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Document Type

Thesis - University Access Only

Award Date

1990

Degree Name

Master of Science (MS)

Department

Economics

First Advisor

Larry Janssen

Abstract

1.1 Overview
Agriculture in the past has experienced many changes. Examples of these changes are: decrease in number of farms, increase in size of farms and integration of agricultural finance into the macroeconomy. The number of farms in South Dakota has declined from 56,000 in 1962 to 37,000 in 1987. During the same period, the size of the average farm increased from 805 acres to 1179 acres. A similar trend is occurring in United States agriculture. Research suggests that this trend will continue. The trend shows a reduction in number of farms but the actual rate of decline is hard to predict. If the decline continues at the same rate as in the 1969 to 1987 period, then by the year 2000 there will be 6000 fewer operators in South Dakota. However, if the decline is as rapid as during the 1950 to 1969 period, then in the year 2000 there will be 9000 fewer operators in South Dakota. (Janssen, 1983). It is important to know if specific farms have greater profitability and/or survivability chances. The integration of agricultural finance into the macroeconomy has resulted in greater availability of credit for agriculture. The supply of loanable funds for agriculture is now determined in national markets and interest rates on agricultural loan are permitted to fluctuate more than in the past. Also, the overall level of interest rates on agriculture loans has increased. Lenders can more readily use interest rates to allocate credit among commercial farm borrowers, instead of using non interest rate mechanisms to ration credit among farm borrowers. Additional financial stress has been experienced by many South Dakota farm firms due to increased costs and decreased prices received. Many farm firms have increased their debt levels in order to survive in the short-term. This increase in debt weakens their financial condition and may lower survivability in the long-term. When observing survivability, the theories related to technical and pecuniary economies of size are important to consider. "Technical economies exist when an increase in size of a farm results in a reduction in its average cost of production" (Knutson, 1983). "Pecuniary economies of size are the advantages gained by larger firms resulting in either a lower cost per unit of inputs purchased or a higher price per unit for the products marketed" (Knutson, 1983). In both technical and pecuniary economies the costs are reduced or the income is increased, which should result in higher survivability. Therefore, there is a need to study survivability and growth of farm firms in South Dakota. There has been almost no work studying farm business survivability as it relates to capital structure and land ownership in south Dakota. Due to the agricultural diversity of the state, there is also the need to develop a comprehensive representative farm firm for different regions of South Dakota. This would update and greatly extend previous studies of South Dakota farm firm financial growth (Allen, 1968; Jibben, 1978). Since the last South Dakota study (1968-78) evaluation techniques have greatly improved and the macroeconomic policy environment has changed. This study also will help in determining if assumptions and conclusions from recent studies in other states are valid in South Dakota farms.
1.2 Purpose of Study The purpose of this study is to show through simulation the conditions of survivability and financial growth for farm firms in South Dakota. The study attempts to show what effect the relationship of owning versus leasing land has on survivability and financial growth. This study also looks at the effects of different debt levels on the farm firm's survivability and financial growth. The effect of Federal farm commodity programs on different farm ownership and debt scenario is also examined. Some key questions that this study attempts to answer are: 1. What effect does different levels of financial leverage and land ownership/rental have on farm firm survival and financial growth in South Dakota in the projected macroeconomic policy environment of the 1990's? 2. How do Federal farm commodity programs affect the financial growth and survival of representative farm firms in South Dakota? 3. What strategies can be used to increase survivability and financial growth of farm firms in South Dakota?

Library of Congress Subject Headings

Farms -- South Dakota -- Finance
Agriculture -- South Dakota -- Finance
Agriculture -- Economic aspects -- South Dakota
Farm tenancy -- Economic aspects -- South Dakota
Farm ownership -- Economic aspects -- South Dakota

Format

application/pdf

Number of Pages

168

Publisher

South Dakota State University

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