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Federal Reserve Bank of Dallas FARM and RANCH BULLETIN July 1972 STUDY OF SIZE ECONOMIES FAVORS LARGE EQUIPMENT Farmers striving to lower production costs and improve income should consider full utilization of larger equipment, according to the findings of a recent study at Texas A&M University. With labor becoming more expensive all the time, substitution of capital for labor becomes increasingly important for efficient farm production. Farmers with units too small to realize economies of size may find them selves at an increasing disadvantage in today’s commercial agriculture. A study of size economies on farms in the Blackland area of Texas, the A&M project compares the potential efficiencies of selected farms with various combinations of four-row and six-row equipment. Efficiency was measured in terms of total cost per dollar of gross farm sales. Cost-income ratios Results indicate that average unit costs of pro duction decrease rapidly for all sizes of farms as operations approach full employment of the regular labor force and full utilization of the field equip ment. On the smallest of five farm sizes analyzed —a one-man unit with four-row equipment—the lowest possible cost-income ratio was about 91 LEAST-COST ORGANIZATION FOR FIVE FARM SIZES, TEXAS BLACKLAND AREA Item Acres Total land ........................................................ Cropland ............................................................................ Pastureland ...................................................................... With four-row equipment One-man Two-man farm farm 479 319 160 Dollars Land investment, at $300 an a c r e ...................................... 143,700 Total initial investment in land, equipment, and livestock ................................................ 187,508 Gross in c o m e ........................................................................ 44,000 Total c o s t .............................................................................. 39,937 Cost per dollar of gross in c o m e ............................................... 908 Returns to m anagem ent...................................................... 4,063 Returns to operator’s labor, management, and capital ............................................... 19,671 NOTE: Based on average prices, late 1960’s SOURCE: Texas A&M University __________With six-row equipment______________ One-man Two-man Three-man farm farm farm 958 639 319 688 459 229 1,376 918 459 2,064 1,376 688 287,400 206,400 412,800 619,200 379,693 80,000 67,618 .845 12,382 273,967 56,000 48,688 .869 7,312 530,134 110,000 90,675 .824 19,325 801,762 164,000 141,783 .864 22,217 39,511 27,727 55,611 74,682 FEED USE OF WHEAT IN THE UNITED STATES to be two-thirds cultivated and a third in permanent improved pasture. Cotton was limited to a third of the cultivated acreage. Where labor was in excess and acreage limited, it was found that income could be improved by adding a small hog enterprise. But because income from the hog enterprise was more expensive than that from crops, the study recom mends expansion of acreage as a better way to increase farm income. These findings are based on the average market prices of crops and livestock in the late 1960’s. Farm organization may shift, of course, as relative prices change. Selection of farm sizes and organization of enter prises for the study were made on the basis of effi ciency defined in terms of least-cost production. The study indicates that full utilization of larger equip ment can increase potential farm income and effi ciency because it allows more acreage to be worked with no increase in the labor force. Operators of small crop farms who want to compete in modern commercial agriculture are likely to find increasing pressure to adjust to larger and more efficient units. (Million bushels) WHEAT FINDS INCREASED USE AS FEED cents. For each dollar of sales, 91 cents went for costs. This farm consisted of 479 acres with a total investment of about $187,500. Net returns after allowing for all costs except a management fee were slightly more than $4,000. In order to just break even, this operation would require nearly 200 acres. The lowest cost-income ratio among the five farm sizes analyzed was 82 cents, achieved on a two-man farm using six-row equipment. This farm unit con sisted of 1,376 acres with a gross income of $110,000 and net returns of $19,325. Total initial investment was about $530,000. Criteria of study All sizes of farms studied had the same main en terprises—cotton, grain sorghum, and cows for feeder calf production. Farm acreage was assumed Item ____________Year beginning July__________ 1960 1965 1970 1971’ Wheat fed on farms where grown .......... . . 24.9 41.7 62.3 n.a. 42.3 153.9 208.7 240.0 As percent of total production . . .3.1% 11.7% 15.2% 14.6% As percent of total feed concentrates2 . . . . . .9% 3.2% 4.0% 3.2% Total wheat fed ........ 1. Projected 2. Based on October-September feed year n.a.— Not available SOURCE: U.S. Department of Agriculture Wheat is of unquestioned importance as a food grain, and in recent years it has become important as a feed grain as well. The restructuring of wheat price-support loan rates in 1964 made wheat more competitive with traditional feed grains. Abundant supplies and more cattle feeding in the major wheatproducing areas have also proved significant in the utilization of wheat as feed. About 15 percent of all wheat produced in the past three years was used as feed, compared with about 3 percent in the early 1960’s. Wheat ac counted for 4 percent of all grain fed in 1970 and more than 3 percent in 1971. In the early 1960’s, it accounted for about 1 percent or less. Most im portant areas The most important wheat feeding area is the region producing hard red winter wheat—the south ern Great Plains, which includes parts of New Mex ico, Oklahoma, and Texas. The feeding of wheat on the producing farm has expanded rapidly here, rising from 8 million bushels in 1965-66 to 19 mil lion in 1970-71. Accounting for nearly half of all wheat fed in recent years, this area has abundant supplies of wheat, more competitive prices, and a growing cattle feeding industry. Experts believe that the southern Great Plains states have the greatest potential for significant growth in wheat feeding, provided wheat remains competitive with locally grown grain sorghum and imported corn. The second most important wheat feeding area is the eastern soft wheat region, which includes the Middle Atlantic and southeastern states. There is little wheat feeding either in the northern Great Plains, where hard red spring and durum wheats are grown, or in the western states that produce white wheat, although the latter region shows a strong potential for increased wheat feeding. Value and competitiveness The nutritive value of wheat is comparable, and in some cases superior, to that of the more common feed grains. Its nutritional content is affected by class, variety, processing, and feeding conditions, making it difficult to assign specific feeding values. In general, however, it is most effective when fed in mixtures and is acceptable in the feeding of hogs, dairy cattle, beef cattle, sheep, and layer hens. Even when prices are competitive, many livestock feeders are reluctant to use wheat, mainly because of their lack of experience in feeding wheat and consequent difficulty in determining when the price is competitive. Competitiveness can only be deter mined if the stockman has a good knowledge of feeding values and the acceptability of wheat by different classes of livestock under various feeding conditions. Furthermore, wheat is not available in very regular supply from privately held stocks. Al though the supply of wheat has been plentiful in recent years, most stocks are usually stored under Government loans. Thus, wheat for feeding purposes is frequently difficult to obtain through the usual marketing channels. Future growth in feed use of wheat will depend largely on the adequacy of wheat supplies at prices that make it competitive with other feed grains. If price relationships continue favorable and current farm programs are maintained, a further moderate uptrend in wheat feeding is likely. BEEF INDUSTRY YIELDS MORE THAN MEAT A growing consumer demand for beef has greatly boosted the U.S. cattle industry in recent years. But domestic demand for other products incident to the production of beef is not keeping pace. The supply of hides rose from 27.6 million in 1960 to 36.5 million in 1970. But domestic use of these hides for shoe production declined from about 70 percent in the early 1960’s to about 50 percent in 1970. Tallow output also soared from 2.3 billion pounds in 1950 to 5.4 billion in 1971. Here again, domestic demand has fallen far short of supply. Domestic shoe production declined from 642 million pairs in 1968 to 559 million in 1970. Through August 1971, shoe production was down 5 percent from the first eight months of 1970. Imports were largely responsible for this decline. They accounted for about 30 percent of the U.S. shoe market in 1970, compared with 12 percent in 1965. More than three-fourths of these 1970 imports came from Italy and Spain, where lower wage rates impart a distinct price advantage. Man-made substitutes for leather are also cutting into the domestic market for hides. Little change has been noted in the proportion of hides used in gloves, garments, and other leather products in the past decade. But exports increased from only 24 percent of all U.S. cattle hides in the early 1960’s to over 42 percent in 1970. About 64 percent of the 1970 hide exports went to Japan, Mexico, and the Soviet Union. Tallow has found increased domestic use in live stock feeds. In 1953, feed use accounted for 71 million pounds, compared with 1.4 billion pounds in 1971—still only a little more than a fourth of the total U.S. supply. The soap industry greatly de creased its use of tallow with the advent of chemi cal detergents, using only about 6 million pounds in 1970. But research is being conducted on a modi fied tallow soap to replace phosphate detergents, which tend to pollute water. The new product would TEXAS GAINS MOST IN CASH RECEIPTS FROM FARM MARKETINGS (Thousand dollars) Area __________ January-March__________ 1972 1971 Arizona ......................... $170,900 Louisiana ....................... 124,000 New Mexico ................ 71,400 Oklahoma .................... 241,700 Texas ............................. 895,500 Five s ta te s ................ 1,503,500 United States .......... $12,262,700 SOURCE: U.S. Department of Agriculture $151,400 113,500 62,400 213,300 682,100 1,222,700 $10,988,000 Percent increase 13% 9 14 13 31 23 12% be biodegradable, would leave little residue, and would be efficient in both bath and laundry. Tallow is also used in lubricants and oils, paints, varnishes, printing inks, and various industrial pro cesses. But export is the fastest growing outlet. United States tallow exports grew from 509 million pounds in 1950 to 2.6 billion pounds in 1970—nearly half U.S. production that year. Tallow is one of the lowest priced fats and oils in the world today, a fact that contributes to its demand in foreign countries. AGRICULTURE BRIEFS • Per capita consumption of meat this year is likely to be about the same as last year, although there may be some shifts. Beef consumption will probably be 4 to 5 pounds a person more than 1971’s 113 pounds. Veal consumption is likely to continue to slip. In 1971, it fell from 2.9 pounds a person to 2.7 pounds. Per capita pork consumption rose from 66 pounds to nearly 73 pounds in 1971, but it will probably drop 4 to 6 pounds this year because of the downturn in production. • Livestock producers started this marketing sea son with a supply of 239 million tons of feed grains —a record high. An increase in feeding is expected to push use 5 to 6 percent above the 154 million tons used in the 1970-71 season. With exports about equal to last season’s 21 million tons, total disap pearance will probably rise to 184 million tons. That would leave an end-of-June carryover of about 55 million tons, 22 million more than a year earlier and the largest since 1964. • Credit to farmers this year is expected to rise about 7 percent over last year’s record amount. Farm operating credit will probably be close to $64 billion, and with real estate debt around $31 billion, credit should total about $95 billion. Prepared by Carl G. Anderson, Jr.
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