Doctoral Dissertations

Date of Award

6-1975

Degree Type

Dissertation

Degree Name

Doctor of Philosophy

Major

Agricultural Economics

Major Professor

Luther Keller

Committee Members

Joe Martin, Larry Bauer. Keith Phillips

Abstract

The general objectives of this study were: (1) to determine the optimal organizations of three types of livestock farms over a 10 year period, (2) to determine the effect of specific control variables on the growth of each situation over time, and (3) to examine the effect of price and crop production variability on annual net income and net worth on selected farms over time. Two sizes of farms were used for the initial farm situation— 110 and 228 acres. Increases in land acreage were possible by either purchasing or renting land each period. All farms were assumed to have the same percentage of land in four soil management groups and also have a cotton allotment. The owner was assumed to provide his labor, with additional seasonal labor available as needed. Two levels of capital availability were assumed for each of the initial farm sizes. Given the initial net worth of each farm size, capital could be borrowed up to either 60 or 40 percent equity ratio. Variations were also made in the interest rate charged on borrowed funds. Three types of farms were examined. The first was an optimal organization with no enterprise restrictions. For the second type, livestock production alternatives were limited to cattle feeding. For the third type, livestock alternatives were limited to beef cow-calf systems. Of the 48 farm situations optimized in the initial period, only 42 of these situations expanded land acreage and investment beyond the base quantities. Furthermore, only 34 of these 42 situations expanded to the limit of available capital. Over the 10 years of projected expansion, only 16 situations expanded in acreage and investment each year. Eight situations did not survive all 10 years. The remaining situations grew from one to seven years before stabilizing or decreasing their acreage and investment. The optimal situations with no enterprise constraint had only slightly larger net incomes and net worths through time than the cattle feeding situations with the same variables. The cow-calf situations either did not survive or had very little increases in growth. The equity ratio had a substantial effect on the growth of the optimal situations and the cattle feeding situations paying the lower rates of interest. The low equity small size farm situations approached the size of the high equity large size farm by the tenth period. Capital rationing was not an effective constraint on the remaining situation. In general, the situations which expanded by land rental had much larger net incomes than the situations with the same variables except with the buy land option. After the 10 years of growth, the net worths of the situations renting land were not substantially different from the situations buying land where the lower rates of interest were paid. The interest rate was an important constraint on growth. The situation paying the high level of Interest either stabilized In the Initial period or did not grow beyond the seventh period. Price and crop production variability had a significant effect on the net Income and net worth of the three types of farm organizations. The results of the simulation runs showed that for maximum growth In net worth, the optimum situation with no enterprise constraint excelled. The least amount of variation In net Income was found on the beef cow-calf farm. The cow-calf situation had a much smaller average net Income over time than the other two situations. From this study, It would appear that expansion of the production of feeder pigs and steer feeding would likely Increase the net Incomes of farmers In the study area. Farmers who are attempting to maximize net Income should rent land, especially when high Interest rates prevail and when expansion capital Is relatively scarce. The diversified farm operation resulted In the largest net Incomes and net worth and with much less variability In net Income than the specialized cattle feeding enterprise.

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