Determining the Impact of a New Farm Credit Branch in East Central Oklahoma

Abstract

As a major provider of credit to agricultural producers, continuity of business is an important concern for Farm Credit. This study seeks to estimate the change in annual new loan volume that a new Farm Credit branch would generate using county market and spatial characteristics. Annual new loan volume data from Farm Credit of East Central Oklahoma for each of the 51 counties in the region from 1993 to 2012 are regressed against each county's proximity to an office, total cash receipts for crops and livestock, acres rented, and value of agricultural real estate. Results confirm that annual new loan volume is significantly impacted by distance from potential borrowers in the county to the nearest lending office, acres of agricultural land rented, and value of agricultural real estate. Loan volume predictions are used to simulate the impact of additional Farm Credit offices, including offices recently opened. The methodology utilized here allows Farm Credit to predict the financial consequences of opening a new branch, allowing for more profitable branch placement decisions. The existing literature focuses on the effect of credit availability on agricultural production and lacks specificity and a managerial perspective of the effect of producers' characteristics on the success of the Farm Credit System. In contrast, this research offers detailed insight into the profitability of additional offices in East Central Oklahoma.