Brief Summary of Minutes of Annual Meeting

The 2013 NC-1177 meetings were held October 11th and 12th in Kansas City, MO. A part of the meeting was held jointly with the National Agricultural Credit Committee (NACC). The NACC is comprised of agricultural lenders from throughout the U.S. The meeting allowed members of NC-1177 to interact with these representatives and better understand how the groups research intersects with the issues faced by agricultural and rural lenders. NC-1177 members Professor Paul Ellinger (University of Illinois), Brian Briggeman (Kansas State University, and Barrett Kirwan (University of Illinois) presented some of their current research on the impacts changing farm policy, land values, and long term perspecives of agricultural finance during the joint NACC sessions. The joint component also included presentations on the agricultural lending environment, agricultural risk management, and agricultural policy. Speakers represented the Farm Credit Administration, MetLife Agricultural Investments, American Bankers Association, and the President of the Federal Reserve Bank of Kansas City. During the NC-1177 portion of the meeting, members discussed the groups research projects and progress and presented completed and ongoing research. The NC-1177 business meeting included updates on the formation of the Agricultural Finance and Management (AFM) Section of the Agricultural and Applied Economics Association (AAEA), member publication activity in the Agricultural Finance Review, and the continuation of an international conference on finance and risk. The meeting concluded with discussion of the location and dates for the 2014 annual meetings. The group agreed to continue to hold the meetings jointly with the fall meeting of the National Ag Credit Committee and will meet in Kansas City at the Federal Reserve. Joleen Hadrich (Colorado State University) was unanimously elected as the new Secretary on the executive committee for 2013. Continuing members are Mindy Mallory (President) and Todd Kuethe (Vice President).

Agricultural and Rural Finance Markets in Transition has had another productive year. Member activities continue to focus on the projects four objectives. The objectives and activities related to each are provided below.

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 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. Researchers at the University of Georgia analyzed the efficiency of banks pre and post financial crisis. They found that agricultural banks were more technically efficient than non-agricultural banks. The research also found that agricultural banks input decisions were influenced by dependence on transaction deposits and high standards for equity-capital ratios. Researchers at Cornell University studied the impact of government sponsored enterprise (GSE) status on the pricing of bonds issued by Federal Farm Credit Banks Funding Corporation. They found that the yield would be 13.62 basis points higher than a non-GSE bond. The implications of losing GSE status would impact the competitive balance between commercial and system lenders.

Researchers at the University of Kentucky studied the impact of natural disasters on financial institutions. They found that natural disasters significantly increased problem loans and also forced many loans into restructuring. The recent increase in weather related issues such as drought in Midwest, hurricanes in southern states, and flooding in Northern plains indicate that financial institutions need to be prepared for these scenarios.

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.

Multiple universities have begun to provide research concerning this objective. Researchers at Kansas State, Kentucky, University of Illinois, University of Minnesota, and North Dakota State University have begun to develop farm level databases. This farm level data is being used to develop state and national benchmarks to be used by researchers, lenders, and farmers. This data is also being used by researchers at Kansas State to show how liquidity impacts a farm level efficiency. Researchers have used this data to develop financial stress tests for farmers and also examine the sources of revenue variation. Researchers at Colorado State University found that small market crops and corn had the largest impact on revenue variation while crop insurance had the greatest impact on revenue diversification. Researchers have 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.

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.

The agricultural industry is not only concerned with finding new farmers but also replacing agricultural lenders. Researchers at the University of Florida, Louisiana State University, Kansas State University, and the Federal Reserve conducted a survey to identify the relevant financial concepts that universities should be teaching related to agricultural finance concepts. The survey found that there was improvement needed in finance skills with an increased focus on business and financial risk.

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.

Work on objective four has focused on evaluation of the impact of the Renewable Fuel Standard (RFS) mandates and Renewable Identification Numbers on the energy and agricultural markets. This has provided timely policy analysis of the RFS. The impact of carbon policies on livestock producers has also been considered, along with related research to better understand the economic feasibility of alternative energy production systems. Research and extension outputs in these areas have helped to inform related policy decisions, educate producers, and successfully led to business startups.

The following provides a list of more general accomplishments for 2013. Also included with the annual report is a list of selected publications from project members in 2013.

Project members continued to build on the newly formed section within the Agricultural and Applied Economics Association (AAEA). The section  Agricultural Finance and Management  provides a stronger linkage to the main professional association in agricultural economics. This will assist project and section members in disseminating results and information from their research and outreach programs to the full membership of the AAEA. Section activities include organized sessions at the annual AAEA meetings, with publication of the papers presented during these sessions as proceedings in the Agricultural Finance Review.

Project members continue to exhibit excellent grantsmanship in securing both internal and external funding for related research and extension efforts. A partial list of the grant activity of members in 2013 is included with the attached list of publications. Funding sources include external sources such as commodity groups, consulting contracts with private businesses, and regional and national government agencies. Funding was also secured from internal sources across the various academic and government institutions in which members hold appointments. Linkages among project members and the Economic Research Service of the USDA also continue to be strong as evidenced by the multiple cooperative agreements in place between ERS researchers and academic faculty and staff who are members of the NC-1177 project.

Project members have also served in numerous leadership roles within the agricultural economics profession. In 2013, members coordinated abstract reviews for multiple national and regional conferences, served as peer reviewers for scholarly journals and experts for major grant reviews.