Full text of Economic Review (Federal Reserve Bank of Cleveland) : May 1956

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MONTHLY

B

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o

w

e

t

o

K

e

v

IN

F E D E R A L R E S E R V E BANK of C L E V E L A N

'M

a y f< ? 5 6

i e

THIS

u

/

ISSUE

Loans to Business B y M e m b e r B a n k s . ..

2

F ew er a n d L a rg e r F a r m s ..................

9

N o t e s ...............................................

14

COMMERCIAL AND I N D U S T R I A L L O A N S , 1 0 4 6 - 5 6
Fourth District Member Banks
Millions of Dollars
2,000
1,750
1,500
1,250

1,250

1,000

1,000

The postwar period witnessed a sharp expan­
sion in total loans to business by Fourth Dis­
trict member banks. The 1955 Survey of
Business Loans discloses important changes
in the terms of such loans and in the types of
borrowers since a similar survey in 1946.
(See article on page 2.)

750
500
250

1946




1948

1950

1952

Amounts Outstanding as of Call Report Dates
(Amount for A pril 10,1956 is preliminary)

1954

250

1956

Loans To Business By Member Banks
1946 there has been a major growth
in the volume of commercial and indus­
trial loans at member banks in the Fourth
Federal Reserve District, as well as in the
nation. As of early April 1956, business loans
outstanding at member banks of the District
had reached an all-time high of over $2 bil­
lion. (See cover chart.) That represents an
increase of about 40 percent since the latter
part o f 1954.
in c e

S

The sharp upsurge of commercial and in­
dustrial loans over the past 18 months high­
lights the key role of bank credit in financing
the needs o f American business, particularly
during periods o f inventory accumulation
and large capital expansion programs. The
volume and rate of growth of such loans are
not only a gauge o f business activity, but are
an essential element in an economy charac­
terized by growth.
Because commercial and industrial loans
constitute a significant factor in the financing
of business, the Federal Reserve System, in
cooperation with member banks, conducted a
nation-wide survey as of October 5, 1955, to
provide information on the characteristics of
business loans and the terms on which such
credit is extended. The last survey of a simi­
lar nature had been conducted by the System
as of November 20, 1946.
In the 1955 survey, the estimates of loans
at 623 District member banks wrere based on
data reported by a sample of 175 banks, hold­
ing about 92 percent of total commercial and
industrial loans at all District member banks.
This article, which is planned to be the first
of several which present significant findings
of the Survey, deals with changes in business
loans since 1946 by type of business, by size
of bank, and by maturity of loan. Additional
2




articles are expected to include the interest
rate structure on business loans, the size of
borrowers, with special reference to small
business, and the location of borrowers.
Business Loans, 1946 and 1955
During the past ten years, rapid growth in
the amount of commercial and industrial
loans has been an outstanding characteristic
of banking. From 1946 through early 1956,
the volume of such loans at District member
banks nearly tripled, as illustrated in the
cover chart. The rise was not constant, how­
ever, but reflected instead the fluctuating
pace of general business during the period.
Thus, the general upward trend of business
loans was interrupted in the recessions of
1948-49 and 1953-54. During the latter
period, the downturn in business loans in the
Fourth District started earlier, went farther,
and continued longer than in the country
generally. Since that time, there has been a
rapid revival, however, and commercial and
industrial loans have reached an all-time
peak at District member banks.
Loans for business purposes at District
member banks amount to about one-third of
total loans. As of the 1955 survey, District
member banks had business credit outstand­
ing of $1,927 million, wrhich included an esti­
mated 95 thousand individual loans. This
compares wTith the 1946 survey figures of
$841 million and 52 thousand individual
loans. Thus, the dollar amount of business
loans was nearly 2-1/3 times as large as in
1946, while the number of loans increased by
82 percent. During this period, the average
size of loan increased from $16,134 to
$20,328, a gain of 26 percent— compared to
an increase in wholesale prices of 22 percent
in the same period.

CO M M ERCIA L AND INDUSTRIAL LOANS BY BUSINESS OF
BORROWER, 1946 AND 19551
Fourth D istrict Member Banks
NUMBER OF LOANS

AMOUNT OUTSTANDING

Th ou sands

M illio n s o f D o lla r s

B U S IN E S S OF
B O R R O W ER '

200
—

300

400

500

i--------------- 1----------------1---------------- 1—

600

-- 1--

Manufacturing
and Mining

700

20

1955

Wholesale and
Retail Trade
Sales Finance
Companies

Public Utilities

Construction

M anufa cturing and mining firms acco unt fo r the largest dollar am ount of business loans, but
w holesale and retail trade acco u nt fo r the largest num ber of loans.
1 Survey dates: November 20, 1946 and October 5, 1955.
2 Includes real estate firms, service firms, and all other nonfinancial business.

Business of Borrower
A breakdown o f business loans at District
member banks according to the business of
the borrower is given in an accompanying
chart for 1946 and 1955. The relative growth
in amount and number of loans to various
types of borrowers during this period reflects
a fundamental change in the allocation of
credit and resources in the economy.
Between 1946 and 1955, the amount and
number of loans outstanding to every major
business category showed an increase. The
dollar amount of loans to manufacturing and
mining and to wholesale trade declined in
relative importance, however, while loans to
retail trade, sales finance companies, con­
struction companies, and service firms gained
as a share of the District total. The only
major category of borrowers to show little
change in relative position during the period




was public utilities. (See appendix table for
details.)
Although loans to manufacturing and min­
ing increased by two-thirds between the 1946
and 1954 surveys, the gain was not as large
as that of other types of borrowers. Thus,
this group dropped from 48 to 34 percent of
total business loans during the period— but it
still constitutes the largest category of busi­
ness borrowers in the District. Because of the
dominance of heavy industry in the District,
loans to metal and metal-product firms again
accounted for nearly half of the loans within
the manufacturing and mining group. Types
of manufacturing and mining which showed
large relative gains in borrowings were the
petroleum, coal, chemical, and rubber group
and the textile, apparel, and leather group.
Food, liquor, and tobacco firms, however,
showed virtually no change in bank borrow­
ing— partly as a result of the fact that the
3

DISTRIBUTION OF CO M M ERCIA L AND INDUSTRIAL LOANS BY
BUSINESS OF BORROWER
Fourth D istrict Mem ber Banks, O ctober 5, 1955
Business of
Borrower>

Percent of Amount Outstanding
100

OTHER
,,
B U S IN E S S 1'
REA L ES T A T E AND
CO NSTRUCTIO N

A t la rg er banks, a sub­
s t a n t ia l p r o p o r t io n of
loans is m ade to m anufac­
turing a n d m i n i n g , sales
finance c o m p a n i e s , and
public utilities. A t smaller
banks, a relatively great
share go es to wholesale
and retail trade, service
firms, and other business.

PUBLIC
U T IL IT IE S
S A L E S F IN A N C E
COM PANIES
W H O LE SA LE AND
R E T A IL T R A O E

MANUFACTURING
AND M INING

Under
$10 million

$10*50
million

$50*100
million

$100*250 5 2 5 0 million
million
and Over

BANKS

Size of Bonk
(t o t a l d e p o s it s )

1 Includes commodity dealers, service firms, and all other nonfinancial business.

1955 survey occurred i y 2 months earlier in
the fall than the 1946 survey. The fall season
usually witnesses a sharp seasonal expansion
in loans to such firms.
The second major category o f borrowers to
drop in relative importance between 1946 and
1955 was wholesale trade, both with respect
to the amount and the number of loans. The
amount of such loans expanded by less than
70 percent, compared with a rise of nearly
130 percent in total business loans. On the
other hand, the amount of loans to retail
trade was nearly 2% times as large in 1955
as in 1946, and in terms of dollar volume out­
standing was second in importance only to
metal and metal-product firms. In terms of
number o f loans, retail trade accounts by far
for the largest share of any type of business
— 35 percent of the District total.
The postwar boom in housing and other
consumer durables was reflected in the large
relative rise in borrowings of sales finance
companies, construction firms, and real estate
firms, all o f which gained as a share of total
business loans in the District. In addition,
there was a marked growth in the borrowings

4




of firms dealing in various services. Such
firms have grown rapidly in the postwar
period, as consumers have tended to spend a
larger share of disposable income for services.
Loans by Size of Bank
A distribution of commercial and indus­
trial loans by type of borrower for various
size-groups of banks is given in an accom­
panying chart. (This refers to dollar volume
of loans.) The type of business lending
varied markedly with the size of bank, ac­
cording to the results of the 1955 survey. At
banks with deposits of $100 million and over,
a large proportion of loans was made to man­
ufacturing and mining, sales finance com­
panies, and public utility concerns. As bank
size decreased, the share of loans to the above
types of businesses also declined. A t the other
extreme, banks with deposits of $10 million
or under showed a relatively large share
of loans to wholesale and retail trade and to
service firms. In the medium-size bank group
($10 - $100 million deposits) a relatively
larger portion of loans was made to real
estate and construction firms than at the

accounted for over 70 percent of the amount
of loans to all borrowers but for only onefourth of the number of loans. Banks with
deposits of $10-$100 million, on the other
hand, accounted for only about one-fifth of
the amount of loans, but nearly half of the
number of loans. Finally, banks with under
$10 million of deposits, although accounting
for only 6 percent of the dollar amount, held
one-fourth of the number of business loans.
(See appendix table.)

larger or smaller banks. The middle group
of banks was also an important supplier of
credit to wholesale and retail trade.
To be more specific, loans to manufactur­
ing and mining concerns amounted to almost
40 percent o f total business loans at banks
with deposits o f $100 million and over, as
contrasted with less than a fifth of total busi­
ness loans at banks with deposits of under
$10 million. On the other hand, loans to
wholesale and retail trade constituted 40 per­
cent of total business loans at small banks,
whereas this proportion diminished to less
than half that amount at the largest banks.
(See appendix table for details.)
The tendency for the size of the lending
bank to be closely related to the size o f the
borrower is clearly demonstrated in the case
of sales finance companies. Such firms, whose
average loan size is the highest of any class
of borrowers, accounted for 15 percent of
business loans of the largest banks shown on
the accompanying chart, but for less than 2
percent at the smallest banks. The same point
held almost equally for public utilities.
As a final indication of average loan-size,
banks with deposits of $100 million and over

M atu rity
Prior to the 1930’s, maturities of bank
loans to business were predominantly less
than one year. It was common practice to
limit loans to working capital needs that
could be paid out of current income. During
the 1930’s, maturities in excess of one year
attained more general acceptance and the
proportion of such loans in commercial bank
portfolios increased. The 1946 survey re­
vealed no substantial change from the prewar
period in the proportion of business loans
that were “ term” loans, i.e., had maturities
in excess of one year. Similar data were ob­
tained in the 1955 survey to discover the rela-

D IS T R IB U T IO N O F C O M M E R C IA L A N D IN D U S T R IA L LO A N S,
BY M A T U R IT Y
Fourth District Mem ber Banks, O ctober 5, 1955
P e rce n t o f Am ount O u tstan din g

B U S IN E S S O F
BORROW ER1

o______ ______ 2 0
1
1
1

1

40
'

'

so
'

______ eo
'
r_

'

100
I

Sales Finance
Companies
Construction and
Real Estate
Wholesale and
Retail Trade
Manufacturing
and Mining
Public Utilities

Loans to sales finance com ­
p a n ie s a re v i r t u a l l y all
short-term. O n the other
hand, more than half of the
loans to public utilities and
m anufacturing and mining
show a m aturity of over
one year.

All Other
Business — f
All Borrowers
1 Includes commodity dealers, service firms, and all other nonfinancial business.




5

companies as well as public utilities had a
greater proportion of loans in short-term
form in 1955 than in 1946.
In 1955, short-term loans extended to tex­
tiles - apparel - leather firms, to commodity
dealers, to sales finance companies, and to
construction firms accounted altogether for
over 75 percent of the total business loans of
these groups. Metals and metal products, foodliquor-tobacco, trade, real estate, and serv­
ice firms, had between 50 and 75 percent of
their total loans with short-term maturities.
The predominant users of the term loans
were public utility firms and firms in the
petroleum, coal, and chemical fields.
Finally, it may be noted that, similar to
the results of the 1946 survey, the large
banks were more active than small banks in
the field of term loans. Generally, the pro­
portion of business loans carrying maturities
of over one year increased directly with the
size of the lending bank.

tive importance of term loans in current bank
lending practices.
An accompanying chart shows a distribu­
tion of commercial and industrial loans, by
maturity, for the major types of business as
of 1955. Short-term loans (maturities of one
year or less) constituted 57 percent, and
long-term loans 43 percent, of total com­
mercial and industrial loans in the District.
This indicates that there was little change
since the 1946 survey as regards loan maturi­
ties, when short-term and long-term loans
constituted 60 percent and 40 percent of the
total, respectively. (Also see appendix table.)
Some change in relative maturities did ap­
pear by industry groups, however. For manu­
facturing and mining as a whole, as well as
for wholesale and retail trade, there was an
increase between 1946 and 1955 in the pro­
portion o f loans having maturities of over
one year. On the other hand, sales finance

Commercial and Industrial Loans by Business of Borrow er, 1 9 4 6 and 1955
Fourth District M e m b e r B a n k s
AM O U N T OF LOANS
BUSIN ESS OF B O R R O W E R

Millions of dollars
Nov. 20
Oct. 5
1946
1955

Manufacturing and mining
to ta l..................................... $399.4
Food, liquor, and tobacco. 79.5
Textiles, apparel, and
leather.............................
10.1
M etal and metal products. 189.5
Petroleum, coal, chemi­
cals, and rubber.............
66.7
All other manufacturing
and m ining......................
53.6

Percent
change
1946 to 1955

N U M B ER OF LOANS
In thousands
Nov. 20 Oct. 5
1946
1955

Percent
change
1946 to 1955

$ 660.7 + 65.4%
79.8 +
.3

9.1
1.2

16.2 + 78.0%
3.3 +175.0

26.9 + 166.3
310.6 + 63.9

.3
3.2

.6 + 100.0
5.4 + 68.8

122.2 + 83.2

1.7

2.3

121.2 + 126.1

180.1
79.3
100.8

Other—total........................... 261.1
60.3
Sales finance companies...
Transportation, communi­
cation, and other public
96.2
utilities............................
25.0
Construction.......................
28.6
Service firm s......................
All other nonfinancial2___
51.0

Trade— tota l...........................
Wholesale1...........................
R eta il...................................

All borrowers.................. $840.6

6




Amount
1946

1955

47.5% 34.2%
9.5
4.1

Number
1946

1955

17.4%
2.3

17.2%
3.5

1.2
22.5

1.4
16.1

0.6
6.1

0.6
5.8

+ 35.3

7.9

6.3

3.3

2.4

2.7

4.6 + 70.4

6.4

6.3

5.1

4.9

406.1 +125.5
132.7 + 67.3
273.4 + 171.2

26.5
5.4
21.1

40.2 + 51.7
7.1 + 31.5
33.1 + 56.9

21.4
9.4
12.0

21.1
6.9
14.2

50.9
10.4
40.5

42.4
7.5
34.9

860.3 +229.5
223.4 +270.4

16.5
.4

38.4 + 32.7
.7 + 75.0

31.1
7.2

44.7
11.6

31.7
0.8

40.4
0.8

4.4
8.1
14.2
11.0

11.4
3.0
3.4
6.1

11.6
5.4
5.5
10.6

6.1
5.0
10.2
9.6

4.6
8.6
14.9
11.5

222.7
103.4
105.5
205.3

3.2
2.6
5.3
5.0

+ 131.5
+313.6
+268.9
+302.5

52.1

$1,927.1 + 129.2%
1

1 Includes com m odity dealers.

P E R C E N T OF D IS T R IC T T O T A L

2 Includes real estate firms.

+ 37.5
+211.5
+ 167.9
+ 120.0

94.8 + 82.0% 100.0% 100.0% 100.0% 100.0%

Commercial and Industrial Loans by Business of Borrow er and Size of Bank
Fourth District M e m b e r B a n k s, Oct. 5, 1 9 5 5
B a n k Size (to ta l d e p o sits in m illions o f d o lla rs)
BUSIN ESS OF B O R R O W E R
Less than 2

Manufacturing and mining—
to ta l...........................................
Food, liquor, and tobacco. .
Textiles, apparel, and leather
M etal and metal products. . .
Petroleum, coal, chemicals,
and rubber............................
All other manufacturing and
mining....................................

2 -1 0

1 0 -2 0

2 0 -5 0

50 - 100

100 - 250

250 - 500

500 & above

( / Lmount Ou tstanding--thousand s of dollar s)
1,196
343
10
381

20,430
2,049
733
6,070

22,417
3,830
742
8,695

25,401
3,801
6,641
7,720

48,417
6,470
1,892
25,657

102,910
7,292
7,400
57,957

109,868
18,708
7,830
54,893

330,030
37,302
1,641
149,181

83

3,607

1,961

2,877

3,693

11,202

3,464

95,294

379

7,971

7,189

4,362

10,705

19,059

24,973

46,612

Trade— total................................
W holesale.................................
R eta il.........................................

2,736
174
2,562

45,458
5,157
40,301

43,009
8,289
34,720

34,537
9,406
25,131

44,392
11,680
32,712

54,355
21,977
32,378

76,652
29,680
46,972

89,738
31,093
58,645

Other—total.................................
Com m odity dealers................
Sales finance companies........
Transportation, communica­
tion, and other public
utilities..................................
Construction.............................
Real estate...............................
Service firm s............................
All other nonfinancial............

2,062
53
—0—

48,698
767
2,282-

53,202
1,070
3,248

52,229
370
3,618

99,060
1,693
11,811

106,045
2,537
32,459

126,585
7,550
27,626

387,640
1,139
142,363

320
474
50
827
338

4,567
10,901
6,506
19,242
4,433

6,660
8,788
8,920
16,559
7,957

4,670
10,591
8,458
14,825
9,697

6,666
23,090
32,356
17,055
6,389

22,692
13,691
20,518
11,195
2,953

41,203
11,729
12,632
9,473
16,372

135,881
24,193
46,146
16,350
21,568

All Borrowers.......................

5,994

114,586

118,628

112,167

191,869

263,310

313,105

807,408

Less than 2

2 -1 0

B a n k Size (to ta l d e p o sits in m illions o f d o lla rs)
B USIN ESS OF B O R R O W E R
1 0 -2 0

2 0 -5 0

50 - 100

100 - 250

250 - 500

500 & above

(Percent age of totai dollar am ount in ea ch bank si ze group)

Manufacturing and mining—
to ta l...........................................
Food, liquor, and tobacco. . .
Textiles, apparel, and leather
Metal and metal products. .
Petroleum, coal, chemicals,
and rubber............................
All other manufacturing and
mining....................................

6.7

17.8
1.7
0.6
5.3

18.9
3.2
0.6
7.3

22.6
3.3
5.9
6.9

25.2
3.4
1.0
13.4

39.1
2.7
2.8
22.0

35.1
6.0
2.5
17.5

40.9
4.6
0.2
18.5

1.7

3.1

1.7

2.6

1.9

4.3

1.1

11.8

6.6

7.1

6.1

3.9

5.5

7.3

8.0

5.8

Trade—total................................
W holesale.................................
R eta il.........................................

45.6
2.9
42.7

39.7
4.5
35.2

36.3
7.0
29.3

30.8
8.4
22.4

23.1
6.1
17.0

20.7
8.4
12.3

24.5
9.5
15.0

11.2
3.9
7.3

Other— total.................................
Com m odity dealers................
Sales finance companies........
Transportation, communica­
tion, and other public
utilities................................
Construction.............................
Real estate...............................
Service firm s............................
All other nonfinancial............

34.4
0.9

42.5
0.6
2.0

44.8
0.8
2.8

46.6
0.4
3.2

51.7
0.9
6.2

40.2
0.9
12.3

40.4
2.5
8.8

47.9
0.1
17.6

5.3
7.9
0.9
13.8
5.6

4.1
9.5
5.7
16.8
3.8

5.6
7.4
7.5
14.0
6.7

4.2
9.4
7.6
13.2
8.6

3.5
12.0
16.9
8.9
3.3

8.6
5.2
7.8
4.3
1.1

13.2
3.7
4.0
3.0
5.2

16.8
3.0
5.7
2.0
2.7

All Borrowers.......................

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0




20.0
5.0

7

Commercial and Industrial Loans
b y Size of Bank
Fourth District M e m b e r B a n k s, Oct. 5, 1 9 5 5

Number
of
Banks

Amount of
Loans
(in millions
of dollars)

Number
of Loans
(in
thousands)

$500 and over.........................
$250 - 500...............................
$100 - 250..............................
$ 5 0 - 100................................
$ 2 0 - 5 0 ..................................
$ 1 0 -2 0 ..................................
$ 2 - 1 0 ....................................
Less than $2.........................

4
5
8
17
32
89
356
112

$ 807.4
313.1
263.3
191.9
112.2
118.6
114.6
6.0

10.8
7.7
6.2
12.4
12.2
21.2
22.3
2.0

$74.8
40.7
42.5
15.5
9.2
5.6
5.1
3.1

A ll Banks.......................

623

$1,927.1

94.8

$20.3

Bank Size
(Total deposits in
millions of dollars)

Average Size
of Loan
(in thousands
of dollars)

Commercial and Industrial Loans by
M aturity and Business of Borrow er
Fourth District M e m b e r B a n k s

% of
Business of Borrower

Dollar Amount
of Loans with
Maturity of 1 year
or less
1946

1955

55.2%

47.9%

Food, liquor, and to b a c co ...................................
Textiles, apparel, and leather.............................
M etal and metal products...................................
Petroleum, coal, chemicals, and rubber...........
All other manufacturing and mining.................

56.2
85.2
57.2
40.4
59.9

55.8
75.1
50.9
19.1
58.1

Trade—to t a l...............................................................

77.4

60.3

Wholesale1................................................................
R eta il........................................................................

80.9
74.7

66.4
57.3

Other— to ta l...............................................................

------

----

Sales finance companies.......................................
Transportation, communication,
and other public utilities.................................
Construction............................................................
Service firm s...........................................................
A ll other nonfinancial2..........................................

90.3

94.7

16.3
95.5
69.7
65.9

31.2
77.1
51.6
59.1

All Borrowers......................................................

60.4

57.0

Manufacturing and mining— to ta l.........................

1 Includes com m odity dealers.
1 Includes real estate firms.




56.6

56.7

Fewer and Larger Farms
Results of N e w Census of Agriculture
for the Fourth District

of farms showed a substantial
Significance of the Change
decline between 1950 and 1954 in the
Fourth Federal Reserve District, according to The continued existence of the ‘ ‘ family
farm, ’ ’ which is firmly embedded in the tradi­
the findings of the recently published 1954
tion
and sentiment of this country, is not
Census of Agriculture. With the reduced
necessarily
threatened by the development
number as a contributing factor, an observa­
here
portrayed.
I f a “ family farm ” is defined
ble shift in distribution has also occurred; a
as
a
unit
of
such
size as to employ the farmer
larger proportion now falls in the higher in­
and
his
family
along
with some additional
come brackets.(1)
seasonal help, it is clear that the reduced labor
Between 1950 and 1954, about 40,000
requirements inherent in the technological
Fourth District farms either ceased to exist as
separate entities or failed in 1954 to meet the
There w ere 40,000 fe w er farm s in the Fourth D is­
Census definition of what constitutes a farm.
trict in 1954 than in 1950; the decline w as greatest
About 35 percent o f the loss was in numbers
am ong small non-com m ercial farms.
of commercial farms; the remainder occurred
chiefly in part-time and residential units.
T h o u sa n d s o f F a r m s
Of 313,000 farms in existence in 1954, about
in F o u rth D istrict
IOO
200
300
38 percent were noncommercial— that is they
served for the most part to supplement non­
farm income. This group of farms, account­
A LL FARMS
ing for less than 8 percent of the District’s
cash farm income, is excluded from the
charts on page 10. In the table, however,
COMMERCIAL
they are placed in perspective as they relate
FARMS
to the total number o f units defined as farms
by the Bureau o f the Census.(2)

N

um bers

(1) Price inflation did not contribute to this change; in fact,
prices received by farmers moved slightly lower between the
two Census periods.
(2) A farm is defined as a place of 3 or more acres if value of
annual production is at least $150; places of under 3 acres
are classed as farms if actual sales are $150 or more.




NON-COMMERCIAL
FARMS

Source of data: Bureau of the Census.

9

Percent of Farms

Between 1950 and 1954 the p ro p o r­
tion of com m ercial farm s falling in
the lo w er income classes declined,
while the proportion in higher in­
com e brackets advanced: this pat­
tern was generally true for each of
the type-of-farm ing areas.

1,199

2 ,4 9 9

4 ,9 9 9

9 ,9 9 9

2 4 ,9 9 9

$25 ,000

(Value of Products Sold)

Percent of Farm 's

1,199

Percent of Farms

2 ,4 9 9

4 ,9 9 9

9 ,9 9 9

24,999

$25,000

1,199

2 ,4 9 9

9 ,9 9 9

2 4 ,9 9 9

Percent of Farms

Percent of Farms

1,199

4 ,9 9 9

(Value of Products Sold)

(Value o f Products Sold)

2 ,4 9 9

4 ,9 9 9

9 ,9 9 9

2 4 ,9 9 9

(Value of Products Sold)
Source of data: Bureau of the Census.

10




$25,000

(Value of Products Sold)

$25 ,0 0 0

progress of agriculture should result in the
family farm ’s showing an increase in size of
business simply to keep pace with the general
development of agriculture. A 100-acre, fourhorse family farm in 1940 has perhaps been
enlarged to 250 acres with a huge investment
in machinery — but it can still be a family
farm.
A classification of farms for comparison by
size groups (with size being measured by
volume of sales) is illuminating in two major
respects. First is the indication of improved
internal efficiencies occurring among indi­
vidual farms. Second is an emphasis of the
fact that agriculture is not a homogeneous
unit which can be well typified by an arith­
metic average— a point especially significant
when thinking in terms of Federal farm
policy.
Of the many reasons why a farm may or
may not make a profit, commodity prices con­
stitute only one factor. Reducing costs per
unit of output is as effective as a price rise in
boosting profits. Reducing costs in turn re­
quires, in the case of small farms, an increase
in scale of operations. The accompanying
charts provide some indication of the increase
in scale which has occurred in the Fourth
Federal Reserve District between 1950 and
1954.
What has happened to the farms that ceased
to exist between 1950 and 1954? For the
most part they have either been retired from
agricultural use or combined into larger, more
economical units. The families who operated
these farms are presumably making a rela­
tively better living from larger scale farming
or else have moved on to nonfarm employ­
ment, which in most cases provides a financial
reward much greater than a small farm can
provide.
Has an increased concentration of farms
in the very large scale bracket become a
threat to agriculture’s status as a “ way of
life” in the Fourth District? Probably not.
The figures reveal that only 19 of every 1,000
commercial farms in the District had sales of
over $25,000 in 1954. When noncommercial




farms are added into the total, the propor­
tion of large farms drops to 12 per 1,000.
The group of farms in such a sales bracket
would account for something over 8 percent
of the total sales of farm products. While a
distribution of farms at intervals over $25,000
is unavailable, it is significant that annual
net returns to labor, capital and management
from $25,000 sales would probably be in the
vicinity of $10,000.
Distribution Varies by A rea
Looking at the entire Fourth District, a
little less than 23 percent of the farms had
sales of $5,000 or more in 1954. (See table.)
By a conservative estimate, this group of
farms with sales of $5,000 or more accounted
for over two-thirds of the District’s total
sales of farm products. Commercial farms
with sales from $250 to $5,000 added up to
39 percent of the number and about onefourth of the sales. The large block of non­
commercial units, numbering 380 of every
1,000 farms and consisting primarily of rural
residences and part-time farms, contributed
less than 8 percent to the District’s farm
marketings.

PERCENT DISTRIBUTIO N OF FARMS
By Volume of Sales and Type-of-Farm ing Areas, 19 54
(Fourth District)

Value of Products Sold (Commercial Farms)

Type-of-Farming
Area
I. Feed Grains and Live­
stock (Corn Belt):
Western Ohio.............
II. Dairy:
Northeastern Ohio. . .
Western Pennsylvania
III. General Farming:
Southeastern Ohio___
West Virginia
Panhandle...............
Eastern Kentucky___
IV. Burley T obacco:
Central Kentucky
(Blue Grass)...........
All Areas.........................

Non­
com ­
$250- $1,200- $2,500- $5,000- $10,000- Over mercial Total
$1,199 $2,499 $4,999 $9,999 $24,999 $25,000 Farms*

4 .1 %

11.7% 20.2% 25.6%

5.5
8.0

13.8
13.3

16.7
15.6

16.4
12.3

10.1

17.2

16.0

10.4
16.3

14.2
13.2

10.0
8 .9 %

2 .7 %

16.9% 100.0%

7.0
5.1

1.3
0.7

39.3
45.0

100.0
100.0

10.6

4 .4

0.8

40.9

100.0

8.9
5.2

3.5
1.3

1.0
0.4

0.1
0.1

61.9
63.5

100.0
100.0

20.0

28.1

16.5

5.1

0.9

19.4

100.0

14.4%

16.1%

14.0%

7 .6 %

1 .2 % 37.8% 100.0%

18.8%

Residential farms (sales less than $250), part-tim e farms, and institutional farms.
Source: 1954 Census of Agriculture.

A more detailed picture of the four typeof-farming areas within the District is given
by the charts and the table. Substantial vari­
ations among areas are revealed. The Feed
Grain and Livestock Area, for example,
shows 47.1 percent o f the farms with sales of
$5,000 or more; 83.1 percent of the farms
were commercial farms. Within the Dairy
Area, in northeastern Ohio 24.7 percent of
the farms had sales o f $5,000 or more, while
in western Pennsylvania this group amounted
to 18.1 percent; farms rated as commercial
units were 60.7 percent and 55.0 percent,
respectively o f the total number of farms.
Within the General Farming Area, in south­
eastern Ohio only 15.8 percent of the farms
12




had sales of $5,000 or over; in eastern Ken­
tucky and the West Virginia panhandle, less
than 5 percent of the farms had sales of this
magnitude. In both the West Virginia and
eastern Kentucky areas there were fewer
commercial farms than there were noncom­
mercial farms.
The Burley Tobacco Area of Kentucky re­
sembles the Dairy Area in terms of farms
with sales of $5,000 or over, and resembles
the Feed Grain and Livestock Area in terms
of a high concentration of commercial farms.
The Burley Area is unique in the District,
however, in having a greater concentration
than any other area of commercial farms
with sales below $5,000.

When the number o f commercial farms in
each area is classed according to volume o f
sales, considerable variation is evident among
the areas in the nature o f the distribution, as
well as in the change o f distribution since
1950. (See charts.) Within the class intervals
provided by the Bureau of the Census, the
greatest concentration o f farms in the Dairy
and Burley Tobacco Areas appears in the
$2,500 to $5,000 size. In the Feed Grain and
Livestock Area, the greatest concentration
appears in the $5,000 to $10,000 size; in the
General Farming Area the concentration is
from $1,200 to $2,500.
Between 1950 and 1954 a decline occurred
in each of the areas in the proportion of
farms falling below the point of greatest con­
centration. A t the same time the proportion
o f farms above the concentration point
tended to rise, although the Burley Tobacco
Area provided some small exception in the
two largest size groups. This tendency toward
fewer low-income farms and a larger number
of high-income farms is shown graphically
by a shifting to the right in the distribution in
1954 as contrasted with 1950.
Conditions Favor Continued Trend
Factors which have contributed to the
fewer-but-larger trend in farms have re­
mained since the 1954 Census was taken and
are anticipated to continue through 1956.
The two most important are: (1) the need




among small farms for a larger land base to
permit a fuller and more efficient use of
machinery and labor, and (2) plentiful op­
portunity for off-farm employment. As an
illustration of these two factors at work, the
addition of a subsistence farm to a medium
sized commercial farm may make a profitable
unit for one farmer. The subsistence farmer,
taking even an unskilled labor job in a fac­
tory, is virtually guaranteed a better wage
than has been possible on the small farm.
A question is frequently raised as to how
far the decline in farm numbers can and
should continue. There is a strong indication
of the answer to such a question in the obser­
vation that 60 percent of the Fourth District
farms (56 percent nationally) sold less than
$2,500 worth of produce in 1954. Over half
of this return was probably needed to cover
production costs, leaving a very meager sum
for family maintenance. The extent to which
this vast number of farms continue on this
status would seem to depend heavily upon
the desires of the individuals, many of whom
look upon the farm as a place to live and
look to other places for their major income.
Over the long term, the trend seems certain
toward fewer farms. Certainly future de­
clines in numbers could be very drastic with­
out danger of reducing food supplies. Fewer
but larger farms are, in fact, potentially
capable of greater output for sale than would
be the case with a large number o f small
farms.

13

NOTES
The fifteenth anniversary of the Series E
Savings Bond is being observed this month,
May of 1956.
* *

*

For an analysis of the money supply dur­
ing the recent minor cycle of business, see
‘ ‘ Money on Good Behavior, ’ ’ featured in the
1955 Annual Report of the Federal Reserve
Bank of Philadelphia. Copies are available at
that bank.
“ Monetary and Fiscal Policies — What
They Can and Cannot D o” is the title of an
address made on April 5, 1956 by C. Canby
Balderston, Vice Chairman, Board of Gover­
nors of the Federal Reserve System. Copies
are available at the Board of Governors of
the Federal Reserve System, Washington
25, D. C.

14







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