The financial economics of agriculture and farm management is the study of capital allocation in the agricultural production process. Financial decisions in agriculture focus on the use of equity or debt, with the majority of agricultural operations financing through debt. This chapter reviews theoretic models used in understanding the farm financial market and discusses relevant empirical studies. We discuss capital market theory, the market for farmland, the Capital Asset Pricing Model, DuPont Analysis, risk balancing/optimal debt, and credit rationing.

JEL classification: Q14