Speaker Jared Hutchins
Title Understanding the Factors Behind the Formation of Milk Testing Cooperatives in the US
Abstract
The US dairy sector has had regular milk quality testing coordinated through cooperatives since 1906. As the system evolved, we see specific geographic patterns of where these cooperatives formed and where they were successful. Why did cooperatives form where they did? Using historical data and archive material, we discuss some hypotheses for future research and descriptive evidence to think about broader questions in the literature on cooperatives and agricultural institutions which form to alleviate information asymmetry in markets.
Speaker Gerald Mashange
Title The Bank Lending Channel in Agriculture: How Commercial Banks' Balance Sheet Characteristics Influence the Supply of Agricultural Production Loans in Response to Monetary Policy Changes
Abstract
The Credit Channel is an important mechanism through which monetary policy influences the state of the real economy, consisting of two subchannels: (1) the Bank Lending Channel (BLC), and (2) the Balance-Sheet Channel (BSC). While the BSC focuses on how monetary policy changes affect the financial position of borrowers, influencing their spending and investment behavior, the BLC operates through changes in bank reserves, cost of funds, and the availability of credit to firms and households. However, the effectiveness of these channels can vary significantly across different sectors, particularly in agriculture. Unlike other sectors, agricultural lending is often influenced by factors beyond monetary policy, such as seasonal fluctuations in agricultural production, weather-related events, and federal policy and support. This suggests that the supply of agricultural loans may not respond uniformly to changes in the federal funds rate, highlighting the need to explore the distinct dynamics of agricultural lending within the broader context of the Credit Channel.
The purpose of this presented paper is to investigate how U.S. commercial banks that issue agricultural production loans respond to changes in monetary policy, with a focus on how differences in their balance sheet characteristics impact the supply of agricultural loans. The balance sheet characteristics of commercial banks play an important role since they determine their ability to originate loans. Using a dataset of quarterly FDIC-insured commercial banks from 1984 to 2023, we categorize banks by their asset size, capital ratios, and share of agricultural loans relative to their gross loans and leases. In order to test for shifts in the supply of agricultural loans, we use changes in the federal funds rate as a proxy for monetary policy, along with controlling for the state of the economy, additional bank funding sources, and other factors that impact the demand for loans by agricultural producers. This study aims to provide evidence on whether the BLC is operative in the agricultural lending sector and to explore the implications for monetary policy effectiveness.
Preliminary results indicate that the balance sheet characteristics of agricultural banks may influence their sensitivity to monetary policy changes in issuing loans, consistent with the BLC theory. However, other factors specific to agricultural production need to be considered and examined in our conceptual framework. Input and comments from NC-1177 participants would be valuable in improving this study.