Trade credit and agricultural commodity prices: evidence from the us dairy industry.

This article examines the relationship between trade credit use and milk prices among dairy producers in the Northeast United States, highlighting trade credit as a significant source of short-term financing in agriculture. Using a long-term panel data set from 1993 to 2018 and a 2019 survey of twelve regional dairy feed manufacturers (representing about 70% of the market), the study finds a robust, statistically significant negative correlation between milk prices and trade credit use, indicating that dairy producers increase trade credit borrowing when milk prices decline. The survey estimates that past due trade credit held by feed manufacturers reached approximately $100 million in 2018, making them the second largest non-real estate lender to the regional dairy sector, with such credit often not publicly reported or monitored by financial regulators. Additionally, producers with higher trade credit balances tend to have lower equity and higher leverage, suggesting elevated default risk that could propagate upstream to suppliers. The study also finds that long-term bank credit responds similarly to milk price fluctuations, whereas short-term bank credit does not, underscoring the importance of debt maturity in understanding agricultural credit dynamics. These findings have implications for policymakers and financial regulators concerned with agricultural credit markets and the financial stability of rural communities.