With these terms, .$5.00 milk, and depreciables at new price, none can 

 make the payments. With depreciables at one-half new price, the 1-man, 

 40-cow herd, the 2-man, 56-cow herd, and the 3-man, 72-cow herd can 

 make them. With incomes related to $5.50 milk and with depreciables at 

 new price, the largest of each man size can meet the payments. With de- 

 preciables at one-half new price, the two larger farms of each man size 

 can make them. 



Ability to Meet Farmers' Home Administration Terms 



The credit terms applied here are: (1) real estate loans equal to 100 

 percent of market value, 41/2 percent interest, amortization over a 40-year 

 period with twice yearly payments; (2) livestock and equipment loans 

 equal to 100 percent of market value, 5 percent interest, repayment over 

 a 10-year period with constant principal payments annually, plus interest 

 on the diminishing balance. The repayments indicated are for the first 

 (and highest) year. 



With milk at $5.00 per cwt. and with depreciables at new price, none of 

 the representative farms are able to meet the first year's payments. With 

 depreciables at one-half new price, the largest farms of each group are able 

 to make the payments. With $5.50 milk the largest of each man-size farm 

 is able to meet the payments when depreciables are at new price. When 

 depreciables are at one-half new price, the two larger sizes of each man 

 size can meet the repayment schedule. 



There is some problem in applying 10-year repayments for chattels and 

 40-year repayments for real estate with depreciables at one-half new price. 

 These time periods are close to the depreciation life of machinery and build- 

 ings. Hence, if these time periods are applied to half depreciated equip- 

 ment and buildings, the operator will have to get more than 5 years' use 

 out of the equipment and more than 20 years out of the buildings, or boost 

 his income over the figures used here, lest he use up machinery and build- 

 ings before he has paid for them. 



At this point it may be worth while to indicate the extent of agreement 

 between Tables 9, 10, and 11, and Table o which showed accumulation 

 potential in terms of years needed to retire principal. Table 8 indicated that, 

 with $5.00 milk, only the largest farms of each man size could pay out in 

 a working life time and this with chattels at one-half of new price. Apply- 

 ing Farmers' Home Administration terms as in Table 11, and using the 

 same price and depreciable value assumptions, the same farms plus the 

 middle size farms are able to make the payments.^" Table 8 indicated that, 

 with $5.50 milk and depreciables at new price, again only the largest farm 

 of each man size could accumulate full equity in a working life. Table 11 

 agrees that exactly the same farms can meet F.H.A. repayments. Table 8 

 also showed that with depreciables at one-half new price the 40 cow, one- 



10 In Table 8, repayment comes from net farm income minus living allowance; depre- 

 ciation has been counted as an expense. In Table 11, and others dealing with ability 

 to meet conventional credit terms, repayment comes from net cash income minus living 

 allowance; depreciation has not been counted because most repayment terms are shorter 

 than depreciation life, and re-borrowing is common practice. 



25 



