ensuring the skills taught in the classroom meet expectations of employers that will hire students. Other work used a propensity scoring model to assess the impact of input procurement and marketing strategies on producers profits. Also, research on the implications of the non-farm unemployment rate on a farmers creditworthiness was started. 4. Investigate capital structure, financial performance, and investment strategies of firms producing renewable energy in context of long term climate change. Implications of these findings for agriculture and rural communities will be delineated. Group members continue to work on the financial performance and investment in ethanol and cellulosic ethanol plants. This work includes working with private industry. In addition, cap and trade climate work was started on the potential supply of carbon dioxide offsets from anaerobic digestion of livestock waste.