Full text of Agricultural News Letter : Vol. 12, No. 2
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AGRICULTURAL NEWS LETTER F E D E R A L Vol. 12, No. 2 R E S E R V E B A N K DALLAS, T E X A S OF D A L L A S February 15, 1957 SHIFTING FROM CASH CROPS TO DAIRYING The farm operator faces two major prob lems as a result of the changing conditions of farming. First, he must determine whether a particular adjustment or investment is sound. Second, once the farmer has decided that a change will increase his returns suffi ciently, he must ascertain how and under what conditions the change can be financed. Credit plays an important role here, since it is often the implement which facilitates needed adjustments. Professors Clarence A. Moore and A. C. Magee of the Department of Agricultural Economics and Sociology at Texas A. & M. College recently made a study of probable returns and finances needed to shift from cash-crop farming to dairy farming in the central Blacklands of Texas. The threefold objective of the study, entitled “Financing the Dairy System on a Central Blackland Farm,” was to determine: (1) the returns that can be expected from the change, (2) the finances needed to make the change, and (3) the length of time required to repay the debt incurred with the additional income that may be obtained. A large number of problems arise in mak ing a study of this kind because of the tre mendous variations in conditions on farms as to soils, acreages, buildings and equip ment, managerial ability of the operators, and other factors. If a change in organiza tion is contemplated for a particular farm, estimates would need to be worked out for the specific situation. Since it would be im possible to analyze all possible conditions on individual farms, the economists set up a farm situation, based on research findings, which approximates the situation on many farms in parts of the Blacklands. The farm situation used was a 180-acre Blackland unit consisting of 106 acres of cultivated land, 72 acres of pasture land, and 2 acres of homestead and roads. A fairly high level of soil management and crop pro duction was assumed; therefore, the manage ment practices and yields used in the study were better than those on many farms in the area with similar land capabilities. Only two farming systems were analyzed — a cashcrop operation without livestock and a 36cow dairy operation. Prices received for farm products and costs of purchased items were those prevail ing in the area during 1955. Any change in these cost-price relationships naturally would alter the final results. Cash-Crop System The cropping system was a 3-year rota tion of cotton, corn, and oats-clover, fitted to recommended practices for high-level production. Acreage controls on cotton were assumed to be in force. Corn was the grain used, since it appeared to be more profitable under the 1955 conditions than any other grain. Labor costs were not considered. The assumption was made that the farm family could provide the labor needs for both the cash-crop system and the dairy system, ex cept labor for harvesting and weeding cotton and the labor included in work per formed on a custom basis. However, dairy operations are more confining and allow less free time for recreation than does the cashcrop system. Under the conditions outlined, the cashcrop system had total sales of $5,779 and expenses of $1,726, leaving a return of AGRICULTURAL NEWS LETTER 2 $4,053. Reduced yields or lower prices than those used in the study would result in less return; if the converse were the case, higher returns would be realized. The Dairy System In order to make the change from a 180-acre cash-crop farm to a 36cow dairy with an av erage annual produc tion per cow of 9,000 pounds of milk, an initial investment of $21,075 would be needed. Almost half the total investment re quired was for the outright purchase of the dairy herd. (Limited information seemed to favor outright purchase of the dairy herd for the full-scale operation, rather than building up the milking herd over a period of years.) In addition to the dairy herd, the more costly investment items needed were the dairy barn, feeding barns, and feed storage structures. The cropping system was planned to pro vide grazing, hay, and roughage for the dairy herd; concentrates for the cow herd were purchased. Thirty acres of Sudan and 41 acres of forage sorghum were planted on the acreage formerly devoted to corn and cotton; the 35 acres of oats-clover were unchanged. G ross incom e from the dairy to ta le d $16,810, and expenses were $7,989, leaving a return of $8,821. Comparison of Returns In this study, the change from a cash-crop operation to a 36-cow dairy setup yielded $4,768 in additional returns. The amount represents a return of 22.6 percent on the investment of $21,075 needed to make the change, and about AV2 years would be re quired for the additional net returns to equal the cost of the change-over. The results would be changed substanti ally if production were above or below the 9,000-pound output per cow assumed for this study. The greatest changes in expenses would result from differences in the cost of purchasing the dairy herd and expenditures for feed, since both costs vary directly in re lation to the productivity of the cows. If the annual productivity per cow is 7,000 pounds of milk, the farmer converting from a cash-crop system to a dairy system can expect only $1,526 of additional net income. With a level of 12,000 pounds per cow, the farmer can expect as much as $9,592 of addi tional net income annually. Net returns from either cash-crop farm ing or dairying will vary substantially as a result of relative changes in prices for crops and milk. For example, milk prices in the Blacklands from 1948 through 1955 ranged from 18 percent below to 14 percent above the average prices received for cash crops in the area in 1955. Using these extremes in price relationships and assuming that cashcrop prices remain at 1955 levels, the addi tional returns of converting from cash-crop farming to a 36-cow dairy with cows pro ducing an average of 9,000 pounds of milk annually would have varied from $1,742 to T IM E A N D A N N U A L PA Y M EN TS R EQ U IR ED TO L IQ U ID A T E A N A M O R TIZED D EB T IN C U R R E D IN C H A N G IN G FR O M C A SH -C R O PPIN G TO D A IR Y IN G PRODUCTION LEVEL OF DAIRY HERD 9,000 pounds 12,000 pounds 7,000 pounds per cow per cow per cow Item Initial cost of ch an g e-o v er............................ A m ount of loan1 ............................................. Additional net returns2 .................................. Liquidation of loan (am ortized)3 A t 6 percent interest N um ber of annual paym ents . . . . A m ount of annual paym ent . . . . A t 8 percent interest N um ber of annual payments . . . . A m ount of annual paym ent . . . . . . . . . . . . . . . . $17,475 $13,100 $ 1,526 $21,075 $15,800 $ 4,768 $24,675 $18,500 $ 9,592 . . . . . . . . 13 $ 1,480 4 $ 4,560 3 $ 6,921 . . . . . . . . 16 $ 1,480 5 $ 3,958 3 $ 7,178 1 Three-fourths of the initial cost rounded to the nearest $100. 2 Additional net returns expected from changing from cash-crop farming to a 36-cow dairy at 1955 prices. 3 Assuming annual payments do not exceed the expected additional net returns at 1955 prices. AGRICULTURAL NEWS LETTER $7,121, compared with $4,768 for 1955 price relationships. This variation in returns emphasizes the care needed in selecting the prices to be used in determining whether a m ajo r change in farm ing system s is warranted. Financing the Adjustment A change from cash-crop to dairy farm ing should prove profitable to the central Blacklands farmer who has good manage ment ability and a farm similar in type and size to that outlined in this study. In most cases, a farmer would have to obtain credit to make the changes involved in converting from a cash-crop system to a complete dairy operation. Usually, he would expect to make repayment of credit from the additional returns. Often, the lending agency requires the farmer to provide some of the initial outlay for the change-over. In this study, it was assumed that the farmer would provide onefourth of the initial cost, and a lending agency would provide the remainder. The time required to amortize the debt from addi tional returns would vary from 3 years to 16 years under the situation prevailing in 1955, depending upon the productivity of the cows and the rate of interest on the loan. In the study, the additional returns that can be expected from a change-over to dairy ing are average returns and, as indicated earlier, can vary substantially. This varia tion in returns should be taken into consid eration when the loan is made. Messrs. Moore and Magee point out two possibilities in coping with variations that might occur in net returns: (1) the term of the loan could be lengthened, thereby reduc ing the annual amortized payments; or (2) a flexible repayment plan could be used, with the amount of annual payments set at a reasonable proportion of the realized net returns each year. Turkey Troubles Turkey producers will need to keep well informed in order to market their 1957 3 turkey crop at a profit, according to Exten sion poultry marketing specialist F. Z. Beanblossom and Extension economist John G. McHaney. Government purchases through the school lunch program eased last year’s supply situ ation somewhat; yet, little or no profit was realized from turkey enterprises. Feed-dealer credit featuring risk-sharing plans for financ ing production may influence farmers to continue turkey production at a high rate during 1957, although prices received for the record crop last year were the lowest in several years. Both national and state testing reports indicate an increase in the number of breeder hens for 1957. In Texas on December 15, 1956, 40 percent more hens had been tested than by the same date in 1955. Reports of the United States Department of Agriculture indicate that the Nation’s farmers intend to hold 16 percent more heavy breeder hens and 3 percent fewer light breeder hens for the production of eggs and poults in 1957. The current trend of selling turkeys the year-round, instead of only during seasonal holiday periods, may relieve some of the pressure from the expected large sales of 1957-crop turkeys. However, the specialists warn that such action will not completely solve the marketing problem of surplus pro duction. Drought-Feeding Cattle The Oklahoma Agricultural Extension Service makes the following suggestions for drought-feeding beef cows and heifers. 1. Feed at least the minimum roughage requirements. One pound of roughage per 100 pounds of body weight is the absolute minimum for the proper function of the di gestive system. Two pounds of roughage per 100 pounds of body weight should be suffi cient to meet maximum energy requirements. As long as minimum roughage requirements are met, 1 pound of grain can be substituted for 2 pounds of roughage. 2. Feed an adequate amount of protein because most roughages are not providing 4 AGRICULTURAL NEWS LETTER $ 5,000 CASH AWARD! The Hoblitzelle Award for the Advancement of Texas Rural Life will be presented on May 22, 1957, at the Texas Research Foundation’s annual field day at Renner to the Texas farmer or rancher who made the most notable contribution to agriculture in the State during the 4-year period January 1, 1953, through Decem ber 31, 1956. The award, consisting of $5,000 in cash and a gold medallion, is made every 2 years to the individual whose contribution to rural life improvement is judged the most important for the preceding 4 years. Nominations may be made by individuals, groups, or agencies to one of the five regional committees not later than March 1 this year. Information on how the candidates for the award are nominated and other details may be obtained by writing the Permanent Secretary, The Hoblitzelle Awards, Texas Research Foundation, Renner, Texas. normal amounts of protein. Microorganisms in the rumen (paunch) require the nitrogen in protein to digest feeds, especially lowquality roughages. If dry grass or roughage is ample, the cattle should be fed 2 pounds of 41 percent protein meal per head daily. When grain is substituted for a part of the roughage, feed 1Vi pounds of cottonseed meal or soybean meal per head daily. Grain will not substitute for protein. Buy protein supplement on the basis of the price per pound of protein. 3. Feed extra phosphorus, free access, using a half-and-half mixture of salt and steamed bone meal. Dicalcium phosphate may be substituted, pound for pound, for bone meal. 4. Feed vitamin A if needed, especially to cows with calves and to weaned calves, using either dehydrated alfalfa pellets or a commercial vitamin A concentrate mixed with feed. Only the best and most productive cows will pay. Start feeding cattle before they be come weak and thin, and creep-feed calves as soon as they will eat. Sorghum Protein High During Winter Chemical analyses have shown that the percentage of protein in sorghums is exceed ingly high during the early growth stages of the plant, declines rapidly until about head ing time, and then remains relatively con stant. From September until March, weather ing has little — if any — effect upon the protein percentage in sorghums, although total protein decreases as total dry matter declines from weathering. Tests conducted at the Oklahoma Agri cultural Experiment Station at Stillwater show that the percentage of protein in sor ghums during drought years, when forage yields usually are low, is two to three times higher than during “normal” years. Three years of the tests were considered droughty, and three were considered normal. New Nursery to Boost Pine Seedling Output A new nursery 12 miles west of Kirbyville will more than double the Texas Forest Service’s future production of pine seedlings for the State’s timberlands. The service expects to produce 20 million seedlings in the new nursery this year, ac cording to Don Young, Head of the Forest Management Department of the Texas Forest Service. When peak production is reached, the output is expected to be 50 million seedlings a year. The Agricultural News Letter is prepared in the Research D epartm ent under the direction of J. Z. R o w e , A gricultural Economist.