Liquidity analysis of leveraged dairy farms with forest land
During the past decade, the indebtedness of Swedish agriculture has increased significantly. The degree of leverage differs between different branches of production in Swedish agriculture. Among Swedish dairy producers, over a thousand investments in automatic milking systems (AMS) have been complet...
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| Formato: | Second cycle, A2E |
| Lenguaje: | sueco Inglés |
| Publicado: |
2014
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| Materias: | |
| Acceso en línea: | https://stud.epsilon.slu.se/7173/ |
| Sumario: | During the past decade, the indebtedness of Swedish agriculture has increased significantly. The degree of leverage differs between different branches of production in Swedish agriculture. Among Swedish dairy producers, over a thousand investments in automatic milking systems (AMS) have been completed. This along with other investments has led to an increased indebtedness among Swedish dairy producers. Meanwhile, the perceived profitability among Swedish dairy producers has never been as low as in 2013. Unfavorable fodder prices and settlement prices along with high levels of debt affect not only the operational risk, but also the financial risk. This may lead to bankruptcy, something that not only affects the farmer and the lender, but society as a whole loses key parts of a base industry. Based on the farmer's and the lender's perspective, the purpose of this study has been to evaluate the impact price risk has on future liquidity of leveraged dairy farmers in Sweden. The study was conducted as a quantitative and partly qualitative case study. Two leveraged Swedish dairy farms with AMS, one organic and the other conventional, acted as objects of analysis. Future liquidity has been analysed in a model constructed in Excel. By combining present value calculations of future cash flows with Monte Carlo simulation, i.e. stochastic simulation, of the price variables milk price, interest rate and saw timber and pulp wood price, probability distributions of future cumulative liquidity has been calculated. By then measuring the probability of future cumulative liquidity being less than zero, the Value -at-Risk and the mean value of the distributions calculated, the impact of price risk on future cumulative liquidity has been estimated. Different strategies with fixed and floating interest rates have been compared. The result indicates a high probability of a future shortage in cumulative liquidity for one of the objects of analysis. This may be because that farm is more dependent on milk production since it is less diversified than the other farm analysed. A fixed interest rate generates a higher probability of a shortage in cumulative liquidity and therefore a floating interest rate is to prefer. One general conclusion is that the dairy farm with a larger share of their income deriving from its dairy production is more sensitive to fluctuations in milk price, interest rate and lumber and pulp prices. |
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