xt722804zq1v https://exploreuk.uky.edu/dips/xt722804zq1v/data/mets.xml Kentucky Agricultural Experiment Station. 1952 journals 002a English Lexington : Agricultural Experiment Station, University of Kentucky Contact the Special Collections Research Center for information regarding rights and use of this collection. Kentucky Agricultural Experiment Station Progress report (Kentucky Agricultural Experiment Station) n.2 text Progress report (Kentucky Agricultural Experiment Station) n.2 1952 2014 true xt722804zq1v section xt722804zq1v \ .
THE LAND IS THE SAME - -
I ' - ' A U
» . ·:$: ._ , 2%- ».f, .;:1¤ ;:~ em r;4#?}=st·%i>$+*¤ ‘
I-*1* —y » ’ . J; In ·.< `wiv 23:35*
qi L-A ‘~ I; ,¤.>` ;’*·· ;.;·_·i*·$»;g» &·..gi · " ig:
. i "J f~7'v/ 'v_,£: " ,~TTL§_,f2; ·k 2%:
~L;‘;?i”"`—4 ~ ¥; ~» z-. - 5· `Fr ·»·:E " » =~
,_` » .
mz-;¢.‘; V»;‘·=' ~ , `
A °¥~ ` • 1
It r. zi — ' `g '
` ’ ° · ..ET ; . ‘ ' · 'A I ° I
Q; ~TT- Q, · I §Q¢~~ ; ‘ - \ ·· 1 *
w gr" · . ;<’·-·, ".'_%ai·'I H J ', Z_' . _ · .
,,‘J"?L`?;€ f.F;4 ` ' I · I ` ~ ‘
’ I-{`¤`,_·>»‘7,>,_‘;_'·}'?·' » `F Q ' E. .· ··/ _ ‘ ”
I/~·¥¤i%#i‘/-I- »·¢ ,¤,·»·" ‘ “ ". - I "`· " ·
JJ , { _'; _.·.,v»' `:', V:/{Vw H1 l' "(\€,_v '_. . [ E { ..
{ I Lv "‘.,2:·=¢<* ‘··‘ 1 zikr ·- " ' ‘ ,
¤.,._ ._· ~», , -.4.. ,, _• _. _ , —,v ,·‘· _1_V, . `_`\
_ .·;;’.__ / E S, ’;l'1'r'·;};L' ·»~ *;:;,4 E- .. I; I ` .¤,.‘A. I f. ` ll
M ( ‘c · 7 , Q gj_{3=)-’ ··4·e· :4:-j.-·",j·;j·__;;, -. I y [yin
-—THE DIFFERENCE IS IN THE INVESTMENT
La?
R
I Glenn 1... johnson
Progress Report No. 2
R & MA 60
Kentucky Agricultural Experiment Station
University of Kentucky with
Tennessee Valley Authority Cooperating
September 16, 1952

[ .
(
7

l SOURCES OF INCOM.E ON
. UPLAND MCCRACKEN COUNTY FARMS
. IN 1 9 5 1
{ By Glenn L. Johnson
V Farmers in McCracken county, one of the most rapidly developing
counties in western Kentucky as far as industry is concerned., are now ,
adjusting to problems created by:
(1) the availability of many new jobs at high
wage rates,
(2) new markets for dairy products, _
(3) new forage production and fertilization
methods,
· _ (4) high rural land values and
(5) the risk of drouth damage to the new forage —
livestock systems of farming. ·
— In periods of change, farmers, money lenders, county agents. real
estate men and others are especially interested in the earning power of
investments and expenditures in farming. They are interested in whether
livestock pay off, whether or not machinery pays off, whether or not the
earnings of farm laborers are high enough to compete with industrial wages,
whether grain or forage production pays most, and whether the land itself ·
is paying its way at the high prices charged for it. In McCracken county, l
· ` with its small farms averaging less than 70 acres in size, people are par-
ticularly interested in how changes in one kind of investment affect the earn-
ing power of other kinds of investments and expenditures; for example, how
the earning power of labor might be increased by increasing the investment
in land., or in machinery, or in livestock.
V In the spring of 1952, farm management research workers from the
University of Kentucky gathered financial record.s on 33 upland McCracken
~ county farms.
' The primary objectives in analyzing these records were?
(1) To acquire estimates of:
a. the earning power of such things as livestock invest-
ments, labor, forage investments, machinery invest- _
ments, land, current expenditures, and

b. how the individual earning power of these things
depend on the amount of other supporting invest-
ments and expenditures present in the farm business,
(Z) To gain insight into possible reorganization of
McCracken county farms under the present rapidly
changing conditions.
Adjustments to drought risks are discussed at the end of this report.
THE EARNING POWER OF FORAGE AND LIVESTOCK INVESTMENTS
Before considering the earning power of forage and livestock invest-
ments, the question of what is meant when we speak of forage and livestock
investments should be answered. I
The forage investment is the investment in hay and pasture crops.
It is the replacement value of the hay andlpasture stands on the farm. Good, ¤ ‘
well-established stands of fescue-ladino were valued at between 35 and $40
per acre while an acre of unfertilized. lespedeza, more or less in condition
to reseed itself, was valued at $2. Other forage and hay stands were given _
reasonable values falling between these two extremes.
The livestock investment is the annual average investment in breed-
ing and work stock. It includes the value of breeding and work stock on
hand at the beginning of the year, less an allowance for such stock sold
off the farm, plus an allowance for such stock purchased during the year,
Feeder animals were not included in the breeding and work stock invest-
ment, as farmers expect at least dollar-for -dollar returns on feeders in
contrast to only interest and depreciation on breeding and work stock. ,v
As everyone knows, forage and livestock go together except for farms
in a few areas selling hay or specializing in seed production. Forage does _
not ordinarily yield income until eaten by livestock. Thus, as both are
ordinarily needed to produce income, the forage and livestock investments ‘
were added together before estimating their earning power.
Forage and Livestock , h
Have High Earning ‘
Power
On the 33 farms covered by the study, forage and livestock were the
money getters. The "usual" investment in forage and livestock was
Z.

1 · .
$3, 333.-/ Combined with the usual amounts of labor, land, machinery, and .
current expenditures, this investment in forage and livestock returned an
estimated 52 percent on the last dollar used in 1951. This is enough to more
than cover interest charges plus maintenance of forage stands and herds.
ON THE USUAL FARM STUDIED
Small Forage and Livestock Large Forage and Livestock
` Investments ($1000) paid Investments of $10, OOO paid
$1.09 per last dollar invested $. 25 per dollar last
dollar invested ·
, $3723 annually for the
additional $9000
invested
95. i'
$1923 annually"above a
20% interest and
maintenance charge
on the $10, 000
Smaller investments in forage and livestock, on similar farms, paid
a much larger rate of return, though the total and net, were lower than usual.
On the other hand, larger investments in forage and livestock, on similar
farms, paid a somewhat lower rate of return, though the total and net were
higher than usual.
Larger investments in forage and livestock along with more land, l
machinery, labor, and other expenditures paid both higher rates and higher
totals in many cases.
Forage and Livestock
Increase the Earning
Flower of Other Investments ·
_ In addition to being profitable in and of themselves, forage and live stock
_ investments increase the earning power of other investments and expenditures.
· The following table indicates how the earning power of the usual amounts of
1/ The word "usual" is used in place of geometric mean. The usual or
geometric mean amount is more representative than the common average
or arithmetic means when only a few of the farms U S € 16 T 86
amounts. The "usual farm studied" is a farm using the usual amounts
of each investment and expenditure group.
3.

labor, machinery, land, and other expenditures would have been changed by
increasing the forage and livestock investment to $10, 000,
Usual Earnin Power .
Investment Amount With Usual With $10, OOO ,
Or Expenditure On 33 Farms Forage and in Forage
Studied Livestock and
Investment Livestock
Labor 12.5 months $40. a month $58. 51 a month
Machinery $1683 $.16 ona $ $.24 ona $
Land 99 acres $5. 65 an acre $8.18 an acre p
Other Expenditures $ 1679 $1, 24 on a $ $1. 80 on a $
It should be observed that $10,000 would develop around 80 acres of fes- p
cue·1adino and stock it with between 20 and 30 dairy cows.
THE EARNING POWER OF UNDEVELOPED LAND
Land was measured in terms of acres only. Thus, the figures used
for land in the analysis of farm income do not reflect farm—to-farm soil
differences, building improvements, forage stands, and such.
On,the upland McCracken county farms studied, as one would expect, I
gross incomewas found to increase with the number of acres in the farm.
On the usual farm· studied,· which had 99 acres,· land was probably earn-
ing over $5 an acre. The more land used, other investments and expend-
itures at usual levels, the lower the rate earned by land. The more sup-
porting investments and expenditures used in combination with a given h
amount of land, the higher the rate earned by land. ·
THE EARNING POWER OF LABOR
The amount of labor used (or on the farm for use) was measured in
terms of months. Study of the relationship between amount of labor used
and gros_s income indicated that the earning power of labor was low. T The -
usual amount of labor employed on the farms studied was 12. 5 man-months
4.

which earned an estimated 40 dollars a month. The analysis further re-
vealed that:
· (1) the amount earned per month falls as more months of labor are
used,
(Z) the earning power of labor increases as more assets are combin- V
ed with it, i. e. , when the forage and livestock investment was i
increased from $1683 to $10, 000, the earning power of labor
increased from $40 to nearly $60 a month.
( THE EARNING POWER OF OTHER EXPENDITURES
In addition to the investments and inputs considered above, each
V farm year’s business involves expenditures for gas, oil, annual seeds,
it feeder stock, fertilizers whose values are consumed in one year, custom
work, breeding fees, etc. The sum of the expenditures (on which farm-
ers expectto secure at least dollar for dollar returns) is labeled "other
expenditures." By and large, the McCracken county farms studied were get-
ting back more than dollar-for#d‘o1lar‘returns. ‘“ In fact; the estimates
indicate that for the usual amount spent ($1679), farmers were getting
back about $ 1. Z4 on the last dollar spent.
This situation is not a`s desirable as it appears to be. Nbre pro-
fits could have been made had these expenditures been expanded until the
last dollar spent just returned a dollar. So long as the spending of an
additional dollar increases income by more than a dollar, profits can be
, increased by spending more dollars, U
. THE EARNING POWER OF MACHINERY
The 33 farm businesses studied had a usual amount of machinery
on them, valued (in current dollars by the farmers themselves) at $1683.
,` Tr-hisamount ofvmachinery was earning about 16 percent to cover interest
on the investment, depreciation, repairs and/or maintenance, This rate
of return. while probably adequate, is not nearly so large as that derivable
from forage andlivestock investments.
Interest, of course, must be covered for the period of time between
making and recovering an expense item. `
5.

SIZE AND EARNING POWER
Efficiency Increased With _'
Si·ze· Up to a- Liimit, Then ‘

`arms
Results of studying the 33 farms as a group indicate that operations
became more and more efficient as the farms increased from small to mid-
dle size. One of the farms had a gross income of $890 from 48 acres,
three months of labor, $735 worth of livestock, $30 worth of machinery, °
$ 191 in other expenses and $620 in land development while, on the other .
extreme, one farm had a gross income of over $47, 000 from close to 600
acres, 33 months of labor, $800 worth of breeding stock, over $12, 000
in machinery, nearly $33,000 in expenses (including feeders) and over _ `
$ 10, 000 in land development, Because it did not appear logical to ex- »
pect increasing efficiency over such a wide range, the fifteen farms .
having the highest incomes were selected for separate study. The usual
gross income among these 15 farms amounted to about $7, 500 and, among
these larger farms, efficiency did not change greatly with size of farm i
gs long as these larger businesses were balanced.
McCracken's Small Farms
Are Dropping
Becoming Larger
Between 1940 and 1950, McCracken county lost a net of 434 farms pro- `
ducing more than 250 dollars (in 1950 dollars) worth of products for sale,
This loss occurred primarily among farms producing between $250 and $4, 999 B
worth of products for sale. In fact, about 477 farms fell out of this category, .
Of these, 434 became rural residences, were abandoned, or were consolidated, _
while 43 moved up to gross incomes above $5,000. Actually, McCracken
county had 12 more farms earning over $10, 000 or higher (in 1950 dollars) · `
in 1950 than in 1940. Only 605 farms producing products worth between
$250 and $2, 499 remained in 1950 and a large number of these are now gone. i_
l
Both developments noted above are generally desirable. If a person
needing income is not grossing more than $2, 500 (about $4, 000 is probably
a better minimum) at farming, he should either get out of farming or im-
prove his farming. McCracken county farmers did both between 1940 and
1950, and this study partially indicates why: -
A. Small McCracken county farms were not efficient in 1951,
B. McCracken county farms can be increased in size with increases
in efficiency at first and without incurring over—a1l ineffic-
iencies as the farms approach, in size, the largest farms found
in McCracken county.
6.

A POSSIBLE REORGANIZATION OFA PARTICULAR
FARM UNDER |95I CONDITIONS
l 1Thé farm of one McCracken county farmer was organized as follows:
I ` Land I ---———·-·- - —-—--—— V 72 acres
I Labor used --—-—- _- , ---—--—· - 12 months
Livestock investment -. —-—----- $1-79 ·
Forage investment -—--—--—-- - $518
__ Machinery -——--—————-—·- $ 1, 490
Other expenditures --------- $1,002
From these assets and inputs, actual 1951 gross income (excluding rental
value of the home) amounted to $1, 365. This was $516 less than would
have been expected from the assets and inputs used on the basis of average
performance; i. e.`, this particular farmer did worse than an average job of
using his assets and inputs, probably because of ineffective management.
QUESTION: ASSUMING THAT THIS FARMER SUCCEEDS IN BE-
COMING AN AVERAGE-MANAGER, COULD HE REOR-
- GANIZE HIS BUSINESS TO EARN A STANDARD OF
LIVING COMPARABLE TO WHAT COULD BE EARNED
ELSEWHERE?
The answer will be based on 1951 conditions. And, there will be
two answers: one for the next three years and another for the long pull.
But first let's look at the farm business more closely.
According to this study, this farm with average management would
have earned about $3. 21 an acre, $17. 40 per month of labor, in the neigh-
borhood of 100 percent on the livestock and forage investment, less than
8 percent on the machinery investment and about $. 86 on the dollar spent
for gas, oil, seeds, etc. Labor and machinery earnings were low. The
_ livestock and forage investment was paying a high rate of return; current
* expenditures were not paying off well.
These probable earnings of different inputs on this farm indicate
that the forage and livestock investment should be expanded, that current _
expenditures should be held down, that less labor should be used, and that
less machinery should be used in relation to other inputs.
In 1951, this 72—acre farm was stocked with hogs (three sows and 24
feeders), 2 work horses, and a few chickens. Unimproved mixed hay and
pasture occupied 18 acres of land, spring-seeded lespedeza another 10
acres, and improved pasture (fescue, ladino and lespedeza) another 5. 5 acres.
7.

This farmer could do one of two things to increase his income.
First, he could quit farming and go to work full
time at some nearby urban or construction job or
Second, he could start to reorganize his affairs
to develop a profitable farming business.
Let us assume that he wants to stay in farming, that he wants more
income, that he is capable of becoming an average manager, and that he is
resolved to accomplish these goals.
The First Year
The first year, this man might: _
(1) work off the farm for six months to get working capital, -
(2) add (with borrowed money and money from off-farm work) six dairy
cows worth $2, 000, ·
(3) seed 25 acres of improved hay and pasture at a cost of $1,000
with money out of his salary and further borrowing.
Thus, for the first year, the farm organization and expected rates
of earning under 1951 conditions would be:
Land -—---—-—--—----— 72 acres earning over $6 an acre
__ Labor --·-———---——---- 6 months earning $68 a month , ·
Livestock and forage —-—----- $3, 697 earning 38 percent
Machinery ----—---—---- $1, 490 earning 15 percent l
Other expenditures ----——— 9- $1, 300 earning $1. 30 per dollar ·
The above rates of earnings are for the last unit used. They are not `
average earnings. When a farm business is expanded and kept in balance *
not all units used earn as high returns as the last units used. In other
words, m1ddle—sized McCracken county farms are estimated to be more effic- K
ient than small farms. With the above organization under ave rage man -
agement and 1951 conditions, the above farm would be expected to return
$3, 700, which along with $1, 300 for six months off—farm work would bring
total income to $5, OOO in contrast with the 1951 income of only about $1, 400.
8.

(
At the end of the first year:
» (1) the six cows could be paid for,
(2) living standards could be raised importantly,
( (3) debts could be reduced to $1, 000, mainly on the new seed-
, ing,
, and, The Farm Would Be Ready For Its New Big Step Forward.
Z The Second Year
A In the second year, 6 more good cows could be added, a grade A dairy
”' could be established, 15 more acres could be seeded and off-farm work could
{ be reduced to 3 months per year. This would require an. additional invest-
_ ment of $2, 000 in cows, $1, 000 in milking and milk-room equipment (part
second handed) and $600 in pasture for a total additional investment of
K $3, 600. The resultant farm organization and rates of earnings by the last
€ unit of each input used would be as follows, if 1951 conditions continued
Z to prevail:
I
Land ·---------—-—---- 72 acres at $9. 29 per acre
Labor ---------------—- 9 months at $67,11 per month
Livestock and forage —--——---- $5, 697 at 36, percent
{ Machinery ·-----—-------- $2, 400 at 13, 8 percent
Other expenses ---—-—--—--- $1,800 at $1, 39 per dollar
E This organization with average management, would be expected to earn a
( gross of nearly $5, 500 under 1951 conditions, which along with $650 from
off-farm work would bring total income up to about $6,100. This level
.· of income would permit retirement of $2, 000 of the $4, 600 debt ($1, 000
for the previous year's seeding, plus $3, 600 invested during this year),
Thus, over the two-year period, $4,000 worth of cattle, $1, 600 worth of
{ forage seeding and $1, 000 worth of milking equipment could be acquired
J at an increased indebtedness of only $2, 600.
At about this point in the reorganization, this farmer would be in l
position to buy more land, especially if the original 72 acres were debt
free, which we will assume they were. Delay of one more year would have
the advantage of permitting debts to be cleared before buying more land
but would delay the development of a full-scale commercial operation
9,

1
The Third Year __
Let us assume that this man borrows $9, 000 to purchase 60 addition- —
al acres including 20 acres of improved forage land. This would permit y
expansion of the herd to 20 cows (3 farm-raised heifers and 5 more cows »_
purchased. at a cost of $1. 700) to provide full-time farm employrtoent and
would bring the forage-livestock investment up to about $8, 800.
As the farm would probably fail to experience further increases in 1
efficiency as it increases in size, we should start using estimates from i
the 15 largest McCracken county farms studied. As reorganized, study of
the 15 largest farms indicates that the reorganized farm WOULD EARN RE- I
TURNS AS FOLLOWSs over $8, 600 gross per year with returns to labor
above $100 a month, high returns to machinery, high returns to forage and
livestock, moderate returns to land, with returns to expenditures on such ·
items as feed, gas, oil, annual seeds low enough to make it advisable to `F
conserve in their use. _ H
Risks are Involved Whatever is Done
Whether or not a particular low-income farmer decides to develop .
his farm, quit farming and take "public" off-farm work, or continue as \
he has been doing, risks are involved. V
The process of developing a farm involves risks of price declines,
bad weather, managerial mistakes, illness, and so on. Off-farm work F
involves dangers of lay-offs, illnesses, and such. And, continuing at a
low-income level involves the dangers that needed medical care will not be t
secured, that children will not be educated, and that old age will be a time I ·
of poverty. .
The Possible Gains From Farm is »
Development are Large y
The benefits to be reaped from developing a substantial farm busi- M I
ness are great. Ownership of an improved productive farm is a source —
of community respect, security. family stability and a good standard of "
living. Only a small proportion of urban laborers are ever able to com- L
mand the important things in life to the extent they are commanded by
persons owning good productive farms. T
As pointed out above, between 1940 and '50, around 477 McCracken i
county farms moved out of the group producing between $250 and $4, 999
worth ot products for sale and home consumption in 1950 dollars. i
Of these. 443 dropped out of farming, either completely or in the
sense that they produced less than $250 worth of products for sale.
Forty-three developed their farms and moved up to produce over $5, 000 .
worth of products for sale -— these were headed towards high rural liv- V
gig standards. Forty-three new commercial farms per county in 10 years ¤
are important.
10. U A

I
P
U .
\
I .