June, 1940] Budget Analysis op Orchards 21 



The values of investments are influenced by two factors, one, the ex- 

 pected future earnings discounted to date ; and two, the cost of replace- 

 ment. Because it takes many years to develop an orchard to the point 

 of large yields, at any given time cost of production of a new orchard 

 would have little to do with the value of mature trees. Therefore, the 

 value of a mature bearing orchard would depend largely on the expected 

 future income. In determining the value of a very young, non-bearing 

 orchard the cost of production would have considerable weight. In 

 three or four years it could be duplicated. The cost of producing a tree 

 is more an indirect influence, a threat that the price of apples in the 

 future may change due to overplanting. 



The bearing 15-year old tree cannot be immediately replaced, but trees 

 planted now influence the future expected returns from it, and so the 

 cost of growing trees would have some influence on value of orchards 

 which will still be bearing 20 years hence. 



Of course, waves of overplanting due to propaganda and unrelated to 

 the item of cost may have a considerable effect on value of trees already 

 planted. 



In figure 17 curves are drawn expressing the sum of the annual net in- 

 comes discounted backward from the sixtieth year at the rate of seven 

 per cent, to account for interest, taxes, etc. This is based on the as- 

 sumption that at the end of the sixtieth year the tree is no longer com- 

 mercially profitable and has no value. Another curve is drawn to repre- 

 sent the cost in the early period. It is thought that a freehand curve 

 based on these two curves, the cost in the early period and the dis- 

 counted net earnings in the later period, would roughly describe the 

 relative value of trees at each age. 



The future annual net incomes, many of which are some distance in 

 the future, are dependent upon continuous skilled attention and manage- 

 ment, a situation too elusive and insecure to warrant an individual pay- 

 ing for an orchard on the basis of the total future net earnings dis- 

 counted. But under the assumptions made earlier this would be the 

 ceiling of value. In the curve drawn freehand in figure 17, the peak of 

 value is suggested at .$15 in the twenty-third year. Another curve is in- 

 dicated if $12 is taken as the peak value. 



A peak of value at the twenty-third year is a point where current in- 

 come more than balances current expenses, and the high-yielding period 

 of the orchard's life is immediately ahead. 



A number of apple men have been asked informally to designate the 

 age at which an apple orchard would have the greatest value, and many 

 of them have at first indicated the point of greatest yields. Yet on more 

 deliberation they acknowledged that the age of greatest value would 

 come before the period of largest net income. This is mentioned here to 

 indicate that orchardists have not been discussing problems of this sort 

 because they are not normally facing either the sale or purchase of or- 

 chards, especially orchards by age classes. The same operators will sug- 

 gest unhesitatingly that a cow or a horse is of greatest value previous to 

 its period of greatest yield. 



