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Abstract

This study focuses on profitability migration of farm businesses in Kentucky. Migration probabilities across business cycles are tested to see if they differ between expansion and recession years. Based on year-to-year transitions probabilities the results show that the highest return on equity (ROE) class is less likely to retain its performance in a recession, while the lowest ROE is less likely to retain its performance in an expansion. Migration trends for year-to-year are tested to see if there is a drift or persistence in ROE performance based on previous year performance. Results indicate that the Markov independence property is violated when examining return on equity by resulting in trend-reversal of ROE performance. These results will be useful in making policies directed at helping farmers to be more profitable in different economic environments and also for benchmarking analysis.

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