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Abstract

This study examines the factors and behaviors that affect Southeast US farmers’ ability to meet their loan payment obligations within the stipulated loan term. The study also estimates a credit risk model using farm-level financial information to determine the credit worthiness of various different farmers in different states and their possible repayment capabilities. The study uses a 10-year (2003-2012) pooled cross-sectional data from the USDA ARMS survey data (Phase III). A probit approach is used to regress delinquency against various borrower-specific, loan-specific, lender-specific, macroeconomic and climatic variables for the first part, whilst a logistic approach is used to regress farmers’ coverage ratio (repayment capacity) on financial variables (liquidity, solvency, profitability, and financial efficiency) in addition with tenure, to determine how creditworthy the various kinds of farmers are, and in what particular states. The results show that farmers with larger farms, farmers with insurance, farmers with higher net income, farmers with smaller debt to asset ratio, farmers with single loans and those that take majority of their loans from sources apart from commercial banks are those that are less likely to be delinquent. Temperature and precipitation increases also lowers farmer delinquency, unless in excessive quantities where certain thresholds are exceeded. The results for credit model also show which particular farmers and in what states are more likely to be creditworthy based on their financial variable information.

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