Masters Theses

Date of Award

8-1986

Degree Type

Thesis

Degree Name

Master of Science

Major

Agricultural Economics

Major Professor

S. Darrell Mundy

Committee Members

Luther H. Keller, Robert M. Ray

Abstract

This study was an investigation of the minimum capital requirements, exclusive of land investments, for returning selected net farm income levels in a variety of swine farm situations in Tennessee. Representative resource situations and swine production systems were developed using data obtained from a 1984 survey of farrow-to-finish swine producers in a 10-county area of West Tennessee. These data provided information pertaining to swine production facilities and practices and a description of overall farm structure and organization.

The principle objective was to determine the minimum amount of required capital and the associated enterprise organization to return selected net farm income levels in various Tennessee swine farm situations. Other objectives included analyzing the effects on the farm plans of variations in selected resource availabilities and economic environments. These consisted of variations in hog prices, purchased corn prices, labor supplies, feeder pig prices and capital costs, factors which influence the income potential of any swine enterprise. In addition, minimum capital requirements to achieve selected net farm income levels were determined for a part-time farmer and for a farm situation in which no land base for cropping enterprises was available.

Minimum capital requirements were determined using linear programming procedures. The constructed programming models were designed to minimize total capital requirements subject to a minimum net income constraint. In addition to the survey reports, data used in this analysis included cost and price information on the various types of available resources, production alternatives, and produced commodities. These data were developed using estimates obtained from the Ames Plantation Experiment Station in Tennessee, Tennessee Farm Planning Manuals and Tennessee Agricultural Statistics, as well as numerous other sources.

Four farm size situations were analyzed, each at two income levels. The examined net farm income levels included $15,000 and $30,000 on the small, medium, and large farms, and $30,000 and $50,000 on the extra-large farm. Potential farm enterprises consisted of four systems of farrow-to-finish swine production along with four corresponding systems of farrow-to-feeder pig and feeder pig-to-finish production. Also considered were 10 other enterprises commonly found on Tennessee swine farms.

The base situations used five-year weighted average prices, cost estimates based on 198A levels, and yields consistent with the levels of input use and an above average level of management. Under these assumptions, among others, the lower income goals could be achieved on each farm size. However, available resources were insufficient for generating the higher income goals on the small and medium farm sizes.

Three enterprises--farrow-to-finish swine production, corn, and double-cropping wheat and soybeans--were employed in the majority of the optimum solutions. Two systems of farrow-to-finish swine production were included in the various analyzed farm situations. The low-investment confinement system, used in many of the plans for achieving the lower income levels, yielded the highest returns to the required investments. In situations where the labor supply became a highly limiting resource, the more labor-efficient, high-investment, high-intensity confinement system was optimal. This occurred in many of the farm plans for achieving the higher income goals where the large required number of sows used much of the available labor supply. This system compared much more favorably with the low-investment confinement system when returns were considered after labor had been charged as an expense. Corn production was used in all situations and provided the major source of feed for the swine enterprise. Double-cropping wheat and soybeans, used in many of the farm plans, showed high relative returns and labor requirements not so directly competitive with those of corn production.

Results of the variations in selected factors indicated that prices received for hogs and prices paid for purchased corn and capital have a major influence on the minimum capital requirements. Required capital investments were markedly lower than base levels when hog prices were varied upward. In situations where hog prices were lowered and situations in which the purchased corn price was increased, the results were sharply higher total capital requirements. Analysis of all farm sizes showed total capital requirements that were highly responsive to changes in capital costs. When interest rates charged on investment and operating capital were higher than the base levels, total capital requirements were greatly increased.

Reducing the available labor supply resulted in increased capital requirements in situations where large amounts of hired labor were necessary. With a reduction in the supply of labor, much of the higher capital requirements were due to the required use of the labor-efficient, high-investment, high-intensity swine production system. In addition, the results of this analysis suggest that if family labor is available, capital requirements can be greatly reduced.

The analysis which allowed feeder pig prices to vary indicated that feeder pig production did not compare favorably with farrow-to-finish production. Feeder pig prices were required to be at levels much higher than the base price before a system of feeder pig production was used in these farm plans. Only occasionally have average annual feeder pig prices at Tennessee organized sales been as high as the price necessary in this analysis.

The other examined situations included a part-time farmer and a specialized hog farm situation. Low amounts of required capital and labor in the part-time farmer situation made farrow-to-finish swine production appear attractive for the part-time farmer. However, income potential was limited to the lower level examined. The specialized hog farm situation required extremely high total capital requirements primarily in operating capital. These plans compared favorably to the other alternatives only in situations where operating capital was not restricted and sources were readily available.

Overall, no solutions were found in any of the analyzed situations that did not include a system of swine production. Additionally, the solutions showed that swine production provided the major source of income in all situations. These factors suggest that swine production may be considered as a potential farm enterprise when achieving a minimum net income level is an important goal of the farmer. Capital requirements are highly variable and depend heavily on the individual farm situation. When quality management is available and the operator is willing to make a long-term commitment to swine production, achieving levels of earnings similar to those specified in this study is possible.

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