Farmland Leasing Decisions and Successful Debt Repayment Strategies

Periods of high farm income volatility can potentially diminish farm borrowers ' ability to adequately service maturing loan amortizations, as deteriorating profit margins contribute to the further erosion of business liquidity conditions. Farm lenders might be apt to enforce stricter credit rationing policies to guard against a growing number of farm borrowers with poorer credit risk ratings. During these times, farmers devise alternative payment plans that rely less on revenues generated by the farm business. These options might include, among others, maximization of off-farm income opportunities, minimization of withdrawals from owners ' equity funds, asset liquidation, and reliance on federal subsidy grants. For some farms, business resiliency is enhanced through enterprise diversification that involves venturing into auxiliary farm products and services, such as forestry products, to generate additional cash reserves. Among grain farmers, existing farmland control arrangements could influence preferences for certain debt repayment strategies. Aside from owning land, farmers can expand the size of their farms through either share or cash leasing. These three alternative arrangements entail different risk-return profiles and liquidity mechanisms, which are important considerations in determining debt-servicing plans for the farm business