Impact of Selected Financial Measures on the Term Debt Repayment Ability of Illinois Grain Farms

A clear and accurate assessment of the financial performance of a farm business is an important component of financial management at any time but becomes even more crucial in periods of economic downturn in the farm sector. Farmers continue to increase their debt even though the prices of commodities are low, and the prices of inputs are high (Krapf, Raab, & Zwilling, 2017). In addition, high family living expenses can also place financial pressure on farms (Scott, 2016). This study focused on identifying and estimating the impact of key factors which included financial measures and family living expenses on the term debt repayment ability of Illinois grain farms. A data set was obtained from the 2017 final financial statements of grain farms that utilized financial services of the Illinois Farm Business Farm Management Association. A binary logistic regression model was used to estimate the impact of selected financial measures and family living expenses on the term debt coverage ratio, which was used to measure the term debt repayment ability of grain farms in Illinois. The results showed that return on farm assets and acres operated positively affected the ability of a grain farm to service term debt whereas debt to asset, asset turnover, farm operator’s age and family living expenses negatively affected the ability of a grain farm to service term debt