Comparison of Capital on Survey and Representative Farms 



Figure 7 shows the regression lines of total capital and herd size for 

 three situations. The middle line is values from the actual survey farms. 

 Above it are the representative farms with depreciables (buildings, improve- 

 ments, and equipment) at new price. At a lesser distance below are the 

 representative farms with depreciables valued at one-half of new price, 

 as they might be on the average after a period of "normal" times. Equip- 

 ment on survey farms, on the whole, probably was less than half depreci- 

 ated since many of the major items were purchased after World War II. 

 No firm statement can be made about buildings. 



The complete inventories and budgets for the representative farms are 

 shown in Appendix Table II A, B, C, D, E, F, G, H, I and III A, B, C, 

 D, E, F, G, H, I. 



Size, Capital Investment, and Income 



Table 4 is a summary of the detailed inventories and shows the relation- 

 ship of size to capital. 



Table 5 shows some frequently calculated types of income measures for 

 the different size farms. With net operator's income as the residual, the 

 effect of size is striking. With $5.00 milk the representative farms have 

 significant positive incomes only at the largest herd size of each labor 

 group. With 10 percent higher prices these are still the only sizes that 

 have very acceptable incomes. 



Price — Cost — Income Relationships 



It is necessary to examine the price-cost-income relationship for the 

 representative farms. These calculations are shown in Table 6. With other 

 income related to $5.00 milk and a hired man's wages allowed the oper- 

 ator, only the 72-cow farm has costs of less than $5.00. With a more reason- 

 able allowance of $3,000 to the operator, $5.25 milk would about cover 

 costs of the largest herds of each labor group. A milk price of $5.50 would 

 about cover the costs of the 2-man, 40-cow and 3-man, 56-cow herds in 

 addition. We might thus reason that the $5.50 price is more appropri- 

 ate to the cost structure of the representative farms for the long-run. It 

 cannot be determined here whether the costs of the representative farms 

 are too high or the $5.00 per cwt. milk too low for the long run, but it 

 does suggest that some of the following figures relative to ability to save 

 or to pay debts from income are on the conservative side for the long-run. 



EQUITY ACCUMULATION POTENTIALS 



Table 7 shows the equity accumulation potential of the representative farms. 

 The procedure was to start with net farm income (which is net cash minus 

 depreciation) and subtract an allowance for family living expenses. The 

 remainder is available for interest on capital and for savings or debt 

 payment. This remainder is then expressed as a percent of total capital. 



14 



