» gQfl/ZGMtAZ/L I956 TEXAS AGRICULTURAL EXPERIMENT STATION R. D. LEWIS. DIRECTOR, COLLEGE STATION, TEXAS 4 the shift would be less than $4,768. A cow herd capable of producing only 7,000 pounds l liquidation 0f the debt as rapidly as possible. SUMMARY Many cash-crop farmers in the central Blacklands have shifted t0 dairy operations in? recent years, and others are thinking of making the change. Since considerable initial ex- pense is involved,’ credit considerations are important to most of those who contemplate‘ the change. The study reported here was an effort to determine the economic feasibility of chang? ing from cash-crop to dairy farming on an 180-acre Blackland farm, and to assess the’ farm operator’s ability to repay debt incurred to make the change.’ It also illustrates the‘ essential features of planning a farm adjustment of this sort. l Results of the study indicate it takes an initial ‘investment of $17,000 to $21,000 at? 1955 prices to shift from cash-crops to a 36-cow dairy operation with a cow herd capable" of producing 9,000 pounds of milk annually per cow. The good manager can expect y‘ increase his net returns about $4,768 annually by making the change. The changeover would be profitable to him since additional returns of that amount would equal the initial cost in 4 to 4- 1/2 years. Should he ‘have no other source of income with which to repay a loan; it would take 4 to 6 years to liquidate an amortized debt of 75 to 100 percent of initial? costs. - ~ ~ Should the operator prove less efficient as a dairyman, the annual net income gained of milk annually per cow would increase net income by only $1,526 above that obtained the “above average” cash-crop manager. A shift of this sort would involve an initial cost smaller by $3,600 than that of the 9,000-pound-level cow herd. It would take 13 to 16 years (depending on the rate of interest charged) to liquidate an amortized debt of 75" percent of the initial cost out of the increased earnings. It is unlikely that credit agencies would be willing to finance the changeover for that length of time, unless the farmer had ample assets with which to secure the loan. 6' i The varying price relationship between cash-crops and milk, changes in the relative costs between dairy and cash-crop operations, and weather, disease and other hazards cause; the additional returns to be more or less in any 1 year than the average expected over I‘ period of years. This relationship should be considered in drawing up the repaymen terms. If a rigid amount of annual payment is required, the time in which the loan is t” be liquidated should be extended to decrease annual payments — possibly as much as2 to 40 percent -— below the expected average of additional returns. A flexible plan by which annual payments on debt are contracted at some proportion. of the realized returns eac .1 year seems a better plan for both the farmer and the credit agency. This would assure; This study emphasizes the necessity of a farmer doing some careful planning to deterl mine as ‘accurately as possible (1) the initial expense of changing from cash-crop to dairy; ing, (2) the amount he will need to borrow, (3) the amount he will have annually with which to repay the loan and (4) the credit terms that best fit his particular conditions, By doing so, he will be helping bothqhimself and the lending agency to provide his credit needs. INTRODUCTION Texas agriculture has changed rapidly in a t years. An overall trend has occurred 1 d larger farms and fewer farmers in much as, from cash-crop to livestock production me areas, and an increase in the use of mental irrigation and mechanical harvest- é many parts of the State. he present-day farmer must adopt new and , efficient machinery, and use better seed _ ies, fertilizers and insecticides as they are oped. It may be necessary to enlarge his ‘tions if possible, or to change his entire j} to make profitable use of the more pro- a e means of farming provided by research. in the most profit from his operations, it important for the farmer to recognize the qfor change when it occurs, and to make the ment as soon as it is economically feasible, __ is for him to carry on his operations tly. L» = oi Farm Adjustments 1 icultural leaders have become increasing- are of the need to speed up farm adjust- For while new inventions and results research are the primary motivating forces make adjustments necessary, much of the a profits can be lost if the operator waits g before he adopts the improvements. v e farm operator faces two major problems ,'sult of the changing conditions of farming. ~ he must determine whether a particular >1 ent or investment will be economically . Second, should he believe that the under- Y: will improve his returns sufficiently to , the change, he must decide how and V, what conditions it can be financed.‘ Credit tan important role here. Some adjustments l- considerable expense, and many farmers have the funds necessary to make them. ye, the farmers must use borrowed funds. adequate credit becomes an implement of f which facilitates needed adjustments in g. The lack of credit may seriously retard ,1 djustments. v e shift from cash-crop to dairy farming a central Blacklands is such a case. Some = have made the change in recent years, ‘ ‘are in the process of making it, and no f many question whether it would be feasible. ntly credit institutions require that loans ch adjustments be paid back in 1, 2, or at é ively, assistant professor and associate professor, X ~ ent of Agricultural Economics and Sociology. Financing the Dairq System on a Central Blackland Farm CLARENCE A. MOORE and A. C. MAGEE* the most, 3 years. The additional returns to be obtained from dairying may not be sufficient on some farms to pay the loan off in this limited time, but they may be forthcoming over a longer period. It is felt by some that this credit problem may exist because the lending agencies have not had sufficientlyreliable information about the amount of funds needed to make adjustments, and when the returns will be available from which the loan and its costs can be repaid. Often the farmer himself has failed in adequately planning his need of funds, what he can reasonably expect in the way of returns and when those returns will be obtained. Objectives oi the Present Study The present study was an effort to deter- mine, for a particular type and size of farm in the central Blacklands: (1) the finances needed to change from a cash-crop to a dairy system, (2) the returns that can be expected from the change and (3) the length of time required to repay a debt, incurred to make the change, from the additional returns that may be obtained. Many problems arise in a study of this na- ture. Individual farms in the Blacklands vary widely in type and size. Some have a small acre- age while others are large. The proportion of cultivated land varies from farm to farm, even though the farms may be of similar size. Farms may differ widely in the type of soil and those with similar soil types may differ in productive capabilities—-some are more eroded than others, some have had their fertility depleted, and the CONTENTS Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . .. 3 Problems of Farm Adjustments . . . . . . . . 3 Objectives of the Present Study . . . . . . . . 3 The Farm and Its Resources . . . . . . . . . . . . 4 The Cash-Crop System . . . . . . . . . . . . . . . 4 The Dairy System . . . . . . . . . . . . . . . . . . . . . . 5 Production and Additional Returns . . . . . . 7 Effect of Price Changes . . . . . . . . . . . . . . . . . 8 Financing the Adjustment . . . . . . . . . . . . . . 9 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 structure of the soil differs as a result of the way it has been farmed. Farm operators differ in the experience they have had with dairying, in their capabilities as managers and in the amount of capital they have available with which to farm and make adjustments. It would be impossible to analyze all possible existing conditions on individual farms, or to provide a plan that, in any sense, can be “typical” of all farms in the area. Therefore, a plan has been set up, based on past research findings, that approximates the situation of many farms in certain parts of the Blacklands. Enough infor- mation is provided so that other farms may find the study useful by changing some of the data to more nearly fit their particular conditions. One useful aspect of the study is that it illustrates important considerations in planning a major change in farming. The budget method of planning can be used by all farm operators with Widely different physical and economic con- ditions, and for planning most any type of ad- justment they may face. THE FARM AND ITS RESOURCES The farm used was an 180-acre Blackland unit consisting of 106 acres of cultivated land, 72 acres of pasture land and 2 acres of home- stead and roads. This is based on the median size and makeup of dairy farms studied in the area. Production and yields from the cropland are based on the following land capability units: Capability unitl Acres I2 17 I12 63 I112 13 112x 13 Total cropland 10'6 lThe following is a description based on the Soil Oon- servation Service’s Blackland Prairie land capability guide. 12 Very good land that can be cultivatedsafely with ordinary good farming methods. Deep, fine textured, slowly permeable soils, sloping 1 foot o-r less per 100 feet with none to slight erosion having occurred. I12 Good land that can be cultivated safely with easily applied conservation practices. Deep, fine text- ured, slowly permeable soils, sloping 1 to 3 feet per 100 feet with erosion conditions of none to slight, moderate or moderately severe, depending on its past use. I112 Moderately good land that can be cultivated safely with some intensive conservation treatments. Deep, fine textured, slowly permeable soils, sloping 3 to 5 feet per 100 feet with erosion conditions of none to slight, moderate or moderately severe, depending on its past use. 112,. Good land that can be cultivated safely with easily applied conservation practices. Deep, fine textured, moderately permeable soils, sloping 1 to 3 feet per 100 feet with erosion conditions none to slight, moderate or moderately severe, depending on its past use. A fairly high level of soil management a crop production was assumed. Therefore, g data are higher and management practices bet _ than on many farms in the area with similar l = capability units. One reason for assuming “b ter-than-average” management is the favor good operator has with credit agencies and ;_ likelihood that most of the adjustments to dai g ing are made by this group. The cash-crop farmer usually has the nec sary equipment and machinery for crop farmii and much of it can be used for dairying. He a may have some improvements such as fencing, water system and some buildings that can used when he shifts to dairy production. i Expenses are ignored in this study if th is reason that they would be incurred abo equally by both the cash-crop and the da” system. The aim was to determine the differen, in net income between the two systems. n difference is the returns realized from the =1 justment, and its size determines Whether t, cost of the changeover is justified. If machin" costs and repairs are the same for both the ca‘ crop and the dairy system and amounts to i" the difference in the net income between .t two systems would be the same Whether the $V was or was not subtracted from the income. both systems. Therefore, similar expenses i’ ignored so that the analyses will be simpler. Only two setups are analyzed—a cash-c _’ operation exclusive of livestock and a 36-0, dairy operation. ‘ THE CASH-CROP SYSTEM The cropping plan for the cash-crop syst‘ Table 1, involves a 3-year rotation fitted to i commended practices for a high level of prod tion and considers acreage controls on cot i The system consists of a rotation of 30 acres p. cotton, 41 acres of corn and 35 acres of oa, clover. Fertilizer is applied only to the clover acreage. . Corn or grain sorghum could-be used as r grain crop in the crop system. Corn was cho because it seemed more profitable when gr], for cash sale on the basis of expected yields = 1955 price relationships. Should the price: grain sorghum increase relative to the corn p i or should higher-yielding hybrid grain sorgh _ become available, it may be more profitable substitute grain sorghum for corn. The oats-clover acreage was grown for s, improving purposes and was fertilized with < pounds of superphosphate per acre in line " recommendations based on experimental findi‘ Oats were harvested and; sold as grain, and I clover was turned under. i Average annual yields of the crops " based on experimental findings adjusted to w_ reasonably could be expected on farms un good management and on the soil types mentio" . g - lier. The yields used were 270 pounds of lint r ton, 40 bushels of corn and 45 bushels 0f oats acre. Cottonseed yield. was computed at 800 unds per bale (500 pounds of lint) of cotton. 'ces were the average of those received by , ers in the area in 1955 and amounted to 30 A ts per pound for cotton, $43 per ton for cotton- d, $1.20 per bushel for corn and 70 cents per ghel for oats. A farmer with higher or lower productive “d than used here should adjust his yields ordingly. Similarly, should he expect higher t 11st prices in line with his expectations. Gross returns from crop sales, under the ditions specified and at 1955 prices, would frage about $5,779 annually. Slightly less than of this comes from the cotton crop, about a ' d from corn and a fifth from oats. Table 2 contains expenses of the cash-crop item and information about the way they were puted. Land costs, part of the machinery and i ipment depreciation and repair costs (that chinery and equipment used by the cash-crop tem and carried over for use in the dairy), ti. most field operation costs were not computed expenses in the study since they would be roximately the same for both cash-crop and y operations. Labor costs (with the exception of cotton vest, weeding and labor included in certain tom operations) were not considered. The family probably could provide the necessary _1 for both the cash-crop and 36-cow dairy frations. Dairy operations, however, are more a , ining and provide less free time for recreation f. other activities by the farm family. Farmers _ tuld consider carefully this aspect if they \ "template a change to dairying. 1. ACRES. YIELDS. TOTAL PRODUCTION AND RE- i TURNS FROM THE CASH-CROP SYSTEM Acres Yield Total Sales in Perl Predue- Price per Total crop acr'e t1on unit? value 30 270 lb. lint 8.100 lb. .30 lb. $2,430.00 - 432 lb. 6.48 tons $43 ton 278.64 41 4o bu. 1.040 bu. $ 1.20 bu. 1,900.00 .1 as 4s bu.“ 1.51s bu.“ .10 bu.“ 1,102.50 1.11 10s -- - -- $5,119.14 lds per acre are estimates of what could be expected er normal conditions with good crop management prac- on the soil capability units given in the text. They i e based on experiment station findings. but were adjust- ‘to a lower level than average experiment station yields view of more intensive practices and less loss at the "ons than is normal on farms. e per unit is the average price that prevailed in the ‘- in 1955. Clover is turned under. lower prices than those used here, he should‘ While dairy operations provide better year-round use of the family labor supply than crop farming, it is more confining and allows less time for recreation and other family activities. Expenses in Table 2 amount to $1,726 which, when taken from the $5,779 gross income, leave $4,053 returns to the cash-crop system. While this figure excludes expenses that likely do not differ between the two systems being studied, it can be compared directly to a similarly comput- ed return figure for the dairy operation to deter- mine the extent to which net returns are in- creased by shifting to dairying. THE DAIRY SYSTEM How much money is required to finance a changeover from cash-crop to a 36-cow dairy operation on the 180-acre farm? The question TABLE 2. OPERATING EXPENSES OF THE CASH-CROP SYSTEM Expense item ggcttfitfileq F515;? i Cost Cotton: Seed 1 bu. acre $ 4.00 bu. $ 120.00 Chopping and hoeing 5 hrs. acre3 .50 hr. 75.00 Cotton snapping 1.900 lb. bale $ 2.00 cwt.‘ 615.60 Ginning 1.900 lb. bale .50 cwt. 153.90 Bag and ties $ 3.50 bale 56.70 Insect control 3 appl. acre .60 ac. appl. 54.00 Total $1,075.20 Corn: Planting seed 1/ 6 b. acre $12.00 bu. $ 84.00 Harvest cost Corn picker $ 3.50 acre 143.50 Total $ 227.50 Oats-clover: Seed oats 2 bu. acre .90 bu. $ 63.00 Clover seed 15 lb. acre .12 lb. 63.00 Fertilizer 200 lb. acre $35.00 ton 122.50 Harvest-oa.ts Windrowing $ 1.50 acre 52.50 Oats Combining $ 3.50 acre 122.50 Tetel $ 420.50 Crop expenses $1,120.20“ ‘Based on research findings of the usual rates and practices in the area. 21955 prices in the area. 3Based on 10 hours required per acre and assuming the farm operator and family do half the chopping and hoeing for which no charge is made. I ‘Delivered at the gin. “Does not include expenses that are about the same for both cash-crop and dairy farming. is practical for two reasons: (1) so the cost of making the change can be compared with the additional returns that Will be obtained and (2) the cost of maintaining these additional improve- ments (depreciation and repairs) should be in- cluded with the other annual operating expenses of the dairy system since they would not be in- curred by the cash-crop system. Table 3 shows the estimated initial cost, ex- pected useful life, annual depreciation and annual repairs of the improvements required. These data are based on estimates obtained from dairy- men, Agricultural Extension Service personnel and business people in the area who could give reliable information. The total amount of $21,075 may be higher than required on farms that al- ready have buildings and other improvements which can be converted to dairy use with little additional expense. A study of “Costs of Shifting from Cash Crops to Dairying on Central Texas Farms” by A. C. Magee, Progress Report 1640, indicates that a group of farmers with some such buildings and improvements on their farms before the shift was made had investment expenses that averaged about $3,000 less than others who had to make most all of the improvements. About half the total investment is required for outright purchase of the dairy heard of 36 cows. Some farmers build their herds from a few cows over a period of years by saving all heifer offspring. The question whether it is more profitable to purchase the entire herd outright and realize immediate higher returns, or forego some returns by building the herd from offspring at less initial expense was not taken up here. It TABLE 3. ESTIMATED ADDITIONAL INVESTMENTS RE- QUIRED TO CHANGE FROM CASH-CROP TO DAIRY FARMING‘ Item Expected Initial Annual Annual life cost depreciation repairs Years ——— — — -— Dollars — — —— — Grade A parlor-type milking barn’ 25 3.500 140.00 50.00 Tank and compressor for bulk handling 20 1.800 90.00 15.00 Feeding barns. sheds and feed storage 25 2.000 80.00 15.00 Silo“ - 20 1.500 75.00 5.00 Fencing: barbed wire 25 500 20.00 5.00 Electric 25 75 3.00 —— Water system 20 B00 < 30.00 10.00 Field equipment‘ l0 300 30.00 5.00 Dairy herd: 36 cows 10.8005 ——— —- Totals 21.075 468.00 105.00 ‘Based on estimates of dairy farmers. Agricultural Extension Service personnel and business people in the area who were in position to give reliable estimates. and on data contained in Texas Agricultural Experiment Station Progress Report 1640. ’Includes all equipment for the pipeline system. “Cement-lined trench silo of 200-ton capacity. ‘A mower. All other field equipment would be available except that which is custom hired for harvesting hay and silage. ‘The price used was $300 per cow. Information on cow prices in the area seemed to justify this price for cows that would average producing about 9.000 pounds of milk annually. is important and should be included in a fut study. Limited information seems to favor o right purchase of good stock for the “full-seal operation. The most costly investment items, 0th than the dairy herd, are the dairy barn, feedi barns and feed storage constructions including. 200-ton cement-lined trench silo. The silo w included because it seems to be profitable in t area. While some farmers may get by with = unlined trench at less expense, some soils in t area are not suited for that type. l The parlor-type barn equipped for b _ handling of milk may not be economically feasib It seemed, however, to be the practical alternati should a dairyman be starting out at present, f view of the trend toward bulk handling of m' and the favor it holds with the processors “ distributors in the area. v The only additional field equipment purch ed was a mower. The harvest of hay and sila was planned on a custom basis. This eliminai the necessity of owning some costly equipment that will be used infrequently and for sh periods of time. f The crop system for dairy operation is pl ned to provide all the necessary grazing, hay a roughage for the dairy herd, and includes A acres of oats-clover, 30 acres of Sudan and ; acres of forage sorghum. Twenty acres of t forage sorghum should yield 200 tons of sil‘ on the average, and the remaining 21 acres sho ;~ yield about 2 tons of baled hay per acre. Fertil’ f was used only on the 35 acres of oats-clo g Since it was grazed, 200 pounds of 16-20-0 w applied per acre. Income from the dairy herd is given in Ta 4 and was based on an assumed level of . production at 9,000 pounds annually per cow. i level seems justified in terms of the “g management” assumption in the cash-crop i‘ tem. However, the farm operator could be t‘ or less efficient in dairy management than,’ cash-crop farming. 5 The asumption is that half the calves ~. be heifers, that bull calves will be disposed of, " 8 of the heifer calves will be sold at birth é $5 each (allowing a loss of 1 heifer calf f year) and that 9 will be kept as replacement st Nine cull cows will be available for sale each y; TABLE 4. GROSS INCOME FOR THE DAIRY SYSTEM SOURCE Item Amount sold | Price I Receii Milk: 9.000 lb. A’ per cow annually 3.219 cwt.‘ $ 5 cwt. $16. Calves’ 8 $ 5 each i " Cull cows 9 $75 each - Total income i —— $1635 121 cwt. of whole milk used for calves. zAssumes one-half of the calf crop are heifers and 8 are i at birth at $5 each. Bull calves are disposed of. ‘ TABLE 5. OPERATING EXPENSES OF THE DAIRY SYSTEM Item of expense I Rate | Price‘ I Cost iixpenses: f -clover (35 acres): oat seed 3bu. acre .90 bu. $ 94.50 ' clover seed 15 lbs. acre .12 lb. 63.00 a fertilizer (16-20-0) 200 lbs. acre $94.00 ton 329.00 _ hum tor silage (20 acres): f seed 10 lbs. acre .06 lb. 12.00 ~ Harvesting: cutting $ 5.00 acre 100.00 i trucking $ 6.50 acre 130.00 ' hum tor hay (21 acres): _;; seed2 50 lbs. acre .06 lb. 63.00 Harvesting: raking and baling 66 bales acre .24 bale 332.64 i- (30 acres): seed l0 lbs. acre .08 lb. 24.00 op expense $1,148.14 - enses: centrates tor cow herd 3.727 lbs. cow $ 3.50 cwt. 4,696.00 hased teed tor calves under 1 year - 351.45“ chased teed tor heiiers over 1 year 88.653 'cial insemination $ 7.00 cow 252.00 (urinary and medicine $ 3.00 cow 128.00‘ and minerals $ 1.00 animal 54.00 e_ and powder $ 1.50 cow 54.00 _'ng milk .20 cwt. 643.80 erd expense 6,267.90 ation and repairs“ 573.005 (airy expense $7,939,114 i) 'ces in the area. (last. l on data obtained from dairy farmers in the area. t: $20 for veterinary and medicine for the young stock. able 3. receipts from milk and stock sales would operating costs and on the additional net returns é t t0 $16,810. that are obtained. erating expenses which differ from those Table 7 contains data for three levels of cash-crop system are given 1n Table 5. milk production—a 7,000-pound, a 9,000-pound :rgest expense was for feed. Since crops and a 12,000-pound per cow dairy herd. Initial fsture are sufficient to care for the grazing, costs of cow herds capable of producing at the d silage needs of the dairy herd, no expense different levels will vary. Information obtained r eluded for these items other than that in the area indicated that cows capable of produc- "ary for crop production. 1ng at the lowest level cost about $200, cows uch expenses total $7,989 which’ when taken capable of producing at the medium level about the gross Sales of $16,810 in Table 4_ leaves $300 and cows capable of producing at the highest is of $8,821 from the dairy operation. This level about $400 T1118 indiefltes $3,000 less ‘f. tly eempereble with the returns of $4,053 initial cost in a changeover to the lower producers, he cash-crop system, and shows that a and $3,600 greater initial cost in a changeover to from cash-crop to dairying should increase the higher producers, than the initial cost of shift- turns t0 the farm by about $4,708 aflllllally- ing to the 9,000-pound level considered earlier.’ he additional $4,768 represents a rate of 0H the $21,075 investment 0f 22-6 Percent TABLE s. COMPARISON or FINANCIAL REQUIREMENTS. :lly. It would take about 4-1/2 years for the EXPENSES AND RETURNS or m2: CASH-CROP onal net returns to equal the cost of the AND DAIRY FARM SYSTEMS eover under the conditions specified. Item Cashflop 36mm dairy system system‘ ODUCTION AND ADDITIONAL RETURNS .. . Additional investment esearch data indicate that many dairymen resumed (“M”) i 21075 . . G d ll 5.779 1 , 0 j area obtain less than 9,000 pounds of milk E;;jj,;§;“;;§, (dfifefriltween 6 81 = ow annually. However, it is possible, in the systems (dollars) 1.72s 7,989 §of experimental findings, and of production Réeffirne lees expenses 4053 2 ments in some of the maJor milk sheds, to Nit ‘lfetflifis from the ' ' 8'8 1 V a level of production considerably higher a adjustment (dollars) 4,753 9,000 pounds, Time it would takle lilncreased a , , r urn t ua t t 1 he following analysis shows the effect of o? .h.,'°;,g‘;-§3., (Ye(e1[:)°s 4_4 _ and lower levels of production on the r cost of making the shift t0 dairying, on ‘ ‘Based on 9.000 pounds of milk per cow annually. TABLE 7. LEVELS OF MILK PRODUCTION AND INITIAL INVESTMENT. COSTS AND. RETURNS Item 7.000 lb. 9.000 lb. 12.000 lb. per cow per cow per cow Cost per cow $ 200 $ 300 $ 400 Investment in cow herd 7.200 10.800 14.400 Rate of concentrates fed per cow‘ 3.443 3.727 4.184 Total cost of concentrates at $3.50 per cwt. 4.338 4.696 5.272 Total initial cost of the change-over 17.475 21.075 24.675 Total income from dairy 13.210 16.810 22.210 Operating costsi 7.631 7.989 8.565 Income less costs for dairy 5.579 8.821 13.645 Income less costs for cash-crop 4.053 4.053 4.053 Net income added by the shift 1.526 4.768 9.592 Years it would take increased returns to equal the initial costs of the change 11.5 4.4 2.6 ‘Based on unpublished research data in the Department of Agricultural Economics and Sociology. ’Those costs that differ between the cash-crop and dairy system. Operating costs will differ because of dif- ferences in the concentrate feed requirements for the different levels 0f production. Cows produc- ing an average of 7,000 pounds ofmilk annually would require about 284 pounds less concentrate feed per cow annually than those producing 9,000 pounds of milk, and cows producing 12,000 pounds of milk annually would require an additional 487 pounds of concentrate feeds above that required by the 9,000-pound producers. A farmer converting to dairy operations can expect only $1,526 additional net income annually above that of the cash-crop system if he produces at the 7,000-pound level. He can expect as much as $9,592 additional net income annually if he produces at the 12,000-pound level. The above data assume enough hay and grazing to supply the dairy herd needs with no excess for sale at the different levels of pro- Good management practices pay off in higher returns to the dairy operator. 8 the 12,000-pound level. With good crop m, duction. It is possible that a small amok excess hay may be available for sale if th herd produces only at the 7,000-pound le t" that some hay purchases may be necess poor crop years for the cow herd produc= ment practices, a normal yield should p sufficient hay, silage and grazing for the; herd, even at the 12,000-pound production, on a farm of the type and size studied. In i of high yields, excess hay should be stor use during the years of low yields. ' It is unlikely that deviation from the "i tion assumed for hay and grazing would i, seriously the differences in additional net by the production levels shown in Table 7.,f EFFECT OF PRICE CHANGES The discussion thus far has been bat price conditions that existed in the areai ‘i These conditions might change should milk become less favorable or more favorable cotton, corn and oat prices-the crops gro sold from the cash-crop system. Althon information is available on prices receivi farmers in the central Blacklands for other data are availabe for average prices recei, farmers in Texas as a whole. Since area i would tend to vary in the same direction, similar magnitude as State prices, an anal State price changes is given. Table 8 presents a comparison of m cash-crop prices from 1948 through 1955. ' years were not included because the Warg with price controls and rationing, tended to i the relationship between cash-crop and prices, and dairying in the Blacklands wai beginning stage and markets were no established at that time. .- TABLE 8. CASH-CROP AND MILK PRICES ANDK RELATIONSHIP. 1948-55‘ Y Price indices Rqtiqq ear Cash-crop’ Milk P2111; t‘ 1955 area price 100.0 100.0 H State weighted average prices 1948 127.5 122.2 I, 1949 99.2 113.4 ll *5‘ 1950 128.3 105.2 z»- 1951 141.8 _ 123.6 : g 1952 136.0 137.8 l0 t 1953 117.2 122.0 l I 1954 119.6 109.2 8 Y I 195s 106.5 112.5 i ‘Source: Prices 1948 through 1951 were those is Texas Agricultural Experiment Station Bulletin I- Farm Commodity Prices. Iune 1953. Prices 1952 thro" were supplied by Agricultural Estimates. AMS. USD a used are those that farmers received. _ 2The cash-crop price index is weighted by the pr ~33 cotton, corn and oats by the cash-crop system. ' 3Computed by dividing the index of milk price by» of cash-crop price and multiplying by 100. o. _ n 3 of Table 8 shows the ratio of milk [rop prices. A ratio less than100 means = prices were lower than cash-crop prices 30f the 1955 farm price relationship in the area. A ratio greater than 100 indi- k prices were more favorable. v prices varied from 18 percent below (in .14 percent above (in 1949) cash-crop "ch the 1955 area price used as a base. ,e 9 shows how a change in the price , ip would affect the returns to be gained fng from a cash-crop to a 9,000-pound d operation. Should the cash-crop prices “he same as that received by farmers in "in 1955, but milk prices decrease by 18 [below that level, the net returns added ‘ng to dairy operations would amount to 1.742. This is considerably less than the dditional returns expected with the area ationship that existed in 1955. An 18 drop in milk price means a 63 percent .»added net returns, while a 14 percent _ in milk price, with cash-crop prices _, would increase the additional returns rcent. mall increase or decrease in the milk lative to cash-crop prices, produces a much crease or decrease percentage-wise in the p ns gained by shifting to dairy operations. sizes the importance of selecting care- @ prices to be used in planning future I s. A farm operator cannot avoid the 'bility of predicting future prices, but he predict them as intelligently as possible. imated annual net return to be gained éing from cash-crop to dairy farming is ,_ :ge amount, and is likely to vary up or ch year from that average as prices - The 18 percent decrease and 14 percent ’ in milk price related to cash-crop prices A the analysis represent the most extreme in the price relationship since 1948. The normally was less drastic. ual returns to dairying vary less from " year than do returns from cash-crop ins. The greater stability of dairy income set when planning annual payments on incurred to start dairying. i FINANCING THE ADJUSTMENT ‘change from cash-crop to dairy farming ;prove profitable to the central Blackland ‘with good management ability on farms ar type and size to that taken for study. rable initial cost is involved, however, and _ely most farmers would not have sufficient I to completely finance the change. first step in attacking this problem is to e operator who has the ability to operate F dairy efficientlylat the 9,000-pound per oduction level and question how many ‘ould be needed to liquidate a debt made to finance the initial cost of the change. The answer depends both on the amount of credit needed and the amount available annually with which to repay the loan. For most purposes, the farm operator should look to the net returns from an undertaking to repay its cost. Since this amounts to $4,768 for the adjustment considered, this amount will be used to analyze credit considerations. Should a loan of $20,000 be needed—almost the full amount of the initial cost of the change— and annual payments be kept equal to or less than the added net returns of $4,768, about 6 years would be required to liquidate the debt. At 6 percent interest, the annual payment required to liquidate a $20,000 loan in 6 years would be about $4,067, Table 10. At 8 percent it would amount to about $4,326. Under the conditions specified, it would not be financially possible to repay the loan in 3 years or less. A 3-year amortized debt of $20,000 re- quires annual payments of $7,482 to $7,761 at 6 to 8 percent, respectively, Table 10. This range is considerably more than the $4,768 forthcoming to use for that purpose. Lending agencies are likely to require that the farm operator provide some of the initial cost unless considerable assets are advanced as se- curity. They may prefer to loan no more, say, than 75 percent of the initial investment in the undertaking. Table 10 shows it still would re- quire 4 years to liquidate a loan of $15,000 under those conditions. Should the lending agency in- sist on a 2 or 3-year loan, the farmer would have to resort to another source of income than that added by the change-over to repay the debt. If no other source is available, it would be impossible to meet the commitments. A lending agency which serves the needs of farm operators efficiently must be in position to judge the management capability of applicants for loans. TABLE 9. EFFECT OF CHANGING PRICE RELATIONSHIPS ON NET RETURNS ADDED BY SHIFTING TO DAIRYING Average milk price received by farmers Hem 18 percent 1955 14 percent less than 1955 area greater than area price price 1955 area price Gross income from dairy (dollars) 13,784 16,810 19,163 Income less expenses (dollars) 1 5,795 8,821 11,174 Net additional returns (dollars) 2 1,742 4,768 7,121 Change in additional returns due to change in price (percent)3 — 63 0O + 49 ‘Expenses wer'e $7,989. "Income less expenses for cash-crop farming was $4,053. This amount was subtracted from the dairy figure to obtain net additional returns. “Greater or less than the added returns based on 1955 area prices. 9 TABLE 10. APPROXIMATE ANNUAL PAYMENTS REQUIRED TO LIQUIDATE AMORTIZED LOANS OF $20,000. $15.01 $10,000 AT VARIOUS INTEREST RATES AND FOR SPECIFIED REPAYMENT PERIODS A ' Annual payments on Annual payments on Annual payments on ‘ Repalfmdent a $20,000 loan at: a $15,000 loan at: a $10,000 loan at: perm 6 percent I 8 percent 6 percent I 8 percent 6 percent I 8 perce p Years — — — — — — — — — — — — —— Dollars — — — — — — — — — — — — — 1 21,200 21,600 15.900 16,200 10,600 2 10,909 11.215 8,182 8,416 5.454 3 7.482 7.761 5,612 5,821 3.741 4 5.772 6,038 4,329 4,529 2.886 5 4,748 5.009 3.561 3.757 2,374 6 4,067 4,326 3.050 3,245 2,034 ‘ 7 3,583 3,841 2.687 2.881 1.791 ‘ 8 3,221 3,480 2,416 2,610 1,610 -. 9 2,940 3,202 2,205 2,401 1.470 Y; 10 2,717 2,981 2.038 2,235 1,359 5 11 2,536 2,801 1,902 2,101 1,268 ;»' 12 2.386 2,654 1,789 1,990 1.193 13 2.259 2.530 1,694 1,898 1,130 1.26 14 2,152 2,426 1.614 1,819 1,076 1,2131. 15 2,059 2.336 1,544 1,752 1,030 1,160 ;_ 16 1,979 2,260 1,484 1.695 990 1.130 17 1,909 2,193 1.432 1,644 954 1,096. 18 1,847 2,134 1.385 1,601 924 1,067“ 19 1.792 2,082 1.344 1,562 896 1.041, 20 1.744 2,037 1.308 1,528 872 1,019 Previous analysis indicate that the net re- turns gained by shifting to a 36-cow dairy with a 7,000-pound average milk productionlevel per cow would be only $1,526. Initial investment cost was $17 ,475 and, should credit be needed t0 finance 75 percent of that amount, it would take from 13 to 16 years to liquidate such a debt with additional returns from the undertaking, Table 11. It is unlikely that credit agencies would be willing to extend such terms. As a final point, production at the 9,000- pound level is considered comparable in manager- TABLE 11. TIME AND ANNUAL PAYMENTS REQUIRED TO LIQUIDATE AN AMORTIZED DEBT EQUAL TO THREE-FOURTHS OF THE INITIAL COST RE- QUIRED TO CHANGE FROM CASH-CROP TO DAIRYING WITH VARIOUS DAIRY PRODUCTION LEVELS Production levels of dairy herd Item 7,000 lb. 9,000 lb. 12.000 lb. per cow per cow per cow Initial cost oi change-over $17,475 $21,075 $24,675 75 percent of initial cost‘ 13,100 15,800 18.500 Additional net returns at 1955 area prices 1.526 4,768 9.592 Years required to liquidate a 6 percent amortized loan equal to 75 percent of initial costz 13 4 3 Amount of annual payment $ 1,480 $ 4.560 $ 6,921 Years required to liquidate an 8 percent loan equal to 75 percent of initial cost’ 16 5 i} Amount of annual payment $ 1,480 $ 3,9583 $ 7,178 ‘Rounded to nearest $100. ’Assuming annual payments on debt do not exceed the ex- pected additional net returns at 1955 area prices. “To liquidate the loan in 4 instead of 5 years would require an annual payment of $4,770, only slightly in excess o1 the $4,768 additional returns expected. 10 ial ability with that assumed for the ca‘ operation. Should the farmer be less effic cash-crop farming than that assumed, his v would be less than the computations have a ' and a shift to a 7,000-pound level of da' i duction would likely add more to net retur the $1,526 considered here. t Previous analyses of the changing =1 ship between cash-crop and milk prices 5 that the additional net returns realized ; adjustment to dairying varies annually 1i, below the average expected with prices a 1955 level, or with cash-crop and milk p creasing and decreasing in the same pro Cost changes cause variation in returns f Weather, disease and other hazards are l i cause realized returns in any one year; more or less than planned returns. Two possibilities seem feasible to c0 changing amounts available to apply principal and interest of a debt. The te, a loan could be lengthened, thereby loWe ji annual amortized payments should th agency insist on a rigid schedule of" amounts. Since a small percentage c ,3 prices or costs will squeeze net returns byi greater proportion, payments should be 0; 25 to 40 percent below the expected ~{_ returns to allow a safe margin for meet' commitments if a rigid repayment sc ~' used. In years of high returns, the ff likely to have excess funds that could, to reduce the debt. He should have an :_ that this can be done. 1 What may prove the better possibil use a flexible repayment plan with the} of annual payments contracted at some =__ proportion of the realized net returns ef This would assure liquidating the debt as possible, and guard against the possib’, .1 chooses not to apply them on the loan the more rigid plan discussed in-the pre- paragraph. ldit considerations emphasize the neces- a farmer planning carefully the initial cost ‘ng an adjustment in his system of farm- at his credit needs will be, the amount of rihe will have available annually to make nts on a loan, and the length of time ffétake to liquidate it. This information uter enable him to approach the lending gwith a sound plan for financing the ad- ‘t, and to more nearly assess the economic ty of a change in farming. It also will " credit agency assess the possibilities of Tlstment and the credit terms the farmer _‘o operate his business efficiently. APPENDIX Lle 12 is provided as an aid in estimating A_ ual payments necessary to liquidate an "funds would be used elsewhere if the’ amortized debt of any size when the interest rate and period of the‘ loan are known. As an example of its use, take a farmerjwho requires an $8,000 loan to be liquidated in 6 years and can obtain this amount at 6 percent interest. Move down the left hand column to the number 6, which desig- nates the period for which the loan is made, then across to the column headed 6 percent. The $20.34 is the amount of annual payment it takes to liquidate a $100 debt at 6 percent interest in 6 years. The $20.34 must be multiplied by 80 to determine the annual paymenton an $8,000 debt, or approximately $1,627. If the life of the loan were 10 instead of 6 years, the annual payment to liquidate a $100 debt at 6 percent is $13.59. This multiplied by 80 shows an annual payment of $1,087 is necessary to liquidate an $8,000 loan in 10 years at 6 percent interest. If the loan is for $12,000 instead of $8,000, the annual payments on a $100 loan must be multiplied by 120 instead of 80 to determine the annual payments necessary to liquidate the larger amount in the length of time considered. I i-APPROXIMATE ANNUAL PAYMENTS NECESSARY TO LIQUIDATE AN AMORTIZED LOAN OF $100 AT VARIOUS INTEREST RATES AND FOR SPECIFIED PERIODS Approximate annual payments for specified interest rates 191' . 5 51/2 5 4m 51/2 7 _ 71/2 3 - percent percent percent percent percent ‘ percent percent - — — — — — — — — — — — — — Dollars - — — — — — — — — -— — — — —- 105.00 a 105.50 106.00 106.50 107.00 107.50 108.00 53.78 54.16 54.54 54.93 55.31 55.69 56.08 36.72 37.07 37.41 37.76 38.11 - a 38.45 ~ 38.80 28.20 28.53 28.86 29.19 29.52 29.86 30.19 23.10 23.42 23.74 24.06 24.39 24.72 25.05 19.70 20.02 20.34 20.66 20.98 21.30 21.63 a 17.28 17.60 17.91 18.23 18.56 18.88 19.21 15.47 15.79 16.10 16.42 16.75 17.07 _ 17.40 14.07 14.38 14.70 15.02 15.35 15.68 - 16.01 12.95 13.27 13.59 13.91 14.24 - 14.57 14.90 12.04 12.36 12.68 13.01 a 13.34 , 13.67 14.01 11.28 11.60 11.93 12.26 12.59 12.93 13.27 10.65 10.97 11.30 11.63 11.97 12.31 12.65 10.10 10.43 10.76 11.09 11.43 11.78 12.13 9.63 9.96 10.30 10.64 10.98 11.33 11.68 9.23 9.56 9.90 10.24 10.59 10.94 11.30 8.87 9.20 9.54 9.89 10.24 ' 10.60 10.96 8.55 8.89 9.24 9.59 9.94 10.30 10.67 8.27 8.62 8.96 9.32 ’ ~ 9.68 10.04 10.41 8.02 8.37 8.72 9.08 9.44 9.81 A 10.19 ll M sents a coordinated effort to solve the many problems relating to a common objective or situation; State-wide Research? The Texas Agricultural Experiment Statii is the public agricultural research agen oi the State oi Texas, and is one oi Location oi field research units in Texas main- tained by the Texas Agricultural Experiment ‘ Station and cooperating agencies parts oi the Texas A&M College Syste IN THE MAIN STATION, with headquarters at College Station, are 16 subject-matter departments, 2 departments, Sregulatory services and the administrative staff. Located out in the major agricultura of Texas are 21 substations and 9 field laboratories. In addition, there are 14 cooperating stations T by other agencies, including the Texas Forest Service, the Game and Fish Commission of Texas,'i Prison System, the U. S. Department of Agriculture, University of Texas, Texas Technological Colle the King Ranch. Some experiments are conducted on farms and ranches and in rural homes. RESEARCH BY THE TEXAS STATION is organized by programs and projects. A program of research} search project represents the procedures for attacking a specific problem within a program. THE TEXAS sTATIoN is conducting about 350 active research projects, grouped in 25 programs w clude all phases of agriculture in Texas. Among these are: conservation and improvement of so a servation and use of water in agriculture; grasses and legumes for pastures, ranges, hay, conserva improvement of soils; grain crops; cotton and other fiber crops; vegetable crops; citrus and other ~~ cal fruits, fruits and nuts; oil seed crops——other than cotton; ornamental plants—including turf; b_ weeds; insects; plant diseases; beef cattle; dairy cattle; sheep and goats; swine; chickens and tur ma! diseases and parasites; {is}: and game 0n farms and ranches; farm and ranch engineering; ranch business; marketing agricultural products; rural home economics; and rural agricultural eci Two additional programs are maintenance and upkeep, and central services. RESEARCH RESULTS are carried to Texas farm and ranch owners and homemakers by specialists an‘ agents of the Texas Agricultural Extension Service.