ABSTRACT
In this chapter, the authors argue that asset values and an imbalance between debt and equity financing lay at the heart of their crisis in agricultural finance. This apparently counters the thinking of most designers of farm policy, for all of the policies enacted since the depression years appear to follow, from a very different notion-that market prices for commodities or income levels are the source of the problem. Farmers, and others, have dealt with market volatility for generations by hedging in futures markets. Consider a young, beginning farmer who has sufficient equity to safely finance operation of a farm, but insufficient equity to finance the purchase of land. The portfolio is representative of land such that when the value of farm land changes because of revised expectations, the value of stock in the corporation changes accordingly. A corollary gain-the farmer also reduces to some extent the risk associated with debt financing.
