Masters Theses

Date of Award

8-1968

Degree Type

Thesis

Degree Name

Master of Science

Major

Agricultural Economics

Major Professor

Luther H. Keller

Committee Members

William E. Goble, Frank O. Leuthold

Abstract

This study was an economic analysis of commercial farming in the Elk River Watershed. A random sample of 123 farms with sales of$2,500 or more were selected for the study. In the study area only 34.2 percent of all farms sell $2,500 or more of farm products, but they account for approximately 85 percent of all farm sales in the area.

The overall objective was to collect and analyze data concerning the first five economic classes of commercial farms in the area. The Specific objectives of the study were as follows: (1) to compare and determine differences among commercial farms in the area with respect to farm type, net income and size of operation; (2) to estimate the marginal productivity of specified resources on different types of farms;and (3) to develop and test the usefulness of management indexes for the commercial farms in the Elk River Watershed.

The t-test was used as the statistical tool for determining if any statistical difference existed regarding age, education, level of living index, index of records, net income, returns to management, size of operation and total investment for different types of farming categories, net income ranges and size of operation ranges.

In order to estimate the marginal value productivities for specified resources, production functions were estimated by the least squares technique using the Cobb-Douglas function. Separate functions were estimated for the entire sample group of farms and for each of the five types of farming categories. Inputs used in these functions to estimate net farm income were land investment in dollars, livestock investment in dollars, equipment investment in dollars, building investment in dollars and unpaid family and operator labor in dollars.

A management index was calculated for each farm as a ratio between actual and predicted net farm income. This ratio was derived from the residuals of the regression equation used to estimate the marginal productivities. The rational for the procedure was based on the assumption that the unexplained variation in the regression function was due to exclusion of the managerial variable.

In general, the analysis indicated that Grade A dairy farmers had a larger size of operation, net income, returns to management, total investment and kept more farm records than any other type of farming category. Operators in the net income range of over $7000 had more education, reported more home items, kept more farm records, and had a larger size of operation, returns to management and total investment than did the operators in the other net income ranges. The operators in the size of operation range of 300 acres or more had more education,higher level of living index, more net income, and had a larger total investment than did operators in the other size of operation groups

.All resources included in the analysis exhibited either increasing or negative returns. Also the elasticity of production for the sample, cash crop, manufacturing milk, and beef hog producers indicated they were operating in the stage of production necessary to maximize profits. However, Grade A dairy and beef producers need to make adjustments in their resource use in order to be in the stage of production necessary for maximum profits.

Tests of significance and correlation analysis led to the conclusion that age, education, record index, size of operation and total investment were not related to the management indexes computed for the study.

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