xt7j6q1sgs0g https://exploreuk.uky.edu/dips/xt7j6q1sgs0g/data/mets.xml   Kentucky Agricultural Experiment Station. 1962 journals 119 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.119 text Progress report (Kentucky Agricultural Experiment Station) n.119 1962 2014 true xt7j6q1sgs0g section xt7j6q1sgs0g i
I By
l James Thompson
K and
Y Stephen Allen
Progress Report 119
(Filing Code: 7)
Department of Agricultural Economics
Q Lexington

By James Thompson and Stephen Allen l/ {
Two primary problems facing Kentucky farmers are the use of capital and the pro- li ,
duction and use of hay and pasture crops. These are often referred to as "the capital
problem" and "the forage problem. " _
The first deals with the amount of capital a farm can profitably use for investments l
and expenses, and the manner in which a given amount of capital can be used more profit-
ably. The second concerns the best program for producing and using the forage crops. .
How much of particular forage crops will yield maximum profit on farms of dif- AE
ferent sizes and land classes? Is the answer to this question affected by the quality of
the forage, seasonal production patterns, other enterprises on the farm, and risks and
uncertainties encountered in cropping programs having different amounts and kinds of _
forage crops? I
The problems of capital use and of forage production and use are really parts of
a larger problem which confronts most commercial farmers. Having land of given A ·g
kinds and a set of available markets through which he can sell his products, a farmer
must decide on the best amounts of other resources to use with his land, the enterprises ‘
which will make best use of both the resources and the markets, and the manner in which p
these enterprises should be operated. {
The specific objective of this study was to determine for two labor situations the A
most profitable amounts of pasture, hay and silage relative to grain when different
amounts of capital are available for use with the other resources on the farm. The
results of the study also shed light on the relative profitability of different kinds of live-
stock and different amounts of capital. .
Three typical farms chosen for study represent three different size groups and
three different sets of land classes. In order to make the results more widely applicable,
some of the special characteristics of the three case farms, such as field arrangement, \
were ignored in the analysis. Therefore, the results, while applying to a larger number
of farms, will have to be adapted to some extent to make them fit the ease farms. The
study will have been worthwhile, however, if it does no more than stimulate and perhaps
help guide thinking about problems of this kind.
Throughout the study it was assumed that the three farms used as examples were
operated by good managers and that improved crop and livestock production practices
were used. The plans made and discussed here were based on the assumption that the
primary objective of the farm operators was to attain maximum profit from land and
l/ The large volume of computing work necessary in this study was accomplished
through the use of the equipment of the University of Kentucky Computing Center and with
the aid of the Computing Center staff.

 . -3-
associated resources. Thus, the potential and not the actual productivity was examined.
Average weather was assumed, and no allowance was made that some plans, while pro-
viding more profit than others, may at the same time have involved more risk.
The profitability of various farm enterprises relative to each other depends to a
large extent on the prices received for their products and the prices paid for their in-
puts. Thus, it was necessary to determine a list of prices for both input and output
items. (The most important items are shown in Tables 1 and 2. ) The prices were
based mainly on past prices and price trends, and partially on the long—term outlook
for each of the products involved.
( The term capital as used in this report included operating expenses as well as
investments in all productive assets except land. The term income meant the return g
to the land, the resident labor force, and management after all other costs were paid. é
Price per
ltem and Unit
Unit · (dollars)
Fertilizer (cwt)
Nitrogen (N) 12. 00
Phosphate (P20 5) 8. 50
Potash (KZO) 5. 00
Lime (ton) 2. 75
Corn (bu) 13. 50
Grain sorghum (cwt) IS. OO
Wheat (bu) 3. OO
Barley (bu) 2. 25
Oats (bu) 1. 70
A Alfalfa (cwt) 50.00
Red clover (cwt) 42. 00
Lespedeza (cwt) 12.50
l Sudan grass (cwt) 15.00
. Ladino clover (cwt) 90. OO
Orchard grass (cwt) 30. 00
Fescue (cwt) 22. 00
Cottonseed meal (cwt) 4, 00
Feeder cattle (cwt)
Choice, 350-400 lb 20. 90
Choice, 400-500 lb 20. 90
Choice, 600 lb 18. 80
Medium, 700 lb l5. 80
Choice, 800 lb 19. 20
Feeder pigs, 50 lb (cwt) 25. 60

Price Per
Item and Unit
Unit {dollars]
Grade A 4, 00
Grade C 3,00
Lambs (cwt) 20. 00
Wool (lb) 0. 63 -
Feeder calves, choice, 500 lb (cwt) 21, 84
Feeder steers, choice, 850 lla (cwt) 20. O0
Fed steers, choice, 1, 000 lh fcwt) 21.. 40
Fed steers, choice, 950 lb fcwt) 21, 20
Fed steers, standard to good, 1,000 lb (cwt) 21. 20
Fat hogs, 220 lb (cwt) 16, 00
Feeder pigs, 40 lb (cwt) 25_ 60 t
Gull cows (cwt) 13. 40 h
Tobacco (cwt) 60 00
The first farm. which will be designated Fa rm A. is relatively large and will be
considered as being located in Warren county Its 450 acres make it about four times
as large as the average Kentucky farm The amount and kind of this land will support
a large volume of business. The land. which varies from relatively level to heavy
rolling. has none of the ka rst topography found in some parts of Warren county For
the purposes of this study. the farm was divided into three land—use classes
The fi rst land class includes the best land - about 100 acres which may be used T
continuously in row crops with only moderate erosion. With appropriate fertilization
and management and average weather conditions this 100 acres can be expected to _ r
produce corn yields of 100 bushels per acre
The second class of land consisting of 220 acres is more rolling and thus. poses
more serious erosion control problems To avoid large losses of topsoil by erosion, x
this acreage should be in hay or pasture crops at least half of the years of the rotation.
However. with a high level of management and proper fertilization. it can be expected
to produce crop yields as high as those from the best land
The third class of land is also very good in its fertility and soil structure; how-
ever the I30 acres is heavily rolling and must be restricted entirely to the hay and
pasture crops to control erosion.
While the third class of land can be used only for hay and pasture production.
the better grades of land were not restricted (in this study) to the more intensive row
crop uses. Thus. if it appeared more profitable to produce some hay and pasture on

the best land or to devote the 220 acres of second-grade land entirely to hay and pasture
crops, this was done. Thus, the most profitable use, as contrasted to the most intensive,
could be determined for each kind of land, due allowance being made for the necessity of
preserving the productive capacity of the land for future generations. On the one extreme,
then, all 450 acres could be in hay and pasture crops, if this would provide more profit
than any other use. On the other hand, a maximum of 210 acres (47 percent of the total)
could be in row crops in any one year. Associated with this farm was a 6»acre burley
tobacco allotment and a 45-acre wheat allotment.
Two sets of maximum income plans were prepared. One assumed that the permanent
labor supply consisted of two men and that no additional labor could be hired. The other
was based on the assumption that the permanent labor supply consisted of the operator alone
and that any additional labor required could be hired at a wage rate of $1 per hour. In both .
cases, labor was subdivided by quarters of the year and labor in each quarter treated as a
separate resource.
` Enterprises
A large number of enterprises was considered for this 450—acre farm. The crop
enterprises included all of the crops commonly found in Kentucky with the exception of the
horticultural crops, which are better suited to other conditions with regard to both re—
sources and markets. Grain could be produced from corn, grain sorghum, and the small
grains. Sudan grass was considered a summer supplement to regular pastures and could be
raised continuously or in rotation. Tobacco production on both of the two better classes of
land was considered. The data for the crop enterprises are presented in Table 3.
The livestock enterprises considered included those commonly found in Kentucky.
Several production methods for each of these were also considered and are described
below. Data for the livestock enterprises are presented in Table 4. Included in the cost
of operating each enterprise is a 5 percent interest charge on the capital which it required.
Description of Livestock Enterprises Consideped
» For Inclusion in Maximum Income Plans
Grade A - Cows are housed and handled to meet Grade A requirements for the pro-
duction of fluid milk for bottling. Average production per cow is assumed
to be 10,000 pounds.
Grade C —Milk is sold for processing purposes to Grade C outlets. Average pro~·
~ duction per cow is 6, 000 pounds. ·
Spring lambs and wool are produced. Production per ewe is assumed to be 100
pounds of lamb and 8 pounds of wool.

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Beef Cows
No. 1 — Calves are dropped in January and sold as choice feeders about October 1
weighing about 500 pounds.
No. 2   Calves are dropped in April, pastured, roughed through winter, pastured
and sold as 850—pound choice feeders around October 1.
No. 3 — Calves are dropped in January, pastured, put in drylot November 1 and
sold weighing about 1, 000 pounds in April, grading choice.
No. 4 — Calves are dropped in January, pastured, roughed through winter, pas-
tured with grain, and sold as 1, 000—pound fed steers in September,
grading choice.
` Purchased cattle
No. 1 — Choice calves,weighing 400-500 pounds,are bought around October. They
are wintered, pastured, and sold around October 1 of the following year,
weighing 850 pounds and grading choice.
No. 2 — Choice 600—pound calves are bought around October 1. They are put in
S drylot and sold as 1, 000——»-pound fed steers in April, grading choice.
No. 3 ·- Choice calves,weighing about 600 pounds, are bought around October 1.
They are wintered, fed grain or grass, and sold in September, grading
choice and weighing about 1, 000 pounds.
No. 4 — Choice calves, weighing 500 pounds, are bought around October 1. They
are wintered, pastured and put in drylot August 1 for not more than 60
days and sold when about 950 pounds.
S No. 5 — Choice 800—pound feeder steers are bought September 1. They are put on
full feed immediately and sold as 1. 000 pound choice steers in December.
No. 6 — Choice calves weighing 350-400 pounds are bought in September. They are
wintered, pastured with no grain through June. fed full grain on pasture July
to November, and sold grading choice when about 950 pounds.
No. 7 — Medium steers weighing around 700 pounds are bought about October, pastured
for 45 days, put on heavy silage feeding. and sold by April 1 weighing 1, 000
pounds and grading standard to good.

Brood sows with pigs fed to 220 pounds - The sows are divided into three groups, each
group farrowing twice yearly with farrowing dates arranged as far as possible so as .
not to coincide with peak labor requirements and yet to take advantage of seasonal
price peaks. An average of seven pigs per litter is raised. _
Brood sows with pigs sold as feeders - the sows farrow in January and July. An
average of seven pigs is sold from each litter at about 40 pounds.
Feeding purchased pigs — Feeder pigs are bought in March and October weighing 40-
60 pounds. They are fed and sold in July and February when about 220 pounds.
The procedure used in working out the relationship between the amount of available
capital and the maximum profit combination of enterprises was to start from an extremely
low level of capital and increase capital by $10, 000 increments until the point was reached _
when the farm could use no more capital profitably. None of the other resources was
changed as the capital was increased A combination of enterprises yielding maximum
profit was determined for each level of capital along with the amount of income which the
capital and other resources could be expected to earn. Since only capital was varied, the
extra income could be credited to the extra capital. This provides estimates of the profit-
ability of using different amounts of capital.
The beginning level of assumed capital was $20, 000 and the maximum amount which
the farm with a two—man labor force could use profitably was approximately $75, 000. The
maximum profit enterprise combinations and the resulting incomes are summarized in
tables 5 and 6.
When a relatively small amount of capital is available, the capital resource limits
the size of business more than any of the other resources. The maximum profit program \
is one which allows the scarce capital to be used very intensively; thus, it produces a
relatively high income per dollar of capital used.
The farming systems for the two lowest capital levels were very strongly influenced
by the need to stretch the capital supply as far as possible. The main crops were grain
sorghum and tobacco. The land resource was not fully used; and, consequently, it was not
very productive. The small amount of pasture produced was used in the hog enterprise,
which is the only livestock enterprise Tobacco, an especially intensive user of capital, ,
was produced to the full extent of the 6- acre allotment. The grain sorghum was also used
in the hog enterprise.
When the capital supply was increased from $20, 000 to $30, 000, the limited capital
still influenced the best choice of enterprises. but the scarcity of labor also had some
effect. The two——man permanent labor force was almost fully used. The acreage in grain

Amount of Capital Available ($1, OOO!
Enterprises 20 30 40 50 60 7O 80
Crog {acres)
Grain sorghum 62 95 96 96 70 42 74
Tobacco 6 ` 5. 3 3. 7 3. 6 2. 2 0. 7 1. 3
Permanent pasture 13 6 4 82 116 146 130
Grain sorghum~·bar1ey
and pasturea 26 68
- Silage corn and pasturea 37 110 157 203 220
, Com 28 58 24
Sows with pigs fed out 26 43 46 29 22 17 14
Beef cows producing '
heavy feeder calves
with no grain 10 21 24 26 24*
Beef steers wintered
and fed on pasture `
to 950 pounds 24 102 164 225 220
Medium steers wintered
on full feed of silage
and sold 36
a Three years of pasture
Acres in Roughage
Crops and Pasture Number
Capital Capital as Percent of Land Number of
Available Income Q` Productivity b in all Crops of Beef
4, dGll3·F$) {dollars! (percent! {percent) Sows Cattle
20,000 11, 666 _ 40 80 17. 3 26 O
30, 000 15, 169 ISVAQ 16. 7 43 ' 0
40,000 16, 563 12 03 37 2 46 34L
50, 000 17,776 12.03 66, 6 29 122
60, 000 18, 715 9 28 73 6 22 188
70,000 19, 643 9 28 77. 9 17 251
75, 000 19, 810 0 O0 78 0 14 280
aReturn to land, labor and management
l’Percent return on an additional $100 capital

sorghum was expanded sha rply. and a 4»—year rotation of grain sorghum. barley, and pasture
wa.s introduced into the cropping system The only other significant change in crop acreages
was the reduction in tobacco acreage to 5 3 acres. from the original 6. Oeacre allotment.
The hog enterprise was expanded in order to make use of the increased feed supply.
When capital was increased by another $10.000, a total of $40.000, the additional money
allowed some expansion but also made profitable some changes in the relative importance _
of the various enterprises The two man fa rm labor force was fully employed with $30,000 —
of capital; thus. if the additional money was to be used profitably, the combination of enter-
prises had to be one which required more capital, but the same labor. This was accomplished
by reducing the tobacco area to 3 7 acres which was 2 3 acres less than the allotment. This
reduction made considerable labor available for use on other enterprises and resulted in a
sha rp expansion in the total acres cropped The acrea.ge in the grain—sorghum—barley~pasture
rotation was more than doubled and silage appeared in the program for the first time. Pasture
was still relatively unimportant since the two pasture using livestock enterprises were on a
small scale Hogs were still the major livestock enterprise. The increa.se in income re·—
sulting from the new capital was relatively small because it wa.s necessary to reduce the
acreage of tobacco in order to use the capital.
When the supply of capital was again increased, this time to $50, 000, no new enterprises _
were added to the program, but large changes were made in the relative importance of those
already in use Pasture and pasture-consuming livestock became much more important a.nd
grain production was reduced sharply by the elimination of the grain—sorghum—barley-pasture
rotation The pasture lost from this rotation was more than replaced by increasing the
silage corn pasture rotation from 37 to 1.1.0 acres. and by increasing the small amount of
permanent pasture to 82 acres. The tobacco acreage remained about the same.
The outstanding change in the livestock program wa.s a shift from hogs to beef. The
hog enterprise was reduced about one third and both beef enterprises were increased sub-
stantially. _
As further increases in available capital were made. to a maximum of about $75. 000.
the same enterprises remained in the program except that a third beef enterprise was' added
at the maximum capital level. The tendency over the entire $40. 000 to $75. 000 range was \
to inerease production of pasture and sila.ge and the animals which used them. and t.o reduce
gradually the tobacco and hog enterprises Grain production rema.ined roughly the same,
especially after the capital available exceeded $50. 000. Income increased to a maximum
of $19. 810 at the maximum capital level
Grain crops ordinarily produce more feed per dollar of capital than do roughage crops.
For this reason. maximum profit programs for small amounts of capital usually emphasize
grain production relative to that of roughage crops. including pasture. In addition, because
the hog enterprise uses relatively little capital per dollar of income produced. it is often
profitable to produce as much grain as the land resource will allow and either sell the grain I
for cash or feed it to hogs when capital is scarce. As more capital becomes available, it
is probably profitable to use it to expand roughage and pasture production while decreasing

grain production or, if the land resource permits, holding grain at about the same levels.
The reason for this probably is that roughage—consuming livestock use relatively large
amounts of capital per dollar of income produced and so cannot be used to best advantage
until capital reaches relatively high levels. There is little reason to produce roughage
feeds until livestock is available to consume them, since most of these feeds do not have
a good cash market. Table 6 shows that the programs previously discussed for different
amounts of capital reflected this tendency.
At the low capital levels, grain crops were much more important than roughage crops
and pasture, and much of the land remained idle or unproductive. At the lowest capital
level considered, about 83 percent of the land in crops was devoted to grain production.
Acreage in grain crops increased rapidly up to the $40,000 capital level reaching a maxi-
mum of 123 acres at that point. However, acreage in roughages and pasture increased
t even more rapidly so that only 63 percent of crop acres were in grain at the $40, 000 level.
· When capital was increased above $40, 000, acres in grain dropped back to about 100, but
acreage of roughages and pasture continued to increase. At the maximum capital level all
the land was in use, and 78 percent of the land in crops was in roughages and pasture. In
this particular case, most of the land was in pasture; silage was the only stored roughage
produced. Over the entire range of capital, hogs, which consume very little roughage
and pasture, were largely replaced by beef cattle, which consume large amounts of these
feeds. ·
Resource Productivity
When the capital was held to low levels, the other resources were not fully employed
and so were not productive. Capital was very productive since additional amounts of it
allowed the other resources to be used more fully (Table 6). When the available capital
reached the $30, 000 level, however, the farm labor was fully employed and the best land
was all in use. The productivity of additional amounts of capital decreased rapidly up to
this level, but droped very slowly above that level.
The tobacco allotment was very important to the farm at the lowest capital level
considered, since it is one of the few enterprises requiring much labor and little capital.
However, as capital was increased, it became necessary to use the labor force more
intensively and tobacco could not be produced economically to the full extent of the acre-
age allotment. For this reason additional acreage allotment would be worth nothing to the
farm at the higher levels of capital.
Considerable flexibility in adapting the farming system to the capital supply was
obtained by reducing the permanent labor supply to one man and allowing any other labor
needed to be hired. When the permanent labor supply was large, its productivity was
relatively low when small amounts of capital were used. Unless the supply was quite
large, labor could become a limiting factor as capital is increased, so that it limited

expansion in the size of business unless extra labor could be hired. The use of hired labor
with all its problems has the advantage that the amount of labor can be varied to make best
use of the other resources. If labor is cheap, relatively large amounts of it will be used in
maximum profit programs; less of it will be used if it is expensive. The wage rate of $1 per
hour used here represented a situation in which labor was quite expensive. It was assumed ·
that labor could be hired in any quarter of the year without the necessity of hiring on a year-
round basis. .
The maximum profit-enterprise combinations and the resulting incomes are summarized
in tables 7 and 8. These may be compared with the programs for the same amounts of capital
on the two-man farm to see the effect of the change in the labor situation.
At the two lowest levels of capital, the maximum profit program again consisted of the
enterprises which yielded the highest return per dollar of capital used. Again,the main crops
were grain sorghum and tobacco. Grain sorghum is about equal to corn in the amount of
feed produced per dollar of capital used. Corn could be substituted in this program for the
sorghum with only slightly more capital required. Sorghum is widely believed to withstand
drought better than corn; at the same time, however, it is more difficult to store than corn.
Tobacco is a very economical user of capital, since it is a high user of labor instead.
The livestock program consisted entirely of hogs, which probably require less capital
per dollar of income than any of the other common livestock enterprises. A
As the capital supply was increased, emphasis in the enterprise combination shifted
from these low—capital users to enterprises which were more profitable in this situation
but used more capital per dollar of output. A beef enterprise, which requires more pasture
than do hogs and also some silage, was introduced into the program. This resulted in the
introduction of a rotation into the cropping system which included some silage corn.
As the capital supply was increased from $40, 000-$80, 000, in $10, 000 increments,
the most significant change was the expansion in size of business. The enterprises involved
remained much the same except that the beef enterprise was greatly enlarged, partly at the
expense of the hog enterprise. When $80, 000 of the capital was available, Grade A dairy-
ing was introduced into the program at very low levels. As beef cattle was substituted for \
hogs, dairying was substituted for beef cattle until, at the maximum capital level, the farm
had no beef cattle but instead, had quite a large dairy herd. The hog enterprise remained
much the same, while dairying was substituted for beef production.
Tobacco was profitable enough to remain in the program at the maximum level allowed
by the allotment throughout the entire range of capital levels.
As available capital increased throughout the entire range, the amount of labor hired
increased from less than a one-man equivalent to about a five-man equivalents.
Table 8 shows that the relative emphasis on roughage and concentrate feed crops
again underwent a drastic shift as the amount of capital is increased. At the $20,000
capital level only 17. 7 percent of the land in crops was in pasture or roughage production.
This was the small acreage of pasture needed for the sows which were the only livestock.
As capital became relatively more available, however, the percentage of all crop acreage

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Acres in Roughage
Crops and Pasture Number Number —
Capital Capital as Percent of Land of of ’
Available Incomea Productivityb in all Crops Number Beef Dairy
(dollars) (dollars) (percent) (percent) of Sows Cattle Cows
_ 20, 000 10, 146 27. 43 17,1 24 O 0
30, 000 12, 700 24, 40 17, 7 39 O 0
40,000 14, 374 15, 70 31, 4 43 28 0
50, 000 15, 944 15, 70 44, 3 43 72 0
60,000 17,513 15,70 51.7 42 116 0 ·
70, 000 18, 866 12, 24 62. 9 34 180 0 -
80, 000 20, 078 10, 65 76. 4 13 281 12 ‘
90,000 21, 143 10, 65 78. 0 10 244 22
100, 000 22, 180 10 09 ‘ 78. 0 10 179 47
120,000 24, 198 10,00 74, 2 18 0 103
140 000 26,194 9. 43 75. 3 13 0 124 ,
155, 000 27, 465 0, 00 81., 9 11 0 147
aReturn to land and 0perator's labor and management
bPercent return on an additional $100, 00 capital \

consisting of hay, pasture, and silage crops increased steadily, reaching a maximum of
81. 9 percent at the maximum capital level.
Allowing labor to be hired seems to have made little difference in the relation of
capital available to the best combination of roughage and concentrate feeds in the cropping
system. The percentage of the land resource devoted to each of these at both the minimum
’ and maximum capital levels was almost the same for both labor situations.
Resource Productivity
The small amount of land in crops indicates that the lowest levels of capital are still
inadequate for a farm the size of this one, even with the increased flexibility in the labor
supply. Unless more capital could be acquired and used, it would be better to sell some
of the land and operate a smaller farm so that the investment in land and fences could be
` used more intensively. At the first two capital levels some of the land of all three classes
was used. The $40, 000 level allowed the entire 100 acres of the best land to be used. Some
of the second—grade land remained unused until $