xt7cjs9h5c45 https://exploreuk.uky.edu/dips/xt7cjs9h5c45/data/mets.xml   Agricultural Experiment Station, Department of Agricultural Economics, University of Kentucky 1972 journals kaes_research_rprts_10 English University of Kentucky Contact the Special Collections Research Center for information regarding rights and use of this collection. Kentucky Agricultural Experiment Station Research Report 10 : December 1972 text Research Report 10 : December 1972 1972 2014 true xt7cjs9h5c45 section xt7cjs9h5c45 '::* ·` A Multiperiod Analysis of the Effects of Selected
Variables on the Optimum Growth of Two
Case Farms in the Mammoth Cave
Area of Kentucky
by
David Raymond Humberd and Fred E. Justus, Jr.
O
RESEARCH REPORT l0 : February l972
University of Kentucky : : College of Agriculture ·
Agricultural Experiment Stetion : : Department at Agricultural Economics
Lexington

 J x
x * a
’

 CONTENTS
Page
INTRODUCTION .......... . .......................... 1
OBJECTIVES OF STUDY .................................. 3 /
GENERAL APPROACH ................................... 3
ANALYTICAL TECHNIQUE . . , i . ........................ 5
RESULTS OF ANALYSIS: FARM I ............................. 6
Characteristics and Assumptions ........ . ...,.............. 6
Actual Farm Organization ............................... 7
Primary Optimum Solution ............................... 9
Selected Variables Affecting Growth on Farm I .................... 9
Alternatives 1, 2—Increased Family Consumption ................. 9
Alternative 3—Using Heifers in Dairy Herd Expansion .............. 12
Alternatives 4, 5—Effects of Land Purchasing .`................. 12
Alternative 6—Slow Dairy Herd Expansion .................... 15
Alternative 7—No Initial Intermediate Farm Debt ................. 19
Summary for Farm I Alternatives ............................ 19
RESULTS OF ANALYSIS: FARM II ...... . `................... 25
Characteristics and Assumptions ..F......................... 25
Actual Organization . . . ........... . ................. 27
Primary Optimum Solution .......,.,........_............ 27 1
Selected Variables Affecting Growth on Farm II .................... 30
Alternative l—Delayed Repayment of Principal .................. 31
Alternative 2—Larger Borrowing Capacity and Delayed Principal Repayment . . . 32
Alternative 3-Lag Created by Equipment Purchase ................ 32
Alternative ~l—Removal of Burley Tobacco Allotment .............. 35
Summary for Farm II Alternatives ,....... . ................. 35 I
iii

 CONTENTS—C0ntinued .
Page
SUMMARY AND CONCLUSIONS ............................. 41
References ....................................... 44
Appendices ....................................... 46
iv I

  
LIST OF TABLES
Table N0. Page
Page
1 Resources, Enterprise Organization and Overhead Costs, Farm I, january 1964 and
41 january 1969 ...................................... 8
44 2 Farm Organization, Financial Summary and Growth on Farm I, Primary Solution . . . 10 "
46 3 Farm Organization, Financial Summary and Growth on Farm 1, Alternative 1 ..... 11
4 Farm Organization, Financial Summary and Growth on Farm I, Alternative 2 ..... 13
5 Farm Organization, Financial Summary and Growth on Farm I, Alternative 3 ..... 14
6 Farm Organization, Financial Summary and Growth on Farm I, Alternative 4 ..... 16
7 Farm Organization, Financial Summary and Growth on Farm I, Alternative 5 ..... 17
8 Farm Organization, Financial Summary and Growth on Farm 1, Alternative 6 ..... 18
9 Farm Organization, Financial Summary and Growth on Farm I, Alternative 7 ..... 20
10 Summary of Selected Financial and Business Indicators for all Alternatives, Farm I . . 21
11 Resources, Enterprise Organization and Overhead Costs, Farm II,`]anuary 1963 and
December 1968 ..................................... 28
12 Farm Organization, Finzuicial Summary and Growth on Farm II, Primary Solution . . 29
13 Farm Organization, Financial Summary and Growth on Farm 11, Alternative 1 .... 31
14 Farm Organization, Financial Summary and Growth on Farm 11, Alternative 2 .... 33
15 Farm Organization, Financial Summary and Growth on Farm 11, Alternative 3 .... 34
16 Farm Organization, Financial Summary and Growth on Farm 11, Alternative 4 .... 36
17 Summary ol` Selected Financial and Business Indicators for all Alternatives, Farm II . . 37
\Y

 LIST OF FIGURES
Figure N0. Page
1 Location of Mammoth Cave Production Credit Association Area ............ 4
2 Growth in dairy herd size for the actual expansion, primary solution and alternatives 2
and 7 on Farm I .................................... 22
3 Annual capital borrowed for the actual expansion, primary solution and altematives 2
and 7 on Farm I .................................... 23
4 Annual net retums for the primary solution and alternatives 2 and 7 on Farm I .... 24
5 Growth in dairy herd size for the actual expansion, primary solution and alternatives 2
and 4 on Farm II .................................... 38
6 Annual capital borrowed for the actual expansion, primary solution, and altematives 2
and 4 on Farm II .................................... 39
. 7 Annual net returns for the primary solution and alternatives 2 and 4 on Farm Il .... 40
vi

 .»
A MULTIPERIOD ANALYSIS OF THE EFFECTS OF SELECTED
pu, VARIABLES ON THE OPTIMUM GROWTH OF TWO
CASE FARMS IN THE MAMMOTH CAVE
_ _ 4 AREA OF KENTUCKY
es 2 bl' (_
. . 22 A
David Raymond Ilumberd and Fred E. _]ustus,_]r.1
es 2
. . 23
INTRODUCTION
. . 24
One agricultural trend that has received accompanied by changes in the characteristics
Cs 2 wide publicity is the decline in the number of of the growing object" [14, p. 1].
_ _ gg farms. However, the emphasis on total For the purpose of this study, growth
number of farms tends to mask the was defined as an increase in the size of the
cs 2 adjustments that have occurred and continue productive mechanism (acres of crops and/or
_ _ gg to occur on the remaining farming units. In animals) of the farm business. Growth could
Kentucky, farms of 219 acres or less have result from acquisition of additional
_ _ 40 declined greatly in number since the resources, or from more intensive use of
depression of the early 1930’s, while farms presently controlled resources.
having 220 or more acres of land have Growth isadynamic process because the
increased steadily from 13,886 in 1935 to variables that affect the process are constantly
18,358 in 1964 [20, p 8] Thus, some farm changing. Essentially, growth can occur
operators have been able to adjust to changing through (1) internal financing, (2) external
economic and technological environment and financing, (3) merger, (4) diversification into
remain in agriculture, utilizing a larger an unrelated business, or (5) a combination of
resource base. these means. In this study, growth could
One of the important factors generally occur only through internal and/or external
inherent in the adjustment process is the financing.
ability of the farm business to grow. A precise There are internal and external
definition of growth is somewhat arbitrary if determinants of the growth process. Internal
applied to a specific f;u·m. Growth may determinants are those under the direct
merely mean an increase in amount such as control of the decision-maker and include
"growth" in output, exports or sales. Penrose financial management strategies, family goals,
states that "its primary meaning is that of a internal capital rationing and family
process in which an interacting series of consumption. The decision-maker may also
internal changes leads to increases in size alter land and labor availability, self—imposed
debt limits, livestock (number and quality),
buildings, equipment and feed supply.
 `_—;—_ External determinants of growth are
1ASsistant Agricultural Economist, Agricultural Extension those not u“d°" the direct COHU-gl Of the  
Service, University of Tennessee; and Professor of Ag¤Cul· dCClSlOl]-11]2Il{CI`. These include lllput pI`1C€S,
LZZZLE3“,Y1'§II§f;i.UZZ,lf.ZZYZQ-RTE?"STkli`ur;iZZS(J§pi»ii.r$S Output _ P"*°_“» “"*"*F» t"’a“a*°}l“>’ Of
dissmatiOn_ production rnputs, windfall gatns and
1

 2
weather.2 Unexpected family consumption even physically recoverable (e.g., land
_ requirements, such as a prolonged sickness or clearing). I
injury not adequately covered by insurance, Frequently, owing to the nature of the ,
can be an important external determinant. investment, a period of time elapses before
These determinants may be altered or returns achieve the level expected at the time 1
affected by timing of decisions but not the investment is made. The lag in net returns l
controlled. For a specific farm, an almost between investment and payoff is generally I
infinite combination of these and other the result of two factors: (l) characteristics of 5
factors may affect growth. the capital item involved and (2) time»loss in
— It is not logical to study farm growth changes which accompany the capital
without thorough Corlsiderutioll of the investment. Capital items, because of their
financing problems involved. Capital very nature, may result in a time lag between
· requirements for growth h21V€ i11€f€&1S€d actual investment and potential benefits from
greatly in the past decade. Moreover, large thatinvestment. l·`or example, machinery may t
increases in the use of external capital have be purchased that is l;u‘ger in capacity than t
0CCl11’r€d because of the inability of i¤diVidU&li presently needed because future expansion of ]·
farm families to provide the needed capital the land resource is anticipated. Potential [
from savings and other internal sources. ln returns are not realized until added land is L,
Kentucky, during the period 1964-69, acquired. Similarly, crops grown on added
T10f1·f€8l estate i02L¤S ilY01T1 i¤5iitl1Ii011Lii cropland, whether added by internal clearing
sources increased 68 percent, to more than (or draining) or external acquisition may
$294 million. Farm mortgage i0é1¤S i¤€f€L1S€d produce at lower-than—potential yields for
l>}' 60 P€1`€€¤i during the S21m€ iifflf? period Y0 several years. Many other examples could be
        given
I¤K€fm€di&i€ I€fm credit, iii€ kind ln addition to problems inherent with
T)’Pi€3-il'! used for expansion of i¤i€i°1i&i capital items, there are frequently major
farming activities, is unique and presents time·losses or lags because of adjustments that
PT0bl€mS i01‘ l€¤di¤g 21g€¤Ci€S not must be made by the human input. Major
€¤€0U¤F€Y€d With f€&i €Si21i€ Cfffdii of organizational changes may necessitate new
5i101’i·i€1'm Pf0dL1€ii0¤ credit. Real €St2iI€ work methods, greater supervisory functions
credit is secured by 21 fixed asset Wiiifih hZi$ and adoption of new technology. Time is
been steadily appreciating in value in the past normally required to make adjustments of
iii'¤'€€ decades, Wi1il€ Si”10Yi·f€Ym credit is this type. Indeed, some farm operators may
extended for 3. specific €1'1iI€rpI`lS€ or purpose not bt; ubltg to (Opt; with the greater
Vfllllll Sp€CllflC p3.yOff (la/[CS. But, lI1[CI`I`t1C(liaIC mgljuggrjrrl dgrpurldg rggluirgd   A larger l`
credit may be used for items which depreciate bugjnggy r
iii m2¤Ii<€i V2ii¤€ (6-go méiCi"1i¤¤rsh¤ssd» sr gwwh and Swlsd? Wsuid if bs
  "how to" grow. Should the firm acquire more lnfgc Pioflmbli to CXP3·nd shslihl Cmp
lc time land or increase the productivity of owned dn /0r WCSWC cmerpnlcs Or   angc to
_ _ _ other enterprises? Alternatives avallable on a
mmms land? Should livestock herds be increased to given firm Cem, Of Course, Only be known by g
HCNHY the dcslfcd Size immcdiiuclki of br 2* SIUWCT examining the environment of that specific K
Stics of year-by-year expansion? Should land be [`irm_
»loss in
capital
f their OB_] ECTIVES OF STUDY
etwccn
;$ from The general purpose of this research was (4) to determine factors which may
ry may to investigate the anatomy of size and/or reduce the impact of inefficiencies
y them organizational adjustments of selected ih Size &dlu$tm€m$·
sion of Kentucky {arms in O,-du [U develop It is impossible to investigate all factors
‘t°mii*1 management guides for farmers anticipating uffccmig IPC $TO“`th sf a fil-m·   lsssslsh 3
land IS adjugtmcmg dynamic process such as growth lt 1S necessary
added The Specific Ubjccliws WCW: to concentrate on some variables (those that
lC2LI`lIlg .d_ .l. V U _ _ bl_ _ I __ ._ I _d appear most important and can be quantified)
1 may (1) mf tml P It Pl?) Um ébwcld L and to relegate others to a controlled status.
ds for with major Size udjustmcms This study is primarily concerned with lags
~uld be - associated with the purchase of capital items,
(2) ls dslslmhls lhs lllslsls hllllllls lhs lags in the expansion all livestock enterprises
t with SYCMCSI lmlmcl lm the $P€€d slhd and lags connected with the lumpiness of
major degree of success of farm growth. machinery and equipment purchase. Also, the
ts that (3) to determine how vtuiations in these effect on farm business growth of different
Mall)? factors affect the capital family consumption patterns and different
C I-ICYV in\‘CS[lncI]l-[C[ur]]S tiync   PI`lIlClpL1l I`€payITI€H[ schedules are analyzed.
lctlons
ime is
nts of GENERAL APPROACH
s may
greater An in-depth study of firm growth main component data for programming
larger requires detailed financial and production coefficients.
records. The very nature of growth dictates A case study was selected because of the
ity gf that data be available over a period of time limited number of farm businesses in
Cturug Initially, the decision was made to use data Kentucky on which detailed financial data
j, the from actual farms which had recently over tilne is available. A case study is
uy bg experienced substantial growth and had used appropriate for a study of firm growth since
mcg; appreciable amounts of intermediate credit to direct inferences to other existing Kentucky
yowgd do so. These data provide a realistic farms will not be made.
lunciul comparison for results obtained from abstract Case farlns were selected from clients of
mpjm] models. Moreover, such data were essential the Mammoth Cave Production Credit
acting for establishing benchmarks turd providing the Association. The location of the Mammoth
service

 4
Cave PCA is shown in Figure l. Initially, 200 was sufficient to permit successful expansion,
loan histories were selected from the and (4) willingness of the farm operator to
· population of 2,900 PCA oooporotors oo tho answer detailed questions in ti pmomi
basis that the size of loans indicated probably imCWiCW_
o use for farm business expansion. These case Three msc [mms were analyzed as
e hooohoo wooo ohooohoo Fhohooghlr Fo-tho described saw, but aw mia of may two
L considered for final selection were restricted enndyses me Presented in ehis report The
to either grade A dairy beef or beef—hog   . . . i
o ’ decision to omit the third farm was based on
farms- . .. .
o The following eriterie were used in the two factors: (1) the desirability of keeping
1 final Selection Of three {mms: (1) a fu11_tim€ the report as short as possible and (2) the
farm Operator with no Substantial Ofpfarm uniqueness of the third farm, particularly
income, (2) 3 substantial increase in the Size with Wgilfd I0 the farmcr’s economic goal,
_ Of the fum business during IQ64-66, (3) 3 made the results less than completely
subjective judgement that managerial ability reasonable.
e (Q x.._
2 _.
‘ ..za.. -. ·'\
(' ·.»C].. . \·- '°$“\_,./ ik
  ‘  g* *$ h —
    if QM  
_ A. S “—-»   €** x
 1%: ._ ··~>· .   1* i_.._ ·-
(     ,/j
. 1 ./
{ ‘—~   ®   · ·h·· ·)
M . J
_' —_'  n ' H glam   ·;;»-4   ";_LL_ »i.:_/I. H
_ Pig. l. ·-Location of Mammoth Cave Production Credit Association Area.

 r
5
";‘(; ANALYTICAL Tiscnivtoue
md The analysis for this study was divided maximization of net retums to the operator’s
llllt) ll]!`C(Z (.llSllllCl, but lIllCI`l”ClLllC<.l, SCgl'H(3IllS. labor, Owned Capital and mgnaggmcnt for the
as Thcsc Scsmciits Wm (1) <»bt¤i¤ thc i>r<>t`it ththt 8 years. The growth patthth that was
Lwo maximizing organization on each farm using Obtained m this Programming is therefore the [
l`hc linear programming, (2) develop a multiperiod Optimum growth pattern for the given farm
on linear programming model and apply gthe for this Specific goal (LC. maximum net
,mg model to each farm to determine an optimal [mums to these resources for 8 Vcars) and
the growth pattern, and (3) introduce several _ _ , ' ’ ,
. . _ . . . within the stated constraints. A detailed
Hly lag-creating factors in the multiperiod model dc ri L_ n f this model is resented in
Ou], to determine their elleet on the growth ASC PdlOAO P
at Pmm· .. . . . . "°“ "‘ ‘ . .
· The Pmgill maximum; {arm A model was desired that included the
organization, using 1968 inputoutput data, nelnnl gtvwth Peneel Plus an extensinn inte
permitted comparison of optimum farm the fuIUf€· Thr! €Xt€1'1SiOH past Ih€ 3.ClCU.9·l data
business size (using existing technology and period (5 years) served two purposes. First,
constraints) with actual farm size. These the last year of the model is essentially "lost"
solutions were used for analyzing the present for comparison purposes since there is no
resource situation on each farm and provided transfer requirement for a succeeding period.
one basis for selecting enterprises for Second, capital investments of the type being
inclusion in the multiperiod model. However, made on these farms need time to achieve
the static programming analysis provided a their potential, thus a planning horizon of
solution for period t without considering the more than 5 years is probably desirable.
effect of limitations that may exist in t + n, However, as the model was not designed to
where n = 1, 2 .... , i production periods. A predict future growth for these two farms, the
_ model that permits consideration of the 1968 price and production levels were used
xry resources and constraints of t + n (i.e. a for the extension past the actual data period.
,,·‘/ multiperiod model) was essential for Enterprises permitted in the model were
analyzing the impact of lag factors on the not allowed to vary extensively from the
growth pattern, net returns, capital actual situation. For example, since dairy
requirements and other financial indicators. represented the livestock preference for
Results of the static programming are not farmer 1, other livestock enterprises were not
presented in this report. allowed to compete in the model.
The multiperiod linear programming The third phase of this analysis
model developed for this study included eight essentially involved the selection of
production periods. A production period was appropriate internal and external
defined as one year. This model was solved determinants for use in determining their
simultaneously for eight periods and as such, effects on the growth pattern and net returns
resources and constraints for all eight periods of each case farm. Effects were analyzed over
were considered. The specific objective the 8—year period, and comparisons made with
function selected for this study was the the optimum solution.

 6
RESULTS OF ANALYSIS: Farm I
Farm I is a grade A dairy farm on which Capital
the dairy enterprise provided 67 and 76 T I_ _ I I d
I percent of gross farm income in 1964 and _I bI”°I_ °“’“‘°“b “’_I__ °"l’“; IY*“ “ VI;
1968, respectively. There was a herd of 26 dim A L of dnl WLM IL Pm In um Pun) `
. _ _ I _ Irrrst, returns above operating expenses,
cows when the expansion program began, and _ _ _
· · _ overhead costs turd family corisurnptron were
the operator had a stated goal of achieving a _ _ _ {
60{OW dairy herd available for investment purposes, turd were
transferred to the succeeding period. Second,
Characteristics and Assumptions the Opcfflwf Could béfmw Fupmm _ _
Capital availability did not limit actual
Labor expansion on I·`arm I, although the actual
growth pattern might have been different
Labor availability and timing is a critical without real or imagined loan limits. For the
formulation in an analysis of this type. It was purpose of the model, 60 percent of total
estimated that the owner su lied 3,052 farm assets minus the amount re uired to
PP *1
· hours of labor per year. Beginning with the secure the existing real estate lorui was used to
third production period (year) one full-time establish the upper limit for borrowing
salaried employee supplied 3,468 hours per capacity. Borrowing capacity was not
year, thus giving the farm a committed labor mutually exclusive in each period. For
supply of 6,520 hours. The following total example, if 31,000 was borrowed in period 1,
seasonal su l br o erator and full—time the borrowin ca acity in succeedini eriods
I Y 5 4 B P , B P
hired labor was assumed. was also reduced by $1,000. When repayment
of this loan was made the borrowing capacity
Season Total Hours would be increased by the amount of
repayment. Repayment, unless otherwise
February-April 1,576 stated, was required in five equal annual
May-july 1,684 installments beginning with the second year
August—October 1,684 of the loan,
November-january   Interest was charged on the declining
Total 6520 balance of the loan. To approximate existing
conditions, interest rates for borrowed capital
In addition, up to 600 hours of seasonal were us I follows: periods 1 mid 2
labor could be hired per quarter in the (Corresponding to 196* wd 1965)— 6
_  .· __ r   _,_~
May—_]u1y and Aug11st·October periods. As PUC°m’ lxfwd 3 6;) pUc°m’p°fwCl if _/
_ Wage rates have been Increasing the cost OI- pereent,per1od 5! 7..) percent, and periods 6,
seasonal labor increased from $$1.00 to $1.60 7 and 877 86 PCICCUL
per hour during the 8-year period (Appendix
BI TabI€I III Management
The actual management performance, as
______.._.. reflected in production response such as crop
yields and milk production per cow, was
4whg€ it may have boon d,;SImI.,Io Io os,. moo,III, IoooI integrated in the coefficients used in the I
restrictions and requirements, the dimensions ofthe model mOdC]_ [I WIIS IISSUIIICCI that this [CVC] of
matnx made this rnfeasrble. There is enough flexibility in _ I · I I I I _ I _ I~ I I _ Id
the timing of Iam Iabof tasks I0 IIISIIIY IIIIS amoum OI operationa management per ormance wou I
I seasonal aggregation. occur under all alternative rrowtli >atterns. —
I ts l
i
I
L
/ \
r . I . .,.. ‘· . .

 .5
7
Lémd Use and one unit thereafter.5 Production returns
.. . . _ and costs er cow reflected as closel as
Land use capability was divided into Possible th}; actual crrormmicc on Fasznr
three categories: row cropland, other ’ P `
5 were cropland and pastureland. It was assumed that Buudm s and E ui mem
period. all Class l and ll land can grow continuous g q P
penses, row crops, one·hali` of Class lll land can be Initially, buildings and equipment were ”
in were used lor row crops and one-fourth ol` Class IV assumed adequate {Oi a dairy herd Of 40
rd were land can be row—cropped during any specific epws Expansion beyond 40 euws required
i`·d *°d.F· ll·dl   .. .. .
seeon , ptrro arm ia 38 acres row cropland, the Purchase Of additional cqulpmcntr For
42 acres other cropland and 21 acreg .   . . .
. . . simplification and because of the difficulty of
r actual pastureland. Land suitable for a high-cropping . . . .
. . _ allocating buildings and equipment use to
· actual IYIKCYISIIY could be converted into a lower level . . . . . .
, .. specific enterprises in a multrperiod model of
rlierent of use; however, the reverse was not true. this ls pu dsu ddru mu . VC t C t .
_ _ _ ,‘ , V a 0 rn s m n in
For the In addition to land available at the start buildings and equipment was s function Of
af total of the growth process, a land buying activity dairy herd srZe_ Coefficients for euurprnenr
urfdd to Permitted Pdmhdsc dl UP ld dd MICS PCI Win`- purchase were established such that total
d“ sw Each acre purchased would add 0.5 acre row investment in equipment would approximate
rfmlmii cropland, 0.25 acre other cropland and 0.25 that required for anticipated optimum herd
if EU acre pastureland. Only one—hall` of all size (based on static programming).
l '_ dir cropland could be utilized during the
`(‘n0_ di purchase year. Per acre land purchase prices Overhead Cost
PLUU 5 assumed were: periods l and 2-3250; periods
· · i t l . , y V  
*4) mfnr 3 and 4_$26O; perruds D und 6_$28O; und The withdrawal of funds for payment of
Capdclllf periods 7 aud g_$g()O_ overhead costs was required for each
»unt so production period. Overhead costs include
[hen`}: Farming Program principal and interest payments on real estate
dmm _ _ _ controlled at the start of the expansion, farm
rnd year Basically, the crop enterprises included insursnee real estate taxes depreciation and
_ * s s
U r rn the model were those actually grown repairs fur rnrusu buildings and equipment,
icclmmg durms the PBM 5 YC€U`$· Nv Pu1`€h¤$€d fwd, zurd familv consumption. The salarv for the
Cxlstlmci other than supplements, was permitted. Crops fulltime employee is added in period 3 and
dCdPdd; produced for cash sale limited corn to 50 thereafter. Production periods 1 through 5
wd e acres;soybeans, 35 acres; and wheat, 40 acres. also include the repayment of principal and
65)’ 6 Burley tobacco was limited by the allotment interest for the intermediate-term debt _
dd 44 / level. The acreage ol` corn for feed was limited outstanding in 1964.
€¤0d$ 6· only by the land use capability.
The dairy herd was the only livestock Actual Farm Organization
enterprise on Farm I. Replacement of culled
cows was accomplished by internal retention The existing 1964 and 1969
srmcc as of calves. Other than 10 heifers on hand in organizations on Farm I are shown in Table 1.
s as C;Op 1964, herd expansion was accomplished by No additional land was purchased, and
OW was purchasing animals. 'l`he purchase of a cow changes revolved around dairy cow expansion
1 iss uw adds one productive unit to the herd in the
revel or year of purchase and each year thereafter, _—""`___`
ZC would while the purchase ol a sl1C1l€1i adds O-95 5A productive unit is defined as one cow wrrh milk produc-
rtcrus pI`OdLlCllVC u111[ 111 the yCz1l` l0ll0Wll1g pL1l`Cl1U.SC tion equal to the herd average.

 8
TABLE I
RESOURCES, ENTERPRISE ORGANIZATION AND OVERHEAD COS`l`S, FARM I, l
]ANUARY 1964 AND ]ANUAR\' 1969
Item Unit 1964 1969
Total land Acres 201 201
Row cropland Acres 138 138
Other cropland A orcs 42 42
Pastureland Acres 21 21
Operator labor Hours 3 , OS2 3, 052
l·Iired labor Hours J 3 _ 4uSh
Borrowing capacity Dollars 27 _ 5L)0° 43. 90*"
Operating capital on band Dollars 1 OOO J
Dairy cows Aninials 26 "3
Dairy heiiers Animals 18 39‘·i
Equipment and buildings Animals 40*; N0°
Cropland organization _
Corn (grain) Acres 30 S3°
Corn lsilage) Acres 5 17
Wheat Acres 15 13
Hay Acres 30 20
Tobacco Acres 3. 74 2. 58
Soybeans Acres 0 10
Pasture Acres 117 120
Overhead costs
Real estate payment Dollars 1,525 1,425
Family consumption Dollars 4, 000C 4, 501 C
Real estate taxes Dollars 150 328
Farm insurance Dollars 300 300
Salaried labor Dollars 0 3, 200°
Depreciation and repairs on
buildings and equipment Dollars 1,490C 1 ,490*
Outstanding operating tlcbt l)t¤llars l/, 045 31, #48
Total real estate debt Dollars 20, 500 18, 04%
allnl-rnown.
bllepresents salaried labor. Other seasonal labor was also used.
CCalculated or estimated by author.
dlleifers and calves.
eliighty--five acres cro land located at some distance from the main farm was rented in 1968.
P
The operator, however, gave up the lease on this land in 1969.
, ;

 _l
9
and corresponding feed crops. Outstanding the income data for the eighth period are
operating debt more than doubled while real slightly overstated.
z estate indebtedness decreased slightly during As mentioned earlier, family
__ the period. Even though dairy herd size expenditures increase to reflect the increase in
increased by 47 cows in these 5 years, total cost of living during these years. Net returns
debt load also increased by $15,646. after family consumption increase from a ,-
$-719 to $17,144. Total net returns after
Optimum Solution family consumption for the 8-year period
lh equals $71,851. This total does not equal the
‘ The "primary solution" for Farm I sum of the annual figures due primarily to the
"i represents the optimum expansion pattern cost of money borrowed for family
·‘ under the assumptions used. The primary consumption in the years when farm business
; solution uses the existing situation in 1964 as returns do not exceed family living expenses.
,ti a starting point, and as stated earlier, Even though dairy herd size in the
JC coefficients are based on empirical data taken optimum solution exceeds the actual
from production and financial records on expansion by only 6 cows in period 6 (the last
3e Farm 1. relevant period for comparison) the financial
7 In the primary solution (and all situation is considerably improved over the
3 alternative solutions unless otherwise stated), actual situation. Outstanding borrowed
2 the crop yields used for period 1 were those capital is $16,530 less, and, moreover, actual
O achieved on Farm 1 in 1964. Period 2 borrowing is increasing while borrowing in the
O represents a transition period with some yield primary solution is decreasing.
increase, while periods 3 through 8 assume a
5 constant "improved" yield level. Selected Variables Affecting
lic Results of the primary solution are Growth on Farml
  shown in Table 2. Under the assumptions of
we the primary solution, the dairy herd expands _—\ltern;iti\·eg 1, 2-Increased Family
to 83 cows. Actual herd size was 73 cows in Cgiigumptigii
me 1969. Most of the expansion occurs in the y
IS first 4 periods. Owing to earlier borrowing in One fucwf hYPOff*€$1Z€d fo affcct the
periods 1 and 2, the $15,301 is the maximum gT0WIl1 P1`0C€SS is the Wlthdfawal of funds f01`
H available capital for borrowing in period 3 family consumption. Two adjustments were
“""— (i.e., all of borrowing capacity is utilized), so made from the primary solution to determine
that the expansion in period 3 represents the the effect of Consumption withdrawals, All
maximum attainable level. other coefficients are the same as the primary
Credit balance represents the total solution.
amount of outstanding debt at the end of Alternative 1, summarized in Table 3,
each period. Real estate indebtedness is represents a $1,000 increase in family
included. Therefore, a debt of $21,239 is consumption per production period over that
outstanding at the end of the eighth period. assumed in the primary solution. The
968‘ The objective function, representing net resulting growth pattern is essentially the
returns to the operator’s labor, owned capital same as that of the primary solution except a
and management over the total 8—year period smaller dairy herd size is attained. Total
is $106,847. borrowing in the 8—year period increased by
Since there is no requirement for corn $11,630 over the primary solution. Total net
and hay transfer to succeeding years for feed, returns were decreased $4,266, but net

 10
TABLE 2
FARM ORGANIZATION, FINANCIAL SUMMARY AND GROWTH ON FARM 1,
PRIMARY SOLUTION
 
Production Period
Item  
1(196—1) 2 3 4 5 6 7 8
 
Fami Business
Land Operated Ac. 201 201 201 201 201 201 201 201
Corn (all) Ac. 84 92 69 88 88 64 86 88
Corn (sell) Ac. 50 47 14 24 24 0 20 50
Tobacco Ac. 3.74 3.74 3.04 2.58 2.58 2.58 2.58 2.58
Soybeans Ac. 35 O 35 0 0 24 0 10
Wheat Ac. 1 0 0 0 0 0 0 0
I-lay Ac. 32 36 28 31 31 31 32 16
Pasture Ac. 46 69 64 79 79 79 80 83
Dairy An. 26 46 64 79 79 79 80 83
Cows Purchased An. O 10 18 1.5 0 0 1 3
Heifers Purchased An. 0 0 0 O 0 0