• TABLE OF CONTENTS
HIDE
 Title Page
 Acknowledgement
 Table of Contents
 List of Tables
 List of Figures
 Introduction and problem setti...
 Description of the area
 Methodology of the study
 Optimal farm plans
 Application of the results
 Summary and conclusions
 Appendix
 Bibliography






Title: Profitable uses of the conservation reserve acreage on dryland farms in the northern Rolling Plains of Texas
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Title: Profitable uses of the conservation reserve acreage on dryland farms in the northern Rolling Plains of Texas
Physical Description: 127 Á. : ;
Language: English
Creator: Workman, Donald Rae
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Place of Publication: College Station Tex
Publication Date: 1962
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Thesis: Thesis (M.S. in Agricultural Economics)--A. & M. College of Texas.
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Table of Contents
    Title Page
        Page i
        Page ii
    Acknowledgement
        Page iii
    Table of Contents
        Page iv
        Page v
    List of Tables
        Page vi
        Page vii
    List of Figures
        Page viii
    Introduction and problem setting
        Page 1
        Page 2
        Page 3
        Page 4
        Page 5
        Objectives of the study
            Page 6
            Page 7
    Description of the area
        Page 8
        Page 9
        Page 10
        Page 11
        Page 12
        Page 13
        Page 14
        Land resources
            Page 15
            Page 16
        Market situation
            Page 17
        Labor
            Page 18
        Tenure
            Page 18
            Page 19
    Methodology of the study
        Page 20
        Farm situation
            Page 20
            Acreage allotments for selective crops
                Page 21
            Labor resources
                Page 22
                Page 23
            Capital resource
                Page 24
            Technological and management level
                Page 25
        Application of linear programming to the problem
            Page 26
            Page 27
        Properties of the problem that suggest linear programming
            Page 28
        Additional information of linear programming
            Page 29
        Constituents of the programming model
            Page 30
            Activity prices
                Page 30
                Page 31
            Crop production activities
                Page 32
                Page 33
                Page 34
            Conservation reserve transfer activities
                Page 35
            Cattle activities
                Page 36
                Page 37
            Market activities
                Page 38
            Production requirements for selected production activities
                Page 39
                Page 40
            Conservation reserve transfer requirements
                Page 41
                Page 42
            Cattle requirements
                Page 43
        Resource and marketing restraints
            Page 44
            Capital restrictions
                Page 44
            Allotment restrictions
                Page 45
            Cropland restrictions
                Page 46
                Page 47
            Native pasture restrictions
                Page 48
            Conservation reserve restrictions
                Page 48
            Labor restrictions
                Page 49
                Page 50
    Optimal farm plans
        Page 51
        Lint cotton - 17 cents per pound
            Page 52
            Page 53
            Page 54
            Page 55
            Page 56
            Page 57
            Page 58
        Lint cotton - 20 cents per pound
            Page 59
            Page 60
            Page 61
            Page 62
            Page 63
            Page 64
        Lint cotton - 23 cents per pound and above
            Page 65
            Page 66
            Page 67
            Page 68
            Page 69
            Page 70
    Application of the results
        Page 71
        Comparison of the estimated supply curve and the farmer's expected response
            Page 71
            Page 72
        Farmers' expected response to cotton price change
            Page 73
        Farmers' response to cotton price on the amount of conservation reserve land returned to cropland
            Page 74
            Page 75
        Farmers' expected uses of the conservation reserve land at present prices
            Page 76
        Aggregative implications of the results
            Page 77
            Page 78
        Marginal value productivity of restrictive farm resources
            Page 79
        Marginal value productivity of restrictive of cropland
            Page 79
            Page 80
            Page 81
            Page 82
    Summary and conclusions
        Page 83
        General
            Page 83
        Summary of the results
            Page 84
            Page 85
        Conclusions
            Page 86
        Limitations of the study and suggestions for future research
            Page 87
            Page 88
    Appendix
        Page 89
        Page 90
        Page 91
        Page 92
        Page 93
        Page 94
        Page 95
        Page 96
        Page 97
        Page 98
        Page 99
        Page 100
        Page 101
        Page 102
        Page 103
        Page 104
        Page 105
        Page 106
        Page 107
        Page 108
        Page 109
        Page 110
        Page 111
        Page 112
        Page 113
        Page 114
        Page 115
        Page 116
        Page 117
        Page 118
        Page 119
        Page 120
        Page 121
        Page 122
        Page 123
    Bibliography
        Page 124
        Page 125
        Page 126
        Page 127
Full Text



Peter E. Hildebrand
-' '.',,l Economics







PROFITABLE USES OF THE CONSERVATION RESERVE ACREAGE ON
DRYLAND FARMS IN THE NORTHERN ROLLING PLAINS OF TEXAS








A Thesis

by

Donald R. Workman


Submitted to the Graduate School of the
Agricultural and Mechanical College of Texas in
partial fulfillment of the requirements for the degree of

MASTER OF SCIENCE


August


1962


Agricultural Economics














PROFITABLE USES OF THE CONSERVATION RESERVE ACREAGE ON
DRYLAND FARMS IN THE NORTHERN ROLLING PLAINS OF TEXAS








A Thesis

by

Donald R, Workman


Approved as to style and content by:


(Chairman of Committee)


August 1962


(Head of Department or Student Advisor)












ACKNOWLEDGIMTEN


The author wishes to express his sincere appreciation to Dr. Kenneth

R. Tefertiller, thesis advisor, for his confidence, counsel and stimula-

tion throughout the entire period of my graduate program and the writing

of this thesis. Professor A. C. Magee, a member of my graduate commit-

tee, has also given invaluable aid in his comments based upon the read-

ings of previous drafts.

Special acknowledgment is given to Dr. Peter E. Hildebrand, who

suggested the study and worked with the problem during its infancy.

Also, the author is grateful to Dr. Alfred Chalk, who made helpful sug-

gestions and constructive criticisms.

The author is greatly indebted to Miss Annette Bomonskie, Faith

Heine, and Charlotte Kleibrink, members of the statistical and steno-

graphic staff of the Department of Agricultural Economics and Sociology

and to Mr. R. L. Smith and Bill Moore who made computations possible on

the 709 Computer: also to Mrs. Merilyn Schwille for her patience and

perseverance in typing the final copy of this thesis.

Finally, special appreciation is given to the Department of Agri-

cultural Economics and Sociology for financing this study and to my

wif-e for her ever present assurance and understanding.










TABLE OF CONTENTS


Chapter Page

I. INTRODUCTION AND PROBLEM SETTING .................. 1

Objectives of the Study ...................00 ... 6

II. DESCRIPTION OF THE AREA...... ......................... 8

Land Resources................................. 15
Market Situation......... ....................... 17
Labor............ ................................ 18
Tenure............. .......................... ... 18

III. METHODOLOGY OF THE STUDY ................... ....... 20

Farm Situation ................................. 20
Soil Resources................................ 20
Acreage Allotments for Selective Crops........ 21
Labor Resources................................ 22
Capital Resource......... .................... 24
Technological and Management Level ........... 25
Application of Linear Programming to the Problem. 26
Properties of the problem that Suggest Linear
Programming ................. ................. 28
Additional Information of Linear Programming..... 29
Constituents of the Programming Model........... 30
Activity Prices.............................. 30
Crop Production Activities..................... 32
Conservation Reserve Transfer Activities...... 35
Cattle Activities ................................ 36
Market Activities............................ 38
Production Requirements for Selected
Production Activities ......................... 39
Conservation Reserve Transfer Requirements.... 41
Cattle Requirements........................... 43
Resource and Marketing Restraints................ 44
Capital Restrictions............... ............ 44
Allotment Restrictions,...................... 45
Cropland Restrictions......................... 46
Native Pasture Restrictions.................. 48
Conservation Reserve Restrictions............. 48
Labor Restrictions. ............ ... .... ... 49

IV. OPTIMAL FARM PLANS .................................. 51
Lint Cotton 17 Cents Per Pound................. 52
Plan I........... ... .. ... ..... ....... ..... 52
Plan II............ ... ........................ 52
Plan III ......... ...... .... .... ............ 53
Plan IV .... .... .......... ................. ... 57












Lint Cotton 20 Cents Per Pound......... ...0... 59
Plan Ia...... oooo... o........................ 59
Plan IIa ..........0 ....0 ..................... 62
Plan IIIa .00..... .... .o .................... 63
Plan IVa .. ....00....... .................. 0 64
Lint Cotton 23 Cents Per Pound and Above....... 65
Plan Ib ... ...... ... ............. ..0........ 65
Plan IIboooooo ooo .ooooooooooo..o.... a.... ..oo. 66
Plan IIIb,0 ...........00..................... 67
Plan IVb....................................00 67

V. APPLICATION OF THE RESULTS... ..................o.... 71

Comparison of the Estimated Supply Curve and the
Farmer's Expected Response ... ,,,............ 71
Farmers' Expected Response to Cotton Price
Change ........ ... ... .. ... 0 .... 00 ...... 73
Farmers' Response to Cotton Price on the Amount
of Conservation Reserve Land Returned to
Cropland....0...... ... .. .... ... 0....... 74
Farmers' Expected Uses of the Conservation
Reserve Land at Present Prices ......... ..... 76
Aggregative Implications of the Results.......... 77
Marginal Value Productivity of Restrictive Farm
Resources .o.......... oo............ o ... o 79
Marginal Value Productivity of Cropland ...0..... 79

VI. SUMMARY AND CONDLUSIONS............................. 83

General .......................................... 83
Summary of the Results ......................... 84
Limitations of the Study and Suggestions for
Future Research.o...........o.......0......... 87

APPENDIX ..- ... .... ....... .... .... ........ ...... .... 90

BIBLIOGRAPHY0 ....... ............................................ 124










LIST OF TABLES


Table Page

Io Estimated Conservation Reserve Acres for Which
Contracts Expire During the 1961-1970 Period..... 4

II. Acreage Distribution of Soil Types in the Study
Area .............. .......................... 11

III, Dryland Rolling Loam Soil Capability Class Dis-
tribution of Cropland for the Seven-County Area.. 13

IV. Land Capability Class Distribution of Rolling Loam
Soils Retired to the Conservation Reserve Re-
turning in 1961.............0 ,................ .. 14

V. Percent of the Total Dryland Rolling Loam Soil in
the Study Area Retired to the Conservation
Reserve Program.... ..,...... ... ... ............... 16

VI. Average Land Resource Situation for the Row-Crop
and Livestock Farms in the Study Area Which
Had Land Returning From the Conservation Re-
serve in 1961............ o..... ... ....... ...... 21

VII. Allotments for Selected Crops on the Row-Crop and
Livestock Farms in the Study Area Which Had
Land Returning From the Conservation Reserve
Program in 1961....... .... 0 ... .,............ .... 22

VIII. Family Labor Available for Actual Farm Production
Activities on the Row-Crop and Livestock Farms... 23

IX. Crop Producing Activities Considered in the Model
and Estimated Yields Per Acre and Activity
Prices Per Unit of Production in the Study Area.. 33

X. Conservation Reserve Cropland Establishment and
Pasture Transfer Activities Considered in the
Model in the Seven-County Area ................. 36

XI. Cattle Production Activities Considered in the
Model and Estimated Yields and Net Returns Per
Head of Production in the Study Area ..........., 37

XII. Production Resource Requirements Per Acre for Crop
Producing Activities Considered in the Model
for the Seven-County Area .......,0.............. 41










XIIIo Resource Requirements for the Conservation Reserve
Transfer Activities Considered in the Model
for the Study Area ......, .......0.............. 42

XIV, Resource Requirements for the Cattle Activities
Considered in the Model for the Study Area...... 44

XV. Optimal Farm Plans for Row-Crop and Livestock
Farms Under Two Capital Situations With
Cotton Lint Priced at .17 Cents Per Bpund....... 54-55

XVI. Optimal Farm Plans for Row-Crop and Livestock
Farms Under Two Capital Situations With
Cotton Lint Priced at 20 Cents Per Pound
of Lint 000......0.... O..o..... .. o........ ..... 60-61

XVII. Optimal Farm Plan for Row-Crop and Livestock
Farm Under Two Capital Situations with Cotton
Lint Priced at 23 Cents Per Pound and Above..... 68-69

XVIII. Marginal Value Productivity of an Acre of Land
on the Row-Crop Farm with Unlimited Capital
for Various Price Levels of Cotton, ....... ..... 80










LIST OF FIGURES


Figure Page

I. Study Area .,............. ..a ....... .. ..... .... .. 9

II. Percent of the Total Cotton Allotment Planted
on the Row-Crop and Livestock Farms at the
Different Prices of Cotton................0.... 72

III. Percent of the Total Conservation Reserve Land
on the Row-Crop and Livestock Farm that
Should Be Returned to Cropland at Various
Prices of Cotton and Capital ................... 75


viii












CHAPTER I

INTRODUCTION AND PROBLEM SETTING


Labor incomes for farm people are generally lower throughout the

nation than are the earnings of people engaged in non-farm occupations.

The uncertainty of farm prices and agricultural farm programs and the

variability of crop yields that farmers face from year-to-year augments

the problem on many farms. Farm-factor prices continue to increase

faster than farm-product prices; the legendary "cost-price squeeze"

continues to force farmers to adjust to most efficient use of their re-

sources,

Symptoms in the American economy indicate that optimum adjustments

have not been made within agriculture or between agriculture and other

sectors of the economy. The excess supply of farm commodities, rising

costs of production, and the relatively low earnings of labor and

capital used in farming as compared to the earnings similar resources

return in other industries are symptoms of the maladjustments between

agriculture and other sectors of the economy. However, there is a per-

sistence of low income or poverty groups of farmers that are being

bypassed by technological growth and development within agriculture.

The existing stocks of resources controlled by these farmers return much

less profits than similar stocks of resources controlled by other farmers

in the area.

Lack of knowledge of alternative techniques and resource organi-

zations may be important in explaining why many individual farmers do

not maximize profits from given resources and why the mass physical









2


product from given quantities of agricultural resources is not as great

as it might be. Adjusting to the most profitable farm organization can

result in resource allocation which will increase the rate of economic

returns to a farmer from a given set of resources. The maximum rate of

earnings to resources is obtained when the various factors of production

are allocated on the farms such that the returns to each factor are the

same for each competing alternative. When resources are not used in an

optimum manner, the net earnings of a farm are below its maximum

potential.

There have been many studies conducted in selected areas of agri-

culture to provide guides to farmers as to the most profitable enter-

prise organization of farms in their particular area. Schmidt and

Christiansen I/ recently conducted a study to determine optimum com-

binations of livestock enterprises and management practices on farms

in Wisconsin. It was indicated in this study that farmers in certain

areas of Wisconsin were not getting optimum use of their farm resources

by not integrating crop and livestock enterprises. Also, a recent

article by Goodwin and Plaxico 2/ indicated that many Oklahoma farmers

were using land, labor, and capital resources inefficiently. This study

suggested that a 600 acre farm should return $3,000 net farm income



1/ Schmidt, John Ro and Christiansen, Rudolph A., Potential Crop and
Livestock Production and Net Farm Income on Dominant Soils in North-
west Wisconsin, Madison: University of Wisconsin Agricultural
Experiment Station Bulletin 219, May, 1960.

2/ Goodwin, John and Plaxico, James S., "Resources Required to Earn
Specified Incomes: Fine Textured Soils in Southwestern Oklahoma,"
Oklahoma Current Farm Economics, Stillwater: Oklahoma State Univer-
sity, Department of Agricultural Economics Report, Vol0 33, No. 2,
pp. 43-47o












while requiring the use of $100,000 of capital. There are many other

studies which have aided farmers in making managerial decisions as to

the optimum farm adjustments in their area. However, in some areas,

farmers are faced with relatively few feasible production alternatives

due to climatic or marketing situations.

The dryland farmers of the High and Rolling Plains of Texas have

few alternative uses for their land. Even if at planting time they

know that the year is not likely to be favorable for major enterprises

of the area, opportunities to shift to other enterprises are limited.

The sub-humid climate, characterized by high year-to-year variability,

and the limited marketing opportunities for many other products largely

limit the farmers to cotton, wheat, or grain sorghum,

However, in 1956 Congress enacted the Soil Bank Act, which offered

farmers an additional land alternative in that they were permitted to

"lease" cropland to the government for a period of three, five, or ten

years. Public funds were appropriated for use as direct payments to

farmers who put land into the Conservation Reserve0 The Conservation

Reserve was the land-retirement portion of the Soil Bank Act and direct

payments were authorized to farmers for retiring land from crop produc-

tion and for the establishment of a permanent grass cover on the re-

tired acreage0

At the time the Soil Bank Program was initiated, much of Texas was

experiencing a severe drought. This program offered immediate drought

relief and an opportunity for an assured income in future years. As a

result, Texas retired more land to the program than any of the other 46

participating states In July, 1960, over 3.6 million acres were under












contract in Texas which was approximately 10 percent of the cropland in

the State. The total amount of land for release from government con-

tracts in the nation and in Texas is shown in Table I. Over 25 percent


Table Io Estimated Conservation Reserve Acres for Which Contracts
Expire During the 1961-1970 Period a/

Acres to be Released as of December 31, 1961-1970
Years Texas National

1961 706,668 2,504,617

1962 220,615 1,313,733

1963 571,820 6,815,131

1964 232,023 3,421,127

1965 240,531 577,323

1966 549,013 2,271,644

1967 242,689 1,691,506

1968 628,916 6,120,064

1969 255,594 3,570,020

1970 --- 58,730


Total Acres in Reserve 3,647,869 28,343,895

Total Number of Contracts 33,431 301,005


a/ ASCS, Soil Bank Division, United States Department of Agriculture,
Annual Report 51, December 1, 1961, New Orleans, Louisiana.


of the total land released in 1961 was in Texas. Also, Texas will pro-

vide about 20 percent and 8 percent respectively of the acreage re-

leased in 1962 and in 1963.

Before the expiration of the program in 1959, the majority of the












counties in the upper portion of the Rolling Plains of Texas had ex-

ceeded the program's limitation. In 1958, a limitation was added to

the legislative act to protect local businessmen, allowing a county to

retire only 25 percent of its total cropland to the program.

Several economic studies have been conducted over the nation that

provide information as to the possible effects of the Conservation

Reserve Program and the conditions under which the program would or

would not be profitable to individual farmers. A study was conducted

in Southern Iowa 3/ to determine how farm incomes under different

farming arrangements would be affected by participating in the program.

Other studies concerning the possible effect of the Conservation Re-

serve Program on farm incomes and rural communities were conducted in

Ohio 4/, Pennsylvania V/, Georgia 6/, and New Mexico Z/o

When the Conservation Reserve contracts expire, what will be the

most profitable use of the land? Should the additional land remain

in pasture or should it be returned to crop production? If the land



J/ Baumann, Ross V. et, al., Potential Effect of Soil Bank and Corn
Allotment Programs on Income and Resource Use, Southern Iowa,
United States Department of Agriculture, Production Research Report
No. 48, May 1961,

/ Barr, Wallace, Major Economic Impacts of the Conservation Reserve
on Ohio Agricultural and Rural Communities. PhoDo Dissertation,
Ohio State University, 1961,

./ Brandow, G, E. and Houck, Jo P., The Soil Bank in Southwestern
Pennsylvania. Agricultural Experiment Station, University Park,
Pennsylvania, November 1957.

/ McArthur, W. Co, The Conservation Reserve Program in Georgia, USDA,
ERS-31, University of Georgia, College of Agriculture, December 1961.

2/ Taylow, Marlowe Mo, The Conservation Reserve Program in New Mexico.
USDA Research Report No, 54, May 1961,












is used for crop production, will it be profitable for farmers to parti-

cipate in the now existing voluntary Feed Grain Program; if so, at what

compliance level? Such questions need to be answered if a sound program

for adjustments is to be recommended to farmers. This study is designed

to provide answers to these questions for a specific geographic area.


Objectives of the Study


In this study, estimates are made of the most profitable enterprise

combinations of farmers in a specific area at various levels of product

prices. The analysis involves a conditional normative study / giving

special emphasis on the most profitable use of the Conservation Reserve

land as it returns to agriculture production. The majority of the Con-

servation Reserve land in the study area has a grass cover established

which will provide good pasture for livestock. It is assumed that with

relative prices for cotton and feed grains at a very low level, it would

not be profitable to replace the established grass cover on the Con-

servation Reserve land with row crops. However, with relatively high

prices of cotton and feed grains, it would probably be profitable to

convert the pasture land for the production of row crops.

The specific objective of the study is: to determine the relative

prices for crops and livestock at which it would be.profitable to return



8/ Conditional normative in this context departs from the usual Keynesian
concept of normative economics in that it is not an ethical or value
consideration but simply indicates what might be expected to happen
if the specified assumptions are true and decision-makers seek to
maximize profits. See Earl 0. Heady. "Uses and Concepts in Supply
Analysis," Agricultural Supply Functions, Earl 0. Heady et. al.,
(ed.), Iowa State University Press, Ames, Iowa, 1961,








7

the Conservation Reserve land to crops or conversely, the relative prices

at which the land would be expected to remain in grass for livestock

grazing.












CHAPTER II

DESCRIPTION OF THE AREA


The geographic location to which this study applies was designated

as Economic Area 6a in Texas by the 1954 Census.2/ This same area was

a portion of what was enumerated as Economic Subregion 83 in the 1959

Census of Agricultureo0g/ Seven counties located in the Rolling Plains

of Texas as shown in Figure I, were included in the study. These

counties are: Wheeler, Donley, Collingsworth, Childress, Motley, Cottle,

and Hall. The soils of these seven counties are classified as the

Rolling Red Plains of Texas. This area is principally a farming and

ranching region with no major metropolitan areas, The towns and cities

are relatively small, and the basic economy is closely associated with

agriculture or agriculturally related industries.

Farmers in the seven counties on which this study is based have

limited enterprise alternatives because of environmental factors and

the limitations of the product markets. For example, dairying can be

an adjustment possibility on only a few farms because of the limited

market for milk. Also there are limited possibilities for commercial

vegetable, fruit, and nut production or for specialty crops or poultry

enterprises.

The area is within close shipping distance of major livestock and



_2/ United States Department of Commerce, Bureau of the Census,
United States Census of Agriculture, 1954o

10/ United States Department of Commerce, Bureau of the Census, United
States Census of Agriculture, 1959.









Figure I


MStudy Area












grain terminals, and farmers have ready access to market facilities for

cotton,

Crops and livestock for which there is a ready market and which are

produced commercially on large numbers of farms throughout the area,

include cotton, cash grain crops, grazing crops, forages, weaning calves,

and feeder cattle,

The average annual rainfall of the area ranges from 16 inches in

the southwestern part to 24 inches in the northeastern part near the

Oklahoma border. The growing season ranges from 200 to 220 days, with

the first killing frost about November 5th and the last about April

1st. 1/

The topography of the area is cut sharply by several rivers and

their tributaries. Portions of the divides between these streams are

flat to gently rolling and usually are cultivated. Most streams have

formed deep valleys with narrow strips of bottomland, which make up a

small percentage of the total land acreage. Good quality water for ir-

rigation is not available except in very limited portions of the area.

Also, water erosion is a serious problem on sloping land. Wind erosion

may be a problem, especially in extra dry years when cultivated soils

are not covered with a crop or a mulch.

The gently sloping soil may have lime deposits within 36 inches

of the top, while sandy soils may have no surface lime deposits within



11/ Bonnqn, Co A,, Types of Farming in Texas, Texas Agricultural
Experiment Station Bulletin 964, October, 1960, p, 5.












this distance but still may show a neutral surface soil reaction. In

most of the soils plant nutrients, except for nitrogen, are moderately

high. 1

On the basis of soil groupings according to major physical soil

characteristics, the area has three distinct soil categories. These

are clay, loam, and sandy. Each of these soil types is found throughout

the area; however, the loam soil is the one considered in this study

since this type constitutes over 50 percent of the total cropland in

the seven counties. The acreage distribution of the soil types in

the study area is shown in Table II. The loam soil situation is separ-

ated into level loam and rolling loam.


Table II. Acreage Distribution of Soil Types in the Study Area a/


Level Rolling
Land Type Loam Loam Sandy Clay Total

Dryland 31,596 560,540 482,597 80,227 1,123,364

Irrigated 6,095 21,795 17,403 298 29,496



TOTAL 37,691 582,335 500,000 80,525 1,200,551


a/ Soil Conservation Service, United States Department of Agriculture,
"National Inventory of Soil and Water Conservation Needs," Forms N-l
and N-2, 1958.



12/ Texas Soil Survey, Soil Conservation Service, U.S.D.A., 1958.












This study is confined to the dryland rolling loam soils. Soils

in this category include. about 50 percent of the land in the study

area and over 90 percent of the acreage classified as loam. Also,

Conservation Reserve contracts are numerous on rolling loam soils ;

whereas, contracts on land classed as level loam are infrequent. The

rolling loam soils are medium textured with moderately permeable sub-

soils. These upland loams are usually mapped as Tipton, St. Paul, or

Carey, Bottomland loams are of the Spur and Canadian series with

some Quinlan and Vernon series or their equivalents. The rolling loam

soils are well adapted for the production of cotton, wheat, grain

sorghum, forage, and temporary pasture crops,

The rolling loam soils were separated into soil productivity

classes on the basis of topography and depth of the top soil. These

land capability classes are referred to as Classes II, III, IV, V,

VI, and VII. The productivity ratings are based on soil surveys con-

ducted by the Soil Conservation Service of the United States Depart-

ment of Agriculture in 1958. The definitions of the productivity

classes and the estimated yields for various crops on the rolling loam

soils are shown in Appendix, Table Io

The cropland acreage distribution of the dryland soil capability

classes for the rolling loam soil in the study region are shown in

Table III. Capability Class III constitutes 50 percent of the total

acreage of rolling loam soils; and Classes II, III, and IV make up 97

percent of the total acreage. Also, note that none of the soil is

classified as Class I.










Table III. Dryland Rolling Loam Soil Capability Class
Distribution of Cropland for the Seven-County
Area a


Rolling Loam Soil b/
Soil Capability Class Acres Percent

II 132,706 24

III 282,994 50

IV 128,644 23

V, VI and VII _16,196 3
TOTAL ......._. .. 560.,54D __ 1IO. ....
TOTAXL 560,540 100G

a/ This information was collected from the State's Soil Conservation
Service inventories.

b/ These soils are normally mapped as Upland Tipton, St. Paul, Carey;
Bottomland Spur, plus some Quinlan and Vernon soils and their
equivalents.


The study area has a total of approximately four million acres

of which one-third is in cultivation. Of the 1.2 million acres in cul-

tivation, 332,160 acres are in the Conservation Reserve Program. Even

though the study area constitutes less than 3 per cent of the total land

in the State, the area has approximately 9 per cent of the State's total

cropland retired to the Conservation Reserve. Collingsworth, Hall,

Childress, and Wheeler counties ranked first through fourth, respectively,

for the State of Texas in the amount of acreage contracted to the Con-

servation Reserve.

In December, 1961, 32,204 acres of rolling loam soil in the area

were released from Conservation Reserve contract. The estimated dis-

tribution of the soil capability class of the 32,204 acres released in

December of 1961 is shown in Table IV. These estimates were obtained












from interviews of a sample of farmers who had land returning in 1961

and from the assistance of soil scientists in the area. The survey was

conducted in the seven-county area in August, 1961; and representative

farms were selected through extensive analysis of the farms in the

area which had land returning in December, 1961. With the aid of ASC

records, a 20 per cent random sample was selected from all farms in

each county in which contracts were expiring. Ninety farmers were

selected in the sample out of a total of 450 farmers in the area which

had land being released from contract in December, 1961. Of the ninety

interviews, 45 were with farmers on the rolling loam soils, 33 were

on sandy soils, and 12 were located on clay soils. Farmers were asked

the total size of farm operated, amount of cropland on the farm, crop

allotments and grain sorghum base, and their anticipated use of the

Conservation Reserve land as it is released from contract. Farmers were

also asked at what price of cotton, considering present costs of

production, would alternative crop and livestock enterprises at present

prices become more profitable,

Table IV. Land Capability Class Distribution of Rolling Loam
Soils Retired to the Conservation Reserve Returning
in 1961 a/

Rolling Loam Soil
Land Capability Class Acres Percent
II 4,509 14
III 4,831 15
IV 20,288 63
V, VI and VII 2,576 8
TOTAL 32,204 100

a/ Survey was conducted in August, 1961, by the Department of Agricul-
tural Economics and Sociology, Texas A. & M. College.












Land Resources


The results from the farm survey were used to select representa-

tive farms in the area which had land returning from the Conservation

Reserve in 1961, Also, these data were used to estimate the ratio of

native range, Conservation Reserve land, other land, and cropland in the

rolling loam situation. Cropland capability classes were assumed to

be uniformly distributed throughout the area. Hence, any representative

farm would be assumed to have the same cropland distribution as is

present in the aggregate physical rolling loam soil situation. Since

the soil was classified before the Conservation Reserve Program was

initiated, even though the results were not completed and published

until 1958, all land that is now in the Conservation Reserve was initially

classified as cropland. Time was not available to establish the actual

percentage distribution of the land capability classes on the total

cropland on each of the farms which had land returning from the Con-

servation Reserve, Thus, the per cent capability class distribution of

cropland and Conservation Reserve acreage on representative Conservation

Reserve farms were assumed to be the same as the distribution for the

average farm of the area, However, land capability classes were esti-

mated for the land which was being released from the program in 1961.

This was done by soil, scientists who inspected the land at the time of

the interview. The per cent distribution of the land capability classes

of both the cropland and the Conservation Reserve are shown in Table V.

Results of the survey provided estimates of current differences

in the size distribution of the farms on the rolling loam situation and












Table V. Percent of the Total Dryland Rolling Loam Soil in the
Study Area Retired to the Conservation Reserve Program

Percent of Percent of the
Soil Total Cropland Retired Land that Remained
Capability Rolling Loam to the Conservation in Crop
Class Cropland a/ Reserve b/ Production c/
---------------------------Percent-----------------------
II 24 14 86

III 50 15 85

IV 23 63 37

V, VI & VII 3 8 92


a/ Aggregate for the area for Rolling Loam soils as established from
the State's Soil Survey,

b/ Established by soil scientists in the area,

c/ This is simply the residue left of each capability class after the
per cent of the land class retired to the Conservation Reserve
program had been subtracted,


the differences which occurred in institutional restrictions such as

crop allotments and feed grain bases. These attributes were used as

the basis for describing the organization of the two representative

farms in the area which had land released from the Conservation Reserve

in 1961. The size distribution of the Conservation Reserve farms in

the area on the rolling loam soils is bimodal with respect to total

farm land. Distinct differences were found in the amount of cropland,

rangeland, Conservation Reserve land, and other institutional restric-

tions. The data suggested two sizes of farms which represented

different types of farming. The small farm size represents a row-crop

farm, and the large farm represents a livestock farm. Hereafter, these

two farms will be referred to in this report as row-crop and livestock

farms.












Market Situation


The farming enterprises that are considered in this study are

limited to those that are feasible adjustment possibilities for all

farms in the study area. Only dryland crops are considered. Budgets

were prepared for crops and livestock which are produced in abundance

and for which there is a ready market. These include cotton, cash

grain crops, grazing crops, forages, cow-calf production, and feeder

cattle.

The exclusion of any enterprise from this study does not mean

that it would not be profitable on an individual farm, It only means

that for this particular area, it would be impractical for many

farmers to use that enterprise in the near future.

To produce grain sorghum and receive the support price, a farmer

must sign a statement early in the year declaring his intended rate

of compliance in the Feed Grain Program, If he signs to be a maximum

complier (40 per cent of his base acres deferred), he is allowed to

plant from 60 to 80 per cent of his base. In other words, he may

defer not less than 20 per cent or more than 40 per cent of his base

acres. The support price is paid for the grain produced plus $1163

per acre on the acres required to be a 20-per cent complier and

$13-97 per acre on any additional acres deferred. If, however, he

signs an intent to comply with the Feed Grain Program at the 20-per

cent compliance level and later decides to defer more than 20 per

cent of his base, he will only receive the $1163 payment for the

acreage needed for a 20-per cent complier. For this reason, it is












assumed in this study that the farmer signs as a maximum complier (40

per cent) and then plants to his advantage, Therefore, a farmer could

in this situation defer any per cent of his grain sorghum base between

20 and 40 per cent and receive payments accordingly. A similar situa-

tion holds true for the Wheat Program; however, the complier could

participate and receive payment for deferring any per cent of his

wheat allotment between 10 and 40 per cent.

Also, it is assumed in this study that each farm under consider-

ation has the same productivity index as the county's average. Hence,

the payment rates for both deferred acreages of wheat and grain sorghum

will be the same as the county's index (Appendix Table II). This index

is established by the county's average production per acre for the past

three years.


Labor


Most of the labor used on farms in the area is family labor, but

labor within the area is fairly abundant for agricultural work. Some

outside labor, mostly migratory Mexican labor from Mexico and migratory

labor from other outside regions, is available to the area for cotton

chopping and harvesting work. Most of the wheat and grain sorghum

harvesting is done by custom combine crews who follow the harvest

throughout the Great Plains area.


Tenure


The two representative farms are assumed to be owner-operator.

Although many farmers within the area own a quantity of land and rent












assumed in this study that the farmer signs as a maximum complier (40

per cent) and then plants to his advantage, Therefore, a farmer could

in this situation defer any per cent of his grain sorghum base between

20 and 40 per cent and receive payments accordingly. A similar situa-

tion holds true for the Wheat Program; however, the complier could

participate and receive payment for deferring any per cent of his

wheat allotment between 10 and 40 per cent.

Also, it is assumed in this study that each farm under consider-

ation has the same productivity index as the county's average. Hence,

the payment rates for both deferred acreages of wheat and grain sorghum

will be the same as the county's index (Appendix Table II). This index

is established by the county's average production per acre for the past

three years.


Labor


Most of the labor used on farms in the area is family labor, but

labor within the area is fairly abundant for agricultural work. Some

outside labor, mostly migratory Mexican labor from Mexico and migratory

labor from other outside regions, is available to the area for cotton

chopping and harvesting work. Most of the wheat and grain sorghum

harvesting is done by custom combine crews who follow the harvest

throughout the Great Plains area.


Tenure


The two representative farms are assumed to be owner-operator.

Although many farmers within the area own a quantity of land and rent









19


or lease more land to complete the farm operation, the majority of the

Conservation Reserve land was found on owner-operator farms. However,

with equitable rental arrangements and cost-sharing, the analysis should

give approximately the same results regardless of the tenure situation.













CHAPTER III

METHODOLOGY OF THE STUDY


Farm Situation


The two representative farms in the area which had land returning

from the Conservation Reserve program in 1961 are described in the

following sections. The distinct differences in the physical and in-

stitutional restrictions of the two farms are indicated, and the method

of analysis is described in this chapter.

Soil Resources

Farm size, acres of cropland in each capability class, acres of

the Conservation Reserve in each capability class, and the total

acres of native rangeland for the two representative farms are shown

in Table VI, The descriptions of the available land resources for a

row-crop and livestock farm are based on the results of the farm sur-

vey in 1961. The 45 farms were classified into row-crop and livestock

farms. Twenty-six of the farms were classified as row-crop farms; and

19, as the livestock farms. The average amount of land resources

within each group was used to describe the two farm types.

It may be noticed from Table VI that the row-crop and livestock

farms originally had 410 and 240 total acres of cropland, respectively,

before any land was retired to the Conservation Reserve. The land

capability class distributions set forth in Chapter II (Table V) were

used to estimate the capability class distributions of the two repre-

sentative farms,













CHAPTER III

METHODOLOGY OF THE STUDY


Farm Situation


The two representative farms in the area which had land returning

from the Conservation Reserve program in 1961 are described in the

following sections. The distinct differences in the physical and in-

stitutional restrictions of the two farms are indicated, and the method

of analysis is described in this chapter.

Soil Resources

Farm size, acres of cropland in each capability class, acres of

the Conservation Reserve in each capability class, and the total

acres of native rangeland for the two representative farms are shown

in Table VI, The descriptions of the available land resources for a

row-crop and livestock farm are based on the results of the farm sur-

vey in 1961. The 45 farms were classified into row-crop and livestock

farms. Twenty-six of the farms were classified as row-crop farms; and

19, as the livestock farms. The average amount of land resources

within each group was used to describe the two farm types.

It may be noticed from Table VI that the row-crop and livestock

farms originally had 410 and 240 total acres of cropland, respectively,

before any land was retired to the Conservation Reserve. The land

capability class distributions set forth in Chapter II (Table V) were

used to estimate the capability class distributions of the two repre-

sentative farms,












Table VI. Average Land Resource Situation for the Row-crop and
Livestock Farms in the Study Area Which Had Land Re-
turning From the Conservation Reserve in 1961 a

: Row-crop Farm : Livestock Farm
: :Conservation: : :Conservation:
Item :Cropland : Reserve :Total :Cropland: Reserve :Total
- - - -Acres- - - -
Land Capability
Class II 90 8 98 45 12 57

III 196 9 205 105 14 119

IV 57 38 95 0 57 57

V, VI & VII 7 12 0 __ 7

Total 350 60 410 150 90 240

Native Rangeland 20 453

Homestead and
Wasteland b/ 20 27

TOTAL FARM SIZE 450 720


a/ The acres that remained in cropland in each capability class are
equal to the total acres of cropland and Conservation Reserve times
the aggregate per cent of the specific class in the area minus the
per cent of the capability class that was retired to the Conser-
vation Reserve,

b/ The acres in the homestead and wasteland were estimated by the
following formula: 5 acres + 5(total acreage) .
160

Acreage Allotments for Selective Crops

Since cotton and wheat are under allotment programs and grain sorghum

has a production base under the new Feed Grain Program, the current

acreage allotments and bases (estimated from the farm survey and county

ASC records) for the two representative farms are used in the analysis.

These institutional restrictions on the row-crop and livestock farms are

shown in Table VII.












As seen in Table VII, no cotton allotment was retired to the Con-

servation Reserve Program under either farm type; however, there was a

portion of the grain sorghum base and wheat allotment retired to the

program in both farm situations. The Conservation Reserve Program

allowed the retainment of any crop allotments or bases the acreage main-

tained the three years previous to its retirement, It was estimated

from the production records of the ASC offices that 60 per cent of

the retired acres on the farms that had land returning in 1961 was

used for grain sorghum production three years prior to retirement to

the Conservation Reserve. Also, it was found that 10 per cent of

the acres retired to the Conservation Reserve was used for wheat

production three years prior to retirement.


Table VII. Allotments for Selected Crops on the Row-crop and Live-
stock Farms in the Study Area Which Had Land Returning
From the Conservation Reserve Program in 1961 a/

Row-crop Farm Livestock Farm
Conservation Conservation
Item Cropland Reserve Total Cropland Reserve Total

Cotton Allotment 190 0 190 70 0 70

Wheat Allotment 40 6 46 60 9 69

Grain Sorghum Base 100 36 136 0 54 54


a/ Estimated from the results of the farm survey and the analysis of
county ASC production records of the enumerated farms.


Labor Resources

The labor that the operator is able to perform in actual production

activities will be reduced by the amount of time required for managerial












duties. In addition to the operator who is assumed to work on the farm

throughout the year, it may be necessary to hire additional labor on

the average farm during periods of peak work loads. The hours of labor

that the row-crop and livestock operators are able to perform in

actual production are shown in Table VIII. In periods when labor re-

quirements are high, the operator is assumed to be able to hire addi-

tional labor, The wage rate assumed is $o100 per hour, which is

approximately the average rate for farm labor in the area, Some work

hired for less than this rate has been placed on a custom-hired

basis, e.go; cotton chopping is charged at a rate of $2.50 per acre

with four hours per acre as the estimated labor requirement.


Table VIII. Family Labor Available for Actual Farm Production
Activities on the Row-crop and Livestock Farms a/


Production Periods Row-crop Farm Livestock Farm
-- --- -- -Hours- - -

January-April 640 576

May-July 572 515

August-September 396 357

October-December 528 476

Total 2,136 1,924

a/ Assumes 22 working days/month except February in which there are 20
working days. Allow 7 hours/day December-March; 8 hours a day in
April, May and November; and 9 hours/day in June-October for non-
management time for the row-crop farm0 The same procedure was used
for the livestock farm minus 1/2 hour per day because of the large
farm See Connor, Lo Jo, etoalo, "Resource Requirements, Costs and
Expected Returns, Alternative Crop and Livestock Enterprises, Loam
Soils of the Rolling Plains of Southwestern Oklahoma," Oklahoma
Experiment Station, P-368, February, 1961,












The family labor available on the two farms will likely have some

effect on high-labor-using enterprises. The labor distribution was

estimated by considering the length of working days in the particular

season and the time estimated for managerial duties of the particular

size of farm.

Capital Resource

In this study it is assumed that operating capital for purchasing,

cattle, fertilizer, and etc., can be obtained at an interest charge of

6 per cent per year. The 6 per cent charge is approximately the rate

charged by lending agencies in the area for short-term operating loans.

There is usually some limit on the amount of capital which can be

controlled by an individual. This is usually based on the equity of

that individual, However, due to the lack of homogenity of capital

situations faced by farmers in the study area, each representative farm

was analyzed under two arbitrary levels of capital use. The unlimited

capital situation will be used in the remainder of this report to refer

to the circumstance on both farms where the operator is willing to in-

vest an unlimited amount of capital in the farming enterprises considered

as long as the capital returns the 6 per cent interest charge. The

other is referred to as the limited capital situation and represents

the case in which farmers would invest capital in the farming enter-

prises only if the capital would earn 18 per cent returns. Hence, in

the latter situation, operating capital would be internally limited on

an individual farm firm,

Income for the two types of farms is defined as a return to the












operator's land 2/ labor, risk, and management throughout this study.

Therefore, even if the farmer owns the operating capital, some charge

must be placed on its use to estimate the returns to the operator's

specified resources.

Technological and Management Level

Since the objective of this study is to determine the potential

farm adjustments for farms in a specific area, advanced management was

assumed for both farms. This level of management represents potential

production for each alternative farm enterprise with present technology

instead of the performance of the average farmer. Hence, this study

was designed to represent the performance of the better farmers in the

area and not the average farmer.

Four-row equipment is assumed to be the most efficient size of farm

machinery for the area. Approximately 700 acres of total land or 500

acres of cropland can be operated by one, four-row tractor. Machinery

is a lumpy input, and a continuous function of machinery investment per

acre is difficult to estimate. However, machinery wear and depreciation

depend to a large extent on the use of the machinery. A farm operation

which requires more than a two-row tractor but less than the full use

of a four-row tractor probably will have a four-row tractor.

The salvage value for all equipment was figured at 12 per cent of

the new value. This salvage value is subtracted from the new value of



1/ This includes all permanent facilities as well as such overhead
items as a pick-up truck, land taxes, and etc. which cannot be
allocated to an individual farm enterprise.













the machinery and the remainder depreciated over 10 years by the

straight-line method.

Of the two farms, the livestock operation is the larger with more

acres retired to the Conservation Reserve. It is, however, less

specialized having a smaller percentage of its land in allotted crops

and more rangeland. It was assumed that the Conservation Reserve of

both farms included the same proportion of the operator's total wheat

allotment and grain sorghum base. It was established from the farm

survey that 60 per cent of the retired land was used for grain sorghum

production prior to the retirement date, and 10 per cent was used for

wheat production; i.e., as an acre of land returns from the Conservation

Reserve, .7 of the acres will be allotted crops; .6, grain sorghum

base; and .1, wheat allotment. The farm survey indicated that there

was no cotton allotment retired to the Conservation Reserve Program in

the area. The allotted acres for grain sorghum and wheat before the

return of the Conservation Reserve land would be 100 and 40 acres,

respectively, for the row-crop farm; and 0 and 60 acres, for the live-

stock farm.

The capital and management levels are assumed to be identical for

the two farms. The input-output coefficients are the same in every

situation; the level of resource and market restrictions vary between

the two farms.


Application of Linear Programming to the Problem


The method of analysis for this study is developed within the












general framework of the linear programming technique.I -/ Linear

programming is a "mathematical form" of farm budgeting. Since the 1920's

the budgeting method has been used extensively for farm planning

problems.l-/ For many of the simpler problems the budget approach has

proven very effective. However, the traditional budgeting technique

may be a cumbersome method for more complex problems in farm planning.

The linear programming technique is capable of simultaneously selecting

the most profitable combination of crop and livestock enterprise for a

specified farm situation,

The objective of linear programming is to maximize (or minimize)

a function subject to some set of restraints, which may be either

qualities or inequalities. Linear programming is applicable to a

problem only when three conditions exist -- (1) there must be a defin-

able objective; (2) there must be more than one method or process for

obtaining the objective; and (3) there must be some restrictions on

resources or requirements to be met-/ The linear equations are



14/ Several references are available on linear programming. See:
Dorfman, Robert. Application of Linear Programming to the Theory
of the Firm, University of California Press, Berkeley, 1951.
Heady, Earl 0, and Candler, Winfred. Linear Programming Methods,
Iowa State College Press, Ames, 1959.
Dorfman, Robert; Samuelson, Paul A; and Solow, Robert M, Linear
Programming and Economic Analysis, McGraw-Hill Book Company, New
York, 1958.

1/ Tolley, H, R., "Recent Developments in Research Methods and Pro-
cedures in Agricultural Economics," Journal of Farm Economics,
Vol, 12, April 1930,

16/ Boulding, Ken and Spivey. Linear Programming and the Theory of
the Firm0 MacMillan and Company, New York, pp. 43-52.












derived from the assumptions that input-output coefficients and prices

paid for resources or received for products are constant for any level

of production,


Properties of the Problem that Suggest Linear Programming


The objective of this study is to determine the enterprise com-

binations for farms in a specified area which have land returning from

the Conservation Reserve that would maximize farm income. Elements of

the objective function represent the returns or cost per unit of the

various production and marketing processes. This function is maximized

subject to a set of resource and marketing restrictions,

These restraints will play a major role regardless of the technique

selected for solving the problem. The restraints are made up of fixed

resources and institutional restrictions. The fixed resources are the

amount of land in each capability class, family labor, and capital; and

the institutional restrictions are the crop allotments and production

restrictions, The level of these restrictions are shown in Tables VI

and VII for both types of farms,

Several alternative production and marketing processes are consi-

dered in the model. The land may remain in rangeland and utilized for

beef cattle production; or conversely, it may be returned to row-crop

production.

The problem has the necessary quantitative components for a linear

programming problem -- (1) objective, (2) alternative methods for

attaining the objective, and (3) limited resources or other restrictions

which permit the application of linear programming. The objective












function to be maximized is net farm income subject to a specified set

of organizational restraints. Also, the problem appears to be con-

sistent with the special assumptions of linear programming--linearity,

divisibility, additivety, and finiteness /


Additional Information of Linear Programming


An additional advantage of linear programming over other farm

planning methods is found in a by-product of the simplex methodoli/ This

is an inter-process involving the addition of "slack" or unused

activities in the calculations and selecting an initial feasible program

with the level of the unused activities equal to resource supplies. A

method of determining the relative value of the restrictive resources

on the two farms is that of examining the criterion equation of the

solution (Zj-Cj value). The Zj values in this context mean. the cost

given up (opportunity cost) of producing one more unit of an activity

not in the optimal plan. The Cj values are the net revenue or cost per

unit of an activity. The opportunity cost of an activity may be defined

as that amount of income that would be sacrificed if that activity or

enterprise is reduced by one unit in order to increase another activity.

Hence, a negative Zj-Cj figure means that another unit of the correspond-

ing activity will add to profits if it is brought into the plan; and a



12/ For a discussion of applying the assumptions of linear programming
to the farm firm see: Gilson, Jo Co, An Application of Linear
Programming to Farm Planning, University of Manitoba, Winnipeg,
Technical Bulletin No, 2, 1960, po 8,

18/ Dorfman, Robert, "Application of Linear Programming to the Theory
of the Firm," po 160o












positive figure indicates that profits will be reduced if a unit of the

activity is decreased. The magnitude of the Zj-Cj value will indicate

the amount by which profits will be increased or decreased for each one-

unit increase in a particular activity, In other words, the Zj-Cj

values serve as a choice criterion for determining the most profitable

combination of crop and livestock enterprises, When all Zj-Cj values

are positive, the objective function is at a maximum,


Constituents of the Programming Model


Linear programming models generally consist of three major com-

pqnents -- the activity prices per unit of production (Cj values), the

farm restrictions, and the technical coefficients.

The restrictive resources of the two representative farms have been

set forth in the preceding sections of this chapter in Tables VI and VII.

Since identical advanced management and market prices were assumed for

both farms, the technical coefficients and the activity prices for each

farm will be the same, Therefore, the differences that occur in the

two farms optimum enterprise combinations will be entirely due to

their different physical and institutional restrictions.

Activity Prices

The activity prices used in this analysis almost entirely represent

the cost per unit of producing the corresponding process. This is be-

cause the sale of the products produced in each process is transferred

to a separate selling activity, The exception to this procedure is the

cattle enterprises where the prices were assumed constant and the net












positive figure indicates that profits will be reduced if a unit of the

activity is decreased. The magnitude of the Zj-Cj value will indicate

the amount by which profits will be increased or decreased for each one-

unit increase in a particular activity, In other words, the Zj-Cj

values serve as a choice criterion for determining the most profitable

combination of crop and livestock enterprises, When all Zj-Cj values

are positive, the objective function is at a maximum,


Constituents of the Programming Model


Linear programming models generally consist of three major com-

pqnents -- the activity prices per unit of production (Cj values), the

farm restrictions, and the technical coefficients.

The restrictive resources of the two representative farms have been

set forth in the preceding sections of this chapter in Tables VI and VII.

Since identical advanced management and market prices were assumed for

both farms, the technical coefficients and the activity prices for each

farm will be the same, Therefore, the differences that occur in the

two farms optimum enterprise combinations will be entirely due to

their different physical and institutional restrictions.

Activity Prices

The activity prices used in this analysis almost entirely represent

the cost per unit of producing the corresponding process. This is be-

cause the sale of the products produced in each process is transferred

to a separate selling activity, The exception to this procedure is the

cattle enterprises where the prices were assumed constant and the net












returns per unit produced are reflected in their activity prices, This

is not the only way the activities can be constructed, but it was used

because it permitted the variable-pricing technique to be readily

employed. The variable-pricing technique is used to find the sensi-

tivity of the optimal farm organization to changes in selected product

prices,

The product prices used in the study are estimates of the 1962

prices received by farmers in the area (Appendix, Table II), The 1962

support prices and deferred payment rates that were used for cotton,

wheat, and grain sorghum were supplied by the Texas State ASCS Office.

Other prices are estimates from current marketing reports for farm

commodities, Factor prices are also estimates of the current prices in

the area and were obtained mainly from secondary sources (Appendix, Table

II). 1/

In any definition of costs and returns, reference to a specific

length of run is inherent. Plaxico 2L/ in a discussion of the different

supply periods set forth a period which he interpreted as the inter-

mediate length of run. Producers in this situation view conditions as

being temporary but expect them to exist for more than one period of



C1/ Connor, L. J.; Plaxico, James; and Lagrone, Walter. Resource Re-
quirements, Costs and Expected Returns, Alternative Crop and
Livestock Enterprises, Loam Soils of the Rolling Plains of
Southwestern Oklahoma and Texas. Oklahoma Agricultural Experiment
Station, P-368, February 1961. Also other unpublished data was
utilized from Texas A. & M. College.

20/ Plaxico, James S., "Supply Concepts and Aggregation of Firm Supply
Functions," Farm Size and Output Research, Southwestern Cooperative
Series Bulletin No, 56, June 1956,












production. Equipment and organization of the farm may be changed, but

the amount of land is fixed. Specified returns to the operator's

resources in this study will be for the intermediate period of produc-

tion where all production resources are variable but land. Such costs

as pickup, building repair expenses, etc,, which, however, have not

been included in the model would have to be subtracted from the returns

to estimate the actual net farm income.

Crop Production Activities

The major activities that were considered in the model are listed

in Table IX. The cotton-producing activities on Classes II, III, and

IV cropland are designated as Pl, P2, and P3, respectively. Since ad-

vanced technology was assumed, all cotton was assumed to be mechani-

cally harvested. Also, no cotton-producing activities were considered

on the Classes V, VI, and VII land because it is unsuited for cultiva-

tion. Note that yield differential for cotton is significant between

the Class III and IV land. This could be expected since the land is

classified into the soil classes according to the slope of the land,

depth of top soil, and the general soil fertility. The Glass II land

is the highest producing land with a yield of 225 pounds of lint

cotton per acre followed by the Classes III and IV by 185 and 100

pounds of lint cotton per acre, respectively. Also, the cost per acre

of production is decreased on the lower classes of land significantly

because of the decline in the cost per acre of harvesting and hauling.

Six wheat production alternatives are considered in the model.

The wheat production .activities are described in Table IX by adjusted












yields and activity prices and are designated as (P4, P5' P6, P7' P8,

Pg)o


Table IX,


Crop Producing Activities Considered in the Model and Esti-
mated Yields Per Acre and Activity Prices Per Unit of
Production in the Study Area


Activity Price or
Process Cost Per Acre
Number Item Yield (Cj Value)


Cotton Production: (ibso of lint per acre) a/
P1 Class II land

P2 Class III land
P3 Class IV land

Wheat Production: (bu, per acre) b/

P4 Class II land (10% Comp).


P5

P6

P7

P8

P9
Grain

PlO
P10
P11

P12

P13

P14

P15


Class II land (40% Comp,)

Class III land (10% Compo)

Class III land (40% Comp,)

Class IV land (10% Comp,)

Class IV land (40% Compo)

Sorghum Production: (lbs, per acre) b/

Class II land (20% Compo)

Class II land (40% Comp,)

Class III land (20% Comp,)

Class III land (40% Comp,)

Class IV land (20% Comp.)


Class IV land (40% Comp,)


225

185

100


$-28.69

-26.46

-21.74


16.2

10o8

12,6

8.4

9.9

6,6



1160

870

960

720

720

640


-10,02

- Q41

- 9.58

- '09

- 9.39

+ ,04



- 4.99

- 1,02

- 4.46

- .43

- 4,22

- .25


Connor, L, J., etal,, Oklahoma Bulletin P-368.

Appendix, Tables V through XII,












The production of each activity in Table IX is reduced by the per

cent compliance level in the corresponding process; i.e., the produc-

tion per acre for P4 would be 18 bushels per acre before the 10 per

cent compliance reduction. Note also that the wheat yields and cost

per acre of production are decreased as the production is moved to

lower capability classes. The estimated yields are 18, 14, and 11

bushels per acre for land capability classes of II, III, and IV,

respectively (Appendix, Table I), The deferred payments per acre are

subtracted from the tdtal cost per acre of production; therefore, as

the percentage of the acre that is deferred is increased, the Cj value

decreases, In the case of Pg, the deferred payment on the 40 per cent

of the acre that is deferred is ,04 cents more than the total cost of

producing wheat on the remaining o6 acre of land.

There are also six methods for the production of grain sorghum.

A description of the activities, yields per unit, and the cost per unit

of production are shown in Table IX, The first, third, and fifth

methods of producing grain sorghum are for the 20 per cent compliance

level on Classes II, III, and IV land, respectively. The second,

fourth, and sixth methods are produced at the 40 per cent compliance

level, respectively on the above three classes of land.

The yields and cost per acre of production for grain sorghum was

also reduced by the per cent of compliance level in Table IX, The

estimated production per acre originally was 1450, 1200, and 900 pounds

per acre for Class II, III, and IV land, respectively (Appendix, Table

I).












Conservation Reserve Transfer Activities

Four transfer activities (P16, P17, P18, and PI9) were considered

in the model for returning the Conservation Reserve land to row-crop

enterprises. Each land capability class is treated separately in order

to determine the price level of crops at which land in each capability

class would be transferred from pasture to cropland. The correspond-

ing process number and the cost per acre of establishing the land is

shown in Table X. There will be no yield estimates since the land may

be returned to any of the considered cropping enterprises.

It was assumed in the budgets that the land would be left fallow

for the first year and plowed with a lister, home, and one-way twice

each during the year. This would be necessary in order to clear the

land of grass and weed seeds that have been established on the land

during its retirement. The cost per acre of establishing this land is

$3.32 on all classes of cropland (Table X).

Four transfer activities were introduced in the model to allow the

Conservation Reserve land to be converted to pasture. It was assumed

that the farmers would be required to renovate the grass that was estab-

lished on the land every other year. Since 95 per cent of the land

retired in the area was planted to sorghum almum, which is a perennial,

it was assumed that the grass would have to be reseeded every two

years to maintain an adequate grazing yield. The cost per acre of re-

novating the grass is $2.15 on all classes of cropland.












Table X. Conservation Reserve Cropland Establishment
Transfer Activities Considered in the Model
County Area a/


Process
Number Item
Conservation Reserve Cropland--Establishment:
P16 Class II land

P17 Class III land

Pl8 Class IV land

P19 Class V, VI, & VII land
Conservation Reserve Pasture Transfer:

P20 Class II land

P21 Class III land

P Class IV land

P23 Class V, VI & VII land


Yield


lo3

1.0

.8

.5


and Pasture
in the Seven-


Activity Price or
Cost Per Acre
(C. Value)

$-3o32

-,332

-3.32

-3.32


-2.15

-2.15

-2.15

-2.15


a/ Appendix, Tables XIII and XVo

Cattle Activities

Only one method of production was considered for the cow-calf

operation. This method included spring calving, a winter ration of

cottonseed cake and range grass and the sale of a good-choice feeder

calf in September. Previous research results indicated that this cow-

calf enterprise was the most profitable in the area. Four methods,

however, were considered for producing feeder steers. The first method

(P3g) is to buy a 450-pound calf in the fall and sell a good 760-pound

feeder yearling in late summer. The calf is fed a winter ration of

cottonseed cake, forage hay, and sold off native pasture in July. The

second method (P39) is to buy a 450-pound calf in the fall and to sell


_ __ ~_~I __












a good 800-pound feeder yearling August 1 The calf is fed a winter

ration of cottonseed cake, forage hay, and grazed on wheat during the

spring. The third method (P40) is to purchase a 425-pound calf in the

fall and to sell a good 725-pound feeder yearling July li The calves

are roughed through the winter on range and fed only small amounts of

cottonseed cake to supplement the pasture. The yearlings would be

sold directly off pasture, July 10. The last method (P41) is the

buying of a 450-pound calf in October and the selling of a 716-pound

feeder yearling May 10o The winter ration would be pasture, cotton-

seed cake, forage hay, and wheat grazing. The process numbers, net

returns per head and yields for the cattle enterprises are shown in

Table XI, Note, that the activity prices or Cj values represent the

net returns per head of production in the cattle enterprises.


Table XI.


Cattle Production Activities Considered in the Model and
Estimated Yields and Net Returns Per head of Production
in the Study Area a/


Item


Cow-calf enterprise

Feeder steers No. 1

Feeder steers No. 2

Feeder steers No. 3

Feeder steers No, 4


Yield

470

310

350

275

266


Activity Price or
Net Returns Per Head
(Ci Value)

$70,48

40o60

46.75

27.53

43.83


Jo, et, alo, Oklahoma Bulletin P-368o


Process ---I-- -- I -


Process
Number

P37

P38

P39

P40

P41


--


I -I-- I -- ~- -


a/ Connor, L.












Market Activities

There were six purchasing activities considered in the model, four

labor hiring activities, and capital and hay buying activities. The

four labor hiring activities allow the hiring of additional labor in

specified production periods. An activity price of $1.00 per hour was

assumed for each of the labor hiring activities (P42, P43' P44, and P45).

The capital and hay buying activities (P46 and P47) were included

in the model to allow a charge to be made for capital and to permit

the forage for livestock production to be purchased. The Cj values for

these two activities are 6 cents per dollar of capital utilized and 20

dollars per ton of forage purchased.

Two selling activities were considered in the model to allow the

selling of cotton and feed grains. The activity price for the cotton

activity was varied from 0 to 40 cents per pound of lint cotton; the

activity price for the feed grain selling activity was $1.75 per

hundredweight

The purpose of this study is to maximize the preference or objec-

tive function of the linear program model subject to the resource re-

strictions, The preference function of this model may be expressed as:

Returns to specified resources = 28.69x1 26.46x2 21.74x3 -

10,02x4 .41x5 9,58x6 ,09x7 9.39xg + .04x9 4.99x10 -

1.02x11 4.46x12 .43x13 4.22x14 .25x15 3.32x16 3.32x17

3.32x18 3.32x,9 2.15x20 2.15x21 2.15x22 2,15x23----
---- +70o48x37 + 40.60x38 + 46,75x39 + 27.53x40 + 43.83x41 ----

------ 100x45 .06x46 20x47 + 20x48 + 1.75x49 = maximum












The coefficients of the maximizing equation correspond with the

Cj values set forth for the specified activities in the preceding

sections, The x's simply indicate the level of the particular activity;

i.e., if two acres of cotton on Class II is brought into the plan, a

cost of $52.92 will be subtracted from the total farm income. The

total farm income represented by the objective function is the summation

of the income from each specific positive activity minus the cost per

unit of production represented by the negative activities. The returns

in this study will be specified as the returns to the operator's land,

labor, risk, and management. The returns in this report will be

slightly larger than the actual returns to the majority of the farmers

in the area with similar resources. This may be attributed to the

advanced technology assumption, since larger returns would be expected

for farmers using potential technology than present technology.

The returns to both farms, however, will be subject to the

restrictive resources and the production coefficients of the two farms,

The amount of production of the specific process is determined by the

resources available on the farms and the quantity of the resources in

which each process utilizes the resource supply; io.e, the processes

cannot utilize a larger quantity of a resource than is available on

the farm0 The exception to this is the labor restriction where it is

assumed that additional labor may be purchased from outside of the farm

firm, The restrictive resources and the production requirements are

discussed in the following sections,

Production Requirements for Selected Production Activities

The production resource requirements for the major activities












considered in the model are discussed in the following section of this

report. Since land, labor, and capital are the production resources

required for the activities and the land requirements are in one-acre

units, only the capital and labor requirements of the different

activities will be discussed in the following paragraphs.

Labor and capital requirements for crop producing activities are

shown in Table XII. It was estimated that the three cotton producing

activities (Pl, P2, and P3) would require identical amounts of capital

and labor resources per acre of production. The lower producing land

capability classes required a significantly larger amount of labor

and equipment time due to the rougher topography;and this compensated

for the decrease in the cost of harvesting and hauling the smaller crop

production. Note, however, that cotton requires considerably more

capital and labor resources than the remaining crop activities. This

could be expected since cotton in most areas generally require more

hand labor and equipment time. Also, the wheat and grain sorghum

requirements per acre were reduced by the corresponding per cent com-

pliance level. The total production requirements per acre were de-

creased by the per cent feed grain compliance level, and the require-

ments for the fallow practices necessary to keep the retired land free

of weeds were added to complete the total requirements per acre of

the particular activity. The capital and labor requirements do not

decrease as wheat and grain sorghum production is moved to the lower

yielding crop land; the decreases occur only because of the higher feed

grain compliance levels.












Production Resource Requirements Per Acre for Crop


Producing Activities Considered
Seven-County Area a/


in the Model for the


Process Capital Labor Requirements
Number Item Requirement Jan-Apr May-Jul Aug-Sept Oct-Dec


Cotton Production per acre:
P1 Class II land $ 27.99
P2 Class III land 27.99
P3 Class IV land 27.99
Wheat Production per acre:
P4 Class II land (10%
comp.) 13,58
P5 Class II land (40%
comp.) 11.36
Pg Class III land (10%
comp.) 13.58
P7 Class III land (40%
comp,) 11,36
P8 Class IV land (10%
comp,) 13,58
P9 Class IV land (40%
comp.) 11,36
Grain Sorghum Production per acre:
P10 Class II land (20%
comp,) 10,00
P11 Class II land (40%
comp.) 7.50
P12 Class III land (20%
comp,) 10,00
PI3 Class III land (40%
comps) 7.50
P14 Class IV land (20%
comp.) 10,00
P15 Class IV land (40%
comp.) 7.50


1.36
1.36
1.36


.03

.13

.03

.13


,88

.75


1.30
1.30
1.30


.78

.63

.78

.63


.63


.88

.75

.88

.75

.88

.75


.08
.08
.08


.41

.38

.41

.38
.41

.38


.07

.14

.07

.14

.07

.14


.06
.06
.06


.18

.12

.18

.12

.18

.12


a/ For the basis of these resource requirements see: Connor, L. J.,
et. al., Oklahoma Bulletin, P-368, pp. 14-30. The wheat and grain
:sorghum requirements were reduced by the per cent compliance level
and the fallow practices were added to obtain the total requirements
per acre. See Appendix, Tables V through XII.


Conservation Reserve Transfers Requirements

The capital and labor requirements for the Conservation Reserve

transfer activities are shown in Table XIII. These requirements are


7


Table XII.












included in the transfer activities to equate the Conservation Reserve

land with the land conditions assumed in the original budgets. Note,

also that there are no differentials in the resource requirements

between the different land capability classes. The larger requirements

in the cropland establishment activities could be expected since the

land will require considerably more tillage to prepare it for crop

production than for livestock grazing.


Table XIII. Resource Requirements for the Conservation Reserve Trans-
fer Activities Considered in the Model for the Study Area

Process Capital Labor Requirements
Number Item Requirement Jan-Apr May-July Aug-Sept Oct-Dec
Conservation Reserve Cropland Establishment: a/

P16 Class II land $ 10.29 1.28 .72

P17 Class III land 10.29 1.28 .72

P18 Class IV land 10,29 1,28 .72

Pi9 Classes V, VI &
VII land 10.29 1.28 .72

Conservation Reserve Pasture Transfer: b/

P20 Class II land 5.05 .84

P21 Class III land 5.05 .84

P22 Class IV land 5.05 .84

P23 Classes V, VI &
VII land 5.05 .84


a/ It was assumed in the budgets that the land being returned to crop-
land from the Conservation Reserve would be left fallow for the
first year and plowed with a lister, home, and one-way twice each
from January through July,

b/ It was assumed in the budgets that the Conservation Reserve land re-
maining in grass for livestock production would have to be plowed
once with a lister to renovate the grass for maximum production.
See Appendix Table XIII and XV,












Cattle Requirements

The capital and labor requirements for the cattle activities con-

sidered in the model are shown in Table XIV, The cattle activities

require more capital and labor resourcesthan the crop activities,

Hence, it could be expected that as capital and labor become scarce, the

buying of cattle will be restricted more than crop production. Also,,

note that the cow-calf enterprise requires substantially more capital

and labor than the feeder calf enterprises, This is because of the

higher original cost of the cow and the longer period of production.

The 450-pound calves bought in October and sold as 716-pound feeder

yearlings (P41) in May are the lowest utilizers of labor but the highest

of capital. This is because of the supplement grazing used for these

yearlings and the high roughage ration fed during the winter. The

lowest capital utilizing feeder calf enterprise is the 425-pound calves

bought in the fall and sold as 725-pound feeder yearlings in July. The

lower cost is mainly due to the lighter calf that is bought and their

being roughed through the winter on native pasture. The buying of a

450-pound calf in the fall and the selling of a 800-pound feeder year-

ling August 1 (P39), utilizes a slightly larger amount of capital and

labor than the buying of a 450-pound calf in the fall and selling a

good 760-pound feeder yearling in July (P38).












Table XIV. Resource Requirements for the Cattle Activities Con-
sidered in the Model for the Study Area

Process Capital Labor Requirements h_
Number Item Requirementa/ Jan-Apr May-July Aug-Sept Oct-Dec

P37 Cow-calf
enterprise $ 214.37 12.15 1.68 .54 2.37

P38 Feeder Steers
No. 1 165.26 4.29 1.38 .36 3.00

Pq9 Feeder Steers
No. 2 183o40 4.29 1.38 1.02 3,00

P40 Feeder Steers
0 No. 3 141,87 3.00 1.38 .36 2.04

P41 Feeder Steers
No. 4 188.87 1.50 1.02 --- 1.14


a/ Connor, et. al., Oklahoma Bulletin, P-368, pp. 36-42.

b/ Ibid, p6 54.

Resource and Marketing Restraints


The restrictions of the two representative farms have been discussed

in preceding sections (Table VI). For simplicity, only the restricting

equations for the row-crop farm will be discussed in the following

sections. The equations for the livestock farm would be identical with

the exception of the changes in the available resource supplies. (Appen-

dix, Table XXII),

Capital Restrictions

The capital equation for the row-crop farm may be written as:

(1) 0 = 27.99x1 + 27.99x2 + 27.99x3 + 13.58x -------

10x46 + 20x47












Table XIV. Resource Requirements for the Cattle Activities Con-
sidered in the Model for the Study Area

Process Capital Labor Requirements h_
Number Item Requirementa/ Jan-Apr May-July Aug-Sept Oct-Dec

P37 Cow-calf
enterprise $ 214.37 12.15 1.68 .54 2.37

P38 Feeder Steers
No. 1 165.26 4.29 1.38 .36 3.00

Pq9 Feeder Steers
No. 2 183o40 4.29 1.38 1.02 3,00

P40 Feeder Steers
0 No. 3 141,87 3.00 1.38 .36 2.04

P41 Feeder Steers
No. 4 188.87 1.50 1.02 --- 1.14


a/ Connor, et. al., Oklahoma Bulletin, P-368, pp. 36-42.

b/ Ibid, p6 54.

Resource and Marketing Restraints


The restrictions of the two representative farms have been discussed

in preceding sections (Table VI). For simplicity, only the restricting

equations for the row-crop farm will be discussed in the following

sections. The equations for the livestock farm would be identical with

the exception of the changes in the available resource supplies. (Appen-

dix, Table XXII),

Capital Restrictions

The capital equation for the row-crop farm may be written as:

(1) 0 = 27.99x1 + 27.99x2 + 27.99x3 + 13.58x -------

10x46 + 20x47












The variables stated above are only a few of the non-zero co-

efficients of the capital equation. Also, the "slack activities" or

the activities that allow a unit of the specified resource to go unused

have been omitted from the following equations. (See Appendix, Table

XXII). The x's simply indicate the level of the activity; for example,

cotton on Class II cropland requires $27.99 per acre. The coefficients

in the equation (1) may be found in the production resource require-

ment tables XII, XIII, and XIV. The purpose of the capital equation

is more for determining the total amount of capital required than as

a restriction,

Allotment Restrictions

The budget units for the crop allotments and sorghum bases are one

acre as they are for the cropland. The acreage allotments for cotton,

grain sorghum, and wheat are expressed in equations (2), (3), and (4),

respectively.

Cotton allotment

(2) 190 Ixl + Ix2 + 1x3

Grain sorghum base

(3) 100 1x10 + lxll + 1x12 + lx13 + lx14 + lxl5 6x16 6x17

A6x18 .6x19 6x20 o6x21 '6x22 -6x23

Wheat allotment

(4) 40 lx4 + lx5 + lx6 + lx7 + lx8 + lx9 .lxl6 .xl7 olx18

olx19 o1x20 olx21 '1X22 01x23

Note that the only process that utilizes the cotton allotment is

the cotton producing activities (Table IX). This is also true of the












wheat and grain sorghum processes. However, since there was some wheat

allotment and grain sorghum base retired to the Conservation Reserve

Program as the land is transferred to the cropland or pasture land

(Table X), the fraction of the acre that obtains the allotments or base

is transferred to the specific restrictions.

In the case of the wheat allotment, it was estimated that 10 per

cent (1l) of the land in retirement was wheat-allotted acres. In con-

trast, it was estimated that 60 per cent (.6) of the retired acres was

grain sorghum base

Cropland Restrictions

The row-crop and livestock farms have 350 and 150 acres of crop-

land, respectively, The total cropland and the production processes,

however, are divided into separate land capability class distributions.

Hence, the total specific land resource utilized by a production

process on the corresponding capability class will be equal to or less

than the total amount available on the farm. One acre of cropland is

used as an activity unit; therefore, the coefficients of any production

activity under cropland restrictions are equal to one. The inequality

for the cropland capability class restrictions for the row-crop farm is

stated algebraically as follows:

Class II cropland
Equation
(5) 90 lx1 +lx4 ----- 6 + 1x26 + 1x30 + lx34

Class III cropland
Equation
(6) 196 x2 + x6 + --- 1x17 + 1x27 + 1x31 + 1x35

Class IV cropland
Equation
(7) 565 e 1x3 + lxg + --- + 1x25 + 1x28 + lx32 + x36












Class V, VI and VII cropland
Equation
(8) 75 > x19 + 1x24 + 1x29 + lx33

Note that from the production activity tables in this chapter that

each process that is produced on a specified capability class of land is

included as requiring an acre of the land. Also note that the restric-

tions of the inequalities are the same as the resource situations set

forth for the two farms in the first section of this paper.

The variables stated above are only the non-zero coefficients;

ioe., the activities that did not use an acre of the specified cropland

were omitted from the equations. Also, the "slack activities" or the

activities that allowed a unit of the specified cropland to go unused

were omitted from the equations, each equation should have an extra -1

coefficient in their respective slack activity. In the case of Class II

cropland, one activity may use all the resource available; for example,

if, cotton production on Class II land was in the optimal solution at

90 units, the entire Class II land would be utilized by the cotton

activity (xl) However, it is possible for any of the corresponding

activities to utilize any portion of the restriction available.

The positive coefficients signify the utilization of an acre of the

specific land; whereas, a negative coefficient indicates that the

corresponding process would add an acre of land to the activity. This

is the case in the processes of x16, x17, x18, and x19 which are the

Conservation Reserve cropland establishment activities (Table X), These

activities will themselves have a restriction which will be the amount

of the specific land capability class retired to the program. Note that the












capability classes V, VI, and VII have fewer coefficients than the

other capability classes of land. This is because the grazing of sudan

(x29) or wheat (x33) and the reseeding of the land back to pasture (x35)
were the only alternatives considered for these classes of land,

Native Pasture Restriction

The restrictions and production coefficients for the native pasture

are in budget units of animal-unit-months and may be written for the

row-crop farm as:

(9) 20 > -1i3x20 lx21 .8x22 o5x23 .8x24 .8x25 + 13.44x37

+ 3x38 + 1,2x39 + 6x40 + a5x41

Note that the negative coefficients are the Conservation Reserve

pasture transfer processes (Table X) and add animal-unit-months to

the native pasture activity. Note also that one acre of the Conserva-

tion Reserve pasture transfer process does not add one animal-unit-

month to the pasture land. These values were derived from the estima-

ted grazing value of the Conservation Reserve land (Appendix, Table I),

Conservation Reserve Restrictions

The restrictions and production coefficients for the Conservation

Reserve capability classes of land on the row-crop farm may be written

as:

Class II Conservation Reserve Land

(10) 8,4 2 1l16 + 1x20

Class III Conservation Reserve Land

(11) 9 1x17 + lx21

Class IV Conservation Reserve Land

(12) 27.8 i 1x18 + 1x2












capability classes V, VI, and VII have fewer coefficients than the

other capability classes of land. This is because the grazing of sudan

(x29) or wheat (x33) and the reseeding of the land back to pasture (x35)
were the only alternatives considered for these classes of land,

Native Pasture Restriction

The restrictions and production coefficients for the native pasture

are in budget units of animal-unit-months and may be written for the

row-crop farm as:

(9) 20 > -1i3x20 lx21 .8x22 o5x23 .8x24 .8x25 + 13.44x37

+ 3x38 + 1,2x39 + 6x40 + a5x41

Note that the negative coefficients are the Conservation Reserve

pasture transfer processes (Table X) and add animal-unit-months to

the native pasture activity. Note also that one acre of the Conserva-

tion Reserve pasture transfer process does not add one animal-unit-

month to the pasture land. These values were derived from the estima-

ted grazing value of the Conservation Reserve land (Appendix, Table I),

Conservation Reserve Restrictions

The restrictions and production coefficients for the Conservation

Reserve capability classes of land on the row-crop farm may be written

as:

Class II Conservation Reserve Land

(10) 8,4 2 1l16 + 1x20

Class III Conservation Reserve Land

(11) 9 1x17 + lx21

Class IV Conservation Reserve Land

(12) 27.8 i 1x18 + 1x2












Class V, VI. and VII Conservation Reserve Land

(13) 4.8 a x19 + 1x23

Note from Table X that all the coefficients in these activities are

the Conservation Reserve cropland and pasture transfer process. As

either of these processes are utilized, an acre of land will be trans-

ferred from the Conservation Reserve.

Labor Restrictions

The family labor restrictive seasonal labor hours and production

coefficients for the row-crop farm may be written as:


January April Labor

(14) 640 > lo36x1 + 1,36x2 +---

May July Labor

(15) 572 a 1.30x1 + lo30x2 + -----

August September Labor

(16) 336 > 08xO + o08x2 +--------

October December Labor

(17) 528 > o06x1 + .06x2 + -------


+ 3000x40 + 1,50x41 lx42


+ lo38x40 +



+ 1o02x39 +



+ 2,04x40 +


lo02x41 lx3



.36x40 x44



lo14x41 lx1


Note that the cotton and livestock enterprises are high labor-

using activities and require large amounts of labor in January through

April. It may also be noticed that all the production coefficients in

the labor activities are positive with the exception of x42, x43, x/4,

and x45 which are the labor purchasing processes. The units are in

terms of 1 hour with a Cj value of a $1. Thus, a charge of $1 would

be made for the purchase of 1 hour of labor that was hired.

There are several activities in the model that have not been












discussed in the preceding section, These activities are, small grain

and sudan grazing, hay buying, and feed grain and cotton selling. The

small grain and sudan grazing activities are included in the model to

permit the livestock grazing of wheat and the summer supplement of the

native pasture, The hay buying activity is included in the model to

permit the farmers to buy the forage needed for livestock production

if it is more profitable than producing the forage. The feed grain and

cotton selling activities were introduced into the model to allow the

selling of these products separate from their producing activities.

These were so constructed to permit the variable-pricing technique to

be employed. These activities and their coefficients are included in

the complete simplex tableau, Appendix, Table XXII,

As mentioned earlier, the model will be essentially the same for

both farms with the exceptions of the different resource restraints

established for the two farms. Only slight modification of the model

will be necessary in order to permit the change from the unlimited to

the limited capital situations at the different cotton prices.













CHAPTER IV

OPTIMAL FARM PLANS


The most profitable enterprise combinations for both the row-crop

and livestock farm, for two capital situations, and at three prices of

cotton were considered in the study (17, 20, and 23 cents per pound or

above). As set forth in earlier chapters of this report, the livestock

farm is the larger with more acres retired to the Conservation Reserve.

It is, however, a less specialized cropping farm, having a smaller

percentage of its land in allotted crops and more rangeland. Hence,

the income effect on the row-crop farm resulting from higher cotton

prices would be expected to be greater than for the livestock farm, It

may also be expected that the livestock farm will require substantially

larger amounts of annual operating capital than the row-crop farm for

a given level of income

The two capital situations will be defined as (1) an unlimited

amount of capital available to the farm operators at an interest charge

of 6 per cent interest per year and (2) a situation in which farm oper-

ators will not invest capital in the farming enterprises considered in

the model, if the capital does not earn at least 18 per cent returns.

In the remainder of this report, these two capital situations will be

referred to as the unlimited and limited capital situations, respectiAely.

Each optimum farm plan will be numbered to represent the farm type,

capital situation, and the price of cotton considered in the particular

plan. Plans I and II will represent the row-crop farm with cotton at

.17 cents per pound and with unlimited and limited capital situations,












respectively, Plans III and IV will represent the livestock farm with

the same two capital situations. As the price of cotton is increased,

identification of the basic four farm plans will be modified slightly

for the same types of farms and capital situations.


Lint Cotton 17 Cents Per Pound

Plan I

On the row-crop farm with unlimited capital and cotton at this

price, less than 50 per cent of the total cotton allotment available

was planted (Table XY ), Also, note that cotton was planted on the

Class II land remaining after the entire wheat allotment (46 acres)

had been planted. It is not surprising to find that the 10 per cent

compliance level for wheat was more profitable than the 40 per cent

compliance for the entire allotment. The production per acre on the

Class II land was too large for the extra deferred payments at the

40 per cent level to compensate for the production that was relinquished.

The total gra.i sorghum base (136 acres) was planted at the 20 per

cent compliance level on Class III land. The remaining cropland and

the total amount of the Conservation Reserve, 73 and 60 acres respec-

tively, were utilized by 53 head of feeder calves (P 38) The stocker

calves were bought in the fall at 450 pounds and sold in the late

summer as good 760 pound yearlings.

The estimated returns to the row-crop operator's labor, risk,

management, and land with cotton at 17 cents per pound .were $4,215,

while $15,440 of annual capital was required,



The results presented in Table XV? show that with a limited capital












situation, cotton production was decreased from 95 to 90 acres. However,

the entire cotton acreage was grown on Class II land as it became more

profitable to produce wheat on Class III land. With limited capital,

it was more profitable to plant wheat and grain sorghum at the 40 per

cent compliance level because it required only about one-half as much

capital per acre, However, with the higher compliance level, the entire

wheat and grain sorghum (46 and 136 acres) acreage was planted on the

Class III land On the Class III land the relative yields and com-

pliance payments favored the 40 per cent feed-grain compliance level.

Cattle enterprises require large amounts of capital; therefore, in

this plan, the most profitable number of feeders (P38) for the row-crop

farmer was reduced from 53 to 24 head. The 20 acres of native pasture

and the 60 acres of Conservation Reserve established to pasture

furnished almost the total requirements for the 24 head of feeder

cattle. All of the cropland not used for the allotted crops was left

idle except for the one acre which was used for forage production.

The estimated operator's returns to specified resources on the

row-crop farm were reduced to $2,580 and the annual capital required

was reduced to $8,375. In contrast to Plan I, the estimated farm income

was reduced by approximately 40 per cent and a reduction in the capital

requirement occurred by approximately the same per cent. No labor

was hired in either of the farm situations discussed aboVet

Plan III

The most profitable enterprise combinations of the livestock farm,

with both capital situations and with cotton at J17 cents per pound of












Table XV


Optimal Farm Plans for Row-crop and Livestock Farms. Under
Two Capital Situations With Cotton Lint Priced at ,17
Cents Per Pound a/


Row Crop Farm Livestock Farm
Land
Item Capability UnlimitedbLimitedi/Unlimited-/Limited/
Class Plan I Plan II Plan III Plan IV
-----------------Acres --------------
Croplands
Cotton II 44 90 0 0
Cotton III 51 0 14 0


Wheat 10% comp,
Wheat 40% comp.

Grain Sorghum
20% compa
Grain Sorghum
40% comp.

'Forage PYoduc-
tion

Graze Out Small
Grain


Reseed to
Pasture
Reseed to
Pasture


Idle
Idle
Idle


II
III


136


III


III


III


IV

V, VI & VII

III
IV
V, VI & VII


Total Cropland

Conservation Reserve

Cropland Establishment
Pasture Use


0 136


0

0

13
57
7

350


0

0

0
0
0

150


0

0

37
0
0

163













Table XfL. (Continued)


Item


Land
Capability
Class


Cattle: Feeders



Capital Requirements

Operator's Returns d/


Row Crop Farm Livestock Farm

Unlimitedb-/Limited/Unlimitedb/Limited/
Plan I Plan II Plan III Plan IV
---------------Head---------------

53 24 191 156

.--------------- Dllars---..----------.

$15,440 $8,375 $34,700 $28,140

$ 4,215 $2,580 $ 6,960 $ 2,920


a/ Additional Cj values required for other enterprises to have entered
the optimal plan are listed in Appendix,Tables XX and XXI.

b/ Unlimited capital is defined as an unlimited amount of capital
available at 6% interest,

c Limited capital is defined as capital available to these enterprises
with an 18% intra-farm alternative.

d/ Returns to operator's labor, management, risk, and land not includ-
ing overhead cost (pickup expenses, taxes, record services, and
etc,)o


I-- --~--_-_ ~_-~---~- --- ^I--- ---- --- LI -


- I -- -- --- I
--------~----- ---------_----












lint, are also shown in Table XV o The 69 acres of wheat allotment in

this situation used all the Class II land in cultivation and a portion

of the Class III land. Due to the large amount of labor required for

the 191 head of feeder steers, (P38) a portion of the labor required.

to produce both the cattle and crops was hired. The amount of labor

required to produce both wheat and grain sorghum was much smaller than

the labor required to produce cotton; therefore, cotton became the

least competitive of the three major crops. Cotton was produced on

14 acres of the Class III land, which was slightly less than 20 per

cent of the total cotton allotment that was available.

Wheat and grain sorghum production shifted to the higher com-

pliance levels because of the additional cost of hired labor, Grain

sorghum was produced under the 40 per cent compliance level. It

was profitable to produce 45 acres of wheat on Class II land at the

10 per cent compliance level. However, the remaining 24 acres of

wheat were produced on Class III land at the 10 per cent compliance

level. The average wheat compliance was 20 per cent for this optimal

plan, It is possible for a farmer to be a 20-per cent bomplier in the

wheat program, if he initially registers for a 40-per cent compliance.

Once he is considered a 40-per cent complier, he is allowed to reduce

his level of compliance, as long as it is above the 20-per cent level,

In this case, the farmer would receive the 10-ptr cent payment rate on

the first 6.9 acres of his wheat allotment deferred and the 40-per

cent payment rate on the remaining 6.9 deferred acres.

As discussed before, farmers are required to register their intended

compliance level before planting time. However, due to the risk












involved in getting a complete stand on 100 per cent of the land planted,

farmers tend to over plant rather than leave unplanted the correct

acreage for which they had originally signed. The payments are based

on the ASC Office's official measurement, The ruling is that farmers

will get paid for the acreage not planted under their signing rate, as

long as they do not go below the minimum compliance level, However,

this does not apply to acres deferred over the intended signing rate.

Hence, if a farmer signed as a 40-per cent complier and planted to a

20-per cent level, he would receive the 10-per cent payment on the

first one-half acres deferred and the 40-per cent payment on the second

one-half of the deferred wheat acres. If, however, he signed for a

10-per cent complier and for some reason had 40 per cent of the

allotted acres deferred, he would only receive the 10-per cent payment

on one-fourth of the deferred acres. This ruling was made to keep from

paying on land in which the crops were destroyed by some natural cause.

The same feeder-steer operation required the use of 13 acres of

cropland for small grain grazing and forage production to supplement

the 453 acres of native rangeland and the 90 acres of the Conservation

Reserve.

The operator's estimated farm income with this plan was $6,960 and

required the use of $34,700 of capital. The livestock farmer was re-

quired to hire 336 hours of labor in the months of January through April.

Plan IV

Under a limited capital situation on the livestock farm cotton

production is eliminated from the optimal farm plan. The higher cost of












capital used for the purchase of labor and other capital items to

produce cotton eliminated it from the optimal plan. Since it was pro-

fitable to reduce cattle numbers from 191 to 156 head, the demand for

pasture land was reduced. The 13 acres of Class II land in the Conser-

vation Reserve were converted to wheat production instead of establishing

it in pasture. Again, a farmer would register as a maximum complier in

the wheat program but actually operate at less than 40-per cent com-

pliance. He would receive the lower 10-per cent payment on 6.9 acres

and the higher payment on the remaining 3.3 acres he had deferred over

the 10-per cent requirement.

The cropland needed to supplement the pasture was also reduced.

Only 3 acres were needed; whereas,13 acres were used in Plan III, The

excess cropland because of the establishment of the Conservation Re-

serve land, was left unused. It was not profitable to use the land

for crop production or for cattle grazing.

The operator's estimated farm income was greatly reduced because

of the limited capital on the livestock farm. His returns were re-

duced to $2,920 and $28,140 of capital was required.

When cotton is priced at 17 cents per pound, only on the livestock

farm under limited capital (Plan IV) was it profitable to return any

of the land from the Conservation Reserve to crop production. The 13

acres of the Class II land in the Conservation Reserve were returned

to wheat production, The decrease in the number of feeder cattle re-

duced the demand for pasture land, and the higher wheat yields on the

Class II land were enough to convert the land to crop production. It












was necessary for the livestock farmer to hire 253 hours of labor in

January through April for this plan,


Lint Cotton .20 Cents Per Pound


Plan Ia

The row-crop farmer with unlimited capital and cotton at 20 cents

per pound would find it profitable to plant slightly less than 85 per

cent of his maximum cotton allotment. As can be seen from Table XVI,

cotton replaces a portion of the grain sorghum acreage on the Class III

land. Cotton would have been planted to its maximum-allotted acres if

there had been enough "free" or family labor available in the months

of January through April. The hired labor that would have been re-

quired to produce cotton on the entire allotment reduced or was avoided

by producing grain sorghum on these acres. Due to the increase in cotton

production, 52 acres of grain sorghum were grown on Class IV land.

The remaining 84 acres of grain sorghum base are planted on Class III

land. The average level of compliance is 28 per cent for the entire

136 acre base. It is still profitable to produce the entire wheat

allotment on Class II land. The remaining cropland (16 acres) was

utilized by the 33 head of feeder calves,the fall buying of a 450-pound

calf and the late summer selling of 760-pound yearling. Note that in

this plan, it is profitable for the row-crop farmer to transmit 8

acres of the Conservation Reserve land back into crop production.

The estimated farm income in this plan was $4,820, while $12,765

of capital was required. In contrast to Plan I, returns were increased









60


Table XVI o Optimal Farm Plans for Row-crop and Livestock Farms Under
Two Capital Situations With Cotton Lint Priced at 20 Cents
Per Pound of Lint a/

Land Row-crop Farm Livestock Farm
Item Capability Unlimited:Limited2/:Unlimitedb/:Limited
____Class Plan la Plan IIa :Plan lIIa Plan IVa
------------------Acres----------------

Cropland:
Cotton II 52 98 0 50
Cotton III 108 70 26 0

Wheat 10% comp. II 46 0 58 8
Wheat 40% comp. III 0 46 11 61

Grain Sorghum
20% comp. III 84 0 0 0
Grain Sorghum
40% comp. III 0 80 54 54
Grain Sorghum
40% comp, IV 52 56 0 0

Forage Produc-
tion III 4 1 7 4

Graze Out Small
Grain III 5 0 7 0

Reseed to
Pasture V, VI & VII 7 0 0 0

Idle V, VI & VII 0 7 0 0

Total cropland 358 358 163 177

Conservation Reserves
Cropland Establishment 8 8 13 27
Pasture Use 52 52 77 63












(Continued)


Land Row-crop Farm : Livestock Farm
Item Capability Unlimited:LimitedC/:Unlimitedb/Limited
Class Plan la Plan IIa :Plan IIIa Plan IVa
------------------Head------------------

Cattle: Feeders 33 21 186 155

-.--.---.- --.---- .---Dollars--------------

Capital Requirement: $12,765 $10,000 $34,500 $29,475

Operator's Returns d/ $ 4,820 $ 3,450 $ 7,060 $ 3,120


a/ Additional Cj values required for other enterprises to have entered
the optimal plan are listed in Appendix, Tables XX and XXI,

b/ Unlimited capital. is defined as an unlimited amount of capital
available at 6% interest.

c/ Limited capital is defined as capital available to these enterprises
with an 18% intra-farm alternative.

d/ Returns to operators labor, management, risk, and land not including
overhead cost (pickup expenses, taxes, record services, and etc.)o


Table XVIo













by 13 per cent, while the amount of capital required was reduced by 20

per cent. Cotton acreage increased from 95 to 160 acres due to the

3-cent price increase in cotton, and the acres converted to cropland

from the Conservation Reserve increased from 0 to 8 acres, There was no

labor hired in this plan but all the family labor was utilized in the

months of January through April,

Plan IIa

The results presented in Table XVI show that on the row-crop farm

with limited capital, cotton production would be increased from 160 in

Plan la to 168 acres, Also, the entire amount of the Class II land

available on the farm is used for cotton production (98 acres including

the eight acres from the Conservation Reserve), As in Plan II when

capital is limited, it is more profitable to plant wheat and grain

sorghum at the 40-per cent compliance level and reduce the capital re-

quired for these enterprises. Thus, due to yield per acre and deferred

payment differentials, the entire wheat allotment and a portion of the

grain sorghum base were moved to a lower producing land and left the

remaining Class II land for cotton production,

The land needed to supplement the pasture in this situation was re-

duced to only one acre; whereas, 16 acres were used in the unlimited

capital situation. There were, however, 7 acres of unused Class V, VI,

and VII land because it was not profitable to use the land for crop

production or for cattle grazing This land was left unused, and only

21 head of feeder yearlings were produced on the 52 acres of remaining

Conservation Reserve land and the 20 acres of native pasture. This

compares to the 24 head in Plan I and the 33 head produced in Plan Ia,













The farm income on the row-crop farm with cotton at -20 cents per

pound was $3,450 with limited capital which required the use of $10,000

of capital. There was no labor hired in this plan,

Plan IIIa

As indicated in Table XVI on the livestock farm with unlimited

capital and cotton at 20 cents per pound, all of the Class II land

(58 acres) was used to produce wheat, including the 13 acres of Class

II land that were established from the Conservation Reserve, Due to

the large amount of labor required to care for the 163 head of feeder

calves, a portion of the labor required to produce both cattle and

crops was hired labor. The amount of labor required to grow both wheat

and grain sorghum was so much smaller than the labor required to produce

cotton that cotton became the least competitive of the three major

crops. The cost of $l100 per hour paid for the large amount of labor

required to produce cotton reduces the net returns of cotton per acre

to a level under that of both wheat and grain sorghum. Cotton was

planted on the Class III land that remained after land had been pro-

vided for the entire wheat allotment and grain sorghum base. Therefore,

only 26 acres remained for cotton, which was slightly less than 40 per

cent of the total cotton allotment that was available. The increase in

the percentage of cotton allotment that was planted over the 17 cents-

per-pound situation was due to the 13 acres of Conservation Reserve

land that were returned to cropland. Cattle numbers were reduced from

191 to 186 head of feeder calves as cotton was increased from 17 cents

to 20 cents per pound,












The feeder calves required the use of 13 acres of Class III crop-

land for small grain grazing and forage production to supplement the

453 acres of native pasture land and the 77 acres of the Conservation

pasture-established land.

The estimated operator's farm income was $7,060 and required the

use of $34,500 of annual capital, The livestock operator was required

to hire 336 hours of labor in the months of January through April and

65 hours in October through December,

Plan IVa

Limited capital on the livestock farm increases cotton acreage

from 26 to 50 acres. Cotton becomes relatively profitable at 20 cents

per pound in this situation; hence, 70 per cent of the total allotted

acreswas planted on the Class II land Labor restricts cotton, or it

would have been planted on all the Class II land available on the

farmN Wheat was reduced on the higher yielding cropland because of

the reduction in the capital requirement and deferred payment rates.

However, both wheat and cotton induce the establishment of the 13 and

14 acres of the Class II and III land from the Conservation Reserve.

Because of this reduction of 27 acres of Conservation Reserve

land and 10 acres of cropland formerly used for cattle production, the

number of feeder steers (P38) were reduced from 186 to 155 head.

The estimated farm income was greatly reduced because of the

limited capital on the livestock farm; and for the first situation,

the row-crop farmer's returns exceed the livestock farmer's income in

a similar situation. The estimated livestock operator's income was $3,120and












required the use of $29,475 of annual capital. Only 322 hours of hired

labor was required in this plano

When cotton is priced at 20 cents per pound, it was profitable to

return all of the Class II land from the Conservation Reserve. In one

situation, it also was profitable to return the Class III land; this

situation was the livestock farm with limited capital, In this case,

Class II and III land were returned to both wheat and cotton, The lim-

itation of capital decreased the competitiveness of cattle; hence,

both cotton and wheat were profitable enough to induce the change from

pasture to cropland.


Lint Cotton 23 Cents Per Pound and Above


Cotton priced at 23 cents per pound becomes the leading cash crop

in the area, regardless of the capital situation faced by farmers

(Table XVIl)o This table indicates the optimum farm organization for

Plans Ib, 11b, IIIb, and IVb. In all the plans cottonwas planted at

its maximum allotted acreage and on the best farm land available on

both farms. More cotton acreage also increases the operator's returns

substantially in every situation. Although farm income will increase

on both of the farms as the cotton price increases over .23 cents per

pound, the optimum enterprise combinations will remain the same,

Plan Ib

When capital was unlimited on the row-crop farm, cotton was planted

at its maximum allotted acreage (180 acres) and completely depletes all

the available Class II land on the farm (98 acres). The remaining cotton













allotment (92 acres), wheat allotment (46 acres), and a portion of the

grain sorghum base were planted on Class III land. The remaining 12

acres of cropland of Classes III, V, VI and VII were utilized by the

19 head of feeder calves to supplement the 20 acres of native pasture

and the 43 acres of Conservation Reserve pasture land.

Wheat was planted at the 40 per cent compliance level on the lower

yielding Class III land and grain sorghum at the 28 per cent level.

Note that grain sorghum was the least competitive crop, and some of

its acreage was forced to the Class IV cropland. However, with grain

sorghum on this lower yielding land and capital unlimited, it was more

profitable to use the land already established to the Conservation

Reserve for cattle production. Therefore, grain sorghum was planted at

85 per cent of its total base acreage (119 acres),

Estimated farm income in this plan was $4,890, while only $11,860

of annual capital was required.

Plan IIb

Limited capital on the row-crop farm did not change the cropping

system at all with the exception of grain sorghum. Grain sorghum at

the 40-per cent compliance level became profitable enough to convert

all the cropland formerly used for cattle production and 17 additional

acres from the Conservation Reserve to deplete its total base acreage.

In this situation, only the 20 acres of native pasture and 38

acres of the Conservation Reserve were utilized by the 14 head of feeder

calves.

The estimated farm income was $4,590, while $9,680 of capital was













utilized. Note that there was an increase in the estimated farm income

of 24 per cent and a decrease in the amount of capital required of .4

per cent over the ,20 cents per pound of cotton in this situation,

There was no labor hired on the row-crop farm at this price of cotton

in either of the capital situations,

Plan IIIb

As can be seen from Table XVII cotton also utilizes all the Class II

land on the livestock farm with unlimited capital (58 acres) and was

planted at its total allotted acres of 70 acres. Wheat and grain

sorghum are both planted at their maximum acres of 69 and 54 acres,

respectively, at the 40 per cent compliance level.

The remaining 9 acres of cropland and 38 acres of the Conservation

Reserve were used to supplement the 453 acres of native pasture to

produce the 159 head of feeder calves.

Estimated farm income was $7,365 and required the use of $32,580

of capital, Also, there was an increase in the operator's farm income

of 4 per cent and a decrease in the amount of capital required to

produce the returns of 6 per cent, over the 20 cent per pound of cotton

in the same capital situation. It was necessary for the livestock farm

operator to hire 322 hours of additional labor in the months of January

through April and 34 hours in the months of October through December.

Plan IVb

Limited capital on the livestock farm did not change the cropping

arrangement of either cotton or wheat. However, grain sorghum acres

were reduced from 54 to 33 acres which was approximately 60 per cent of












Table XVII, Optimal Farm Plan for Row-crop and Livestock Farm Under Two
Capital Situations with Cotton Lint Priced at 23 Cents Per
Pound and Above a/

Land Row-cr Farm : Livestoc Farm
Item Capability Unlimited- LimitedC/:Unlimitedh/ Limited-/
Class Plan Ib Plan lib :Plan IIIb Plan IVb
--------------------Acres----------------


Cropland:
Cotton
Cotton

Wheat 40% comp,


Grain
20%
Grain
40%
Grain
40%


Sorghum
comp.
Sorghum
comp.
Sorghum
comp,


III


III


Forage Produc-
tion

Graze Out
Small Grain


Reseed to
Pasture


Idle


V, VI & VII 7

V, VI & VII 0


Total Cropland:

Conservation Reserve
Cropland Establishment


38 65


0

8

380


30


0

0

202


52


0

0

175


25


Pasture Use


43 30












Table XVIIo (Continued)


Land Row-crop Farm : Livestock Farm
Item Capability Unlimited~?Limitedc/: UnlimitedbtLimited /
Class Plan Ib Plan IIb : Plan IIIb Plan IVb
-------------------Head-----------------

Cattle: Feeders 19 14 159 155

-------------------Dollars------------

Capital Requirements $11,860 $9,680 $32,580 $29,500

Operator's Returns 4/ $ 4,890 $4,590 $ 7,365 $ 3,550

Operator's Returns e/ $ 8,623 $7,302 $ 8,433 $ 4,617


a/ Additional Cj values required for other enterprises to have entered
the optimal plan with cotton as 23 cents per pound are listed in
Appendix, Tables XX and XXI.

b/ Unlimited capital is defined as an unlimited amount of capital
available at 6% interest,

c/ Limited capital is defined as capital available to these enterprises
with an 18% intra-farm alternative,

d/ Returns to operator's labor, management, risk, and land not includ-
ing overhead cost (pickup expenses, taxes, record services, and etc,)
with cotton at 23 cents per pound.

e/ Estimated operator's returns with cotton at the current 1962 price
of 30 cents per pound of lint,













the total base acreage, Grain sorghum in this situation was not pro-

fitable enough to convert any of the Class IV land in the Conservation

Reserve to cropland; hence, only the Class II and III land was estab-

lished into cropland (26 acres),

Also, only 3 acres of cropland were used for forage to supplement

the 65 acres of Conservation Reserve land; and 453 acres of native

pasture, to produce the 155 head of feeder steers.

The estimated farm income was reduced by over 50 per cent from

Plan IIIb because of the limited capital on the livestock farm. The

farm income was reduced to $3,550 and required the use of $29,500 of

capital. The major source of the loss of income was the restriction

on capital which did not allow the purchase of the large number of

feeder calves in the fall. Also, the limit on capital did not allow

the hiring of the additional labor that would have been required to

care for a large herd of feeder calves. The livestock farm operator

was required, however, to hire 296 hours of additional labor in January

through April.

The livestock operators were required in each situation to use

substantially more capital than the row-crop farmers. The large amount

of capital and labor required with the livestock farm was the major

reason for the several differences in the organization of the two farms

throughout the cotton price varying,

There were several enterprises which did not appear in any of the

solutions that were considered in the programming model. These enter-

prises were the cow-calf, sudan-grazing, and the hay-buying activities.

These enterprises were not profitable in any of the situations.













CHAPTER V

APPLICATION OF THE RESULTS


Comparison of the Estimated Supply Curve
and the Farmer's Expected Response


The farmers' conditional normative response to changes in the

price of cotton on the per cent of cotton allotment planted is shown

in Figure II, Note that the livestock arm generally required a

slightly higher cotton price to continue producing cotton. This may

be contributed to the fact that it was possible to utilize a relatively

large amount of cropland on the livestock farm as a supplement to the

native pasture in the production of feeder calves. In the case of

the row-crop farm, there was not enough native pasture to supplement

the forage and wheat grazing activities to meet the necessary pasture-

cropland ratio required in producing a large herd of feeder calves.

Consequently, on the row-crop farm, the cattle enterprises were less

competitive with cotton for cropland at low prices of cotton.

It may also be observed from Figure II that the capital limita-

tion had considerable effect on the percentage of cotton allotment

planted at various prices of cotton on both farms. Cotton was planted

at 21 per cent of the total allotted acres on the row-crop farm in

both capital situations at 16.2 cents per pound. A larger per cent of

the total cotton allotment was planted, however, as the price of cotton

increased, in the limited capital situation, The total cotton allot-

ment was planted on the row-crop farm with limited capital when cotton

reached 21 cents per pound; whereas, cotton had to reach 23 cents per













CHAPTER V

APPLICATION OF THE RESULTS


Comparison of the Estimated Supply Curve
and the Farmer's Expected Response


The farmers' conditional normative response to changes in the

price of cotton on the per cent of cotton allotment planted is shown

in Figure II, Note that the livestock arm generally required a

slightly higher cotton price to continue producing cotton. This may

be contributed to the fact that it was possible to utilize a relatively

large amount of cropland on the livestock farm as a supplement to the

native pasture in the production of feeder calves. In the case of

the row-crop farm, there was not enough native pasture to supplement

the forage and wheat grazing activities to meet the necessary pasture-

cropland ratio required in producing a large herd of feeder calves.

Consequently, on the row-crop farm, the cattle enterprises were less

competitive with cotton for cropland at low prices of cotton.

It may also be observed from Figure II that the capital limita-

tion had considerable effect on the percentage of cotton allotment

planted at various prices of cotton on both farms. Cotton was planted

at 21 per cent of the total allotted acres on the row-crop farm in

both capital situations at 16.2 cents per pound. A larger per cent of

the total cotton allotment was planted, however, as the price of cotton

increased, in the limited capital situation, The total cotton allot-

ment was planted on the row-crop farm with limited capital when cotton

reached 21 cents per pound; whereas, cotton had to reach 23 cents per









72

FIGURE II, Percent of the Total Cotton Allotment Planted on the Row-
crop and Livestock Farms at the Different Prices of Cotton

Unlimited Capital


Row-Crop Farm


Cotton
Pr ce








126
.----4-

/g"



Ao 40 0o 0o 16o
Amount of
Percent Cotton Allotment
Planted


Livestock Farm

Cotton
Price


16


- Per


r -_---


o aO 6o
Amount
cent Cotton
Planted


o too
T0 100
of
Allotment


Limited Capital


Row-Crop Farm


Cotton
Price



4.-





o_ I---
'9,T


/7
/I r---F

o Ao 4-o 60 &o loo
Amount of
Cotton Allotment
Percent anted
SPlanted


Livestock Farm


Cotton
Price

2-r-


-H

O
Fr



I----/- I-....


/7

0 Ad ( .o io 1 o
Amount of
Percent Cotton Allotment
Planted


_ | t .


3












pound before the total cotton allotment was planted on the row-crop farm

with unlimited capital. Although cotton first entered the optimal farm

organization on the livestock farm with unlimited capital at a lower

price (16.2 cents) than with limited capital, a smaller per cent of the

total cotton allotment was planted at consecutively'higher prices there-

after. The total cotton allotment (70 acres) was planted on the live-

stock farm at 21 cents with limited capital; whereas, 22 cents was

required with unlimited capital. Note that the livestock farm was

affected more by limited capital than was the row-crop farm. On the

livestock farm, with unlimited capital, the price of cotton had to in-

crease above 21 cents per pound before a significantly large amount of

land was used for cotton production. However, cotton became competitive

with alternative crop and livestock enterprises at 17.8 cents per pound

on the livestock farm with limited capital. The limited capital on the

livestock farm prevented the hiring of the large amount of labor required

for cattle; therefore, cotton in this situation was more competitive

for cropland.

As indicated in Figure II, the cotton price would have to drop below

16 cents per pound before cotton would be completely eliminated from all

the farms in the area.


Farmers' Expected Response to Cotton Price Change


During the personal interviews with the Conservation Reserve farmers

in the study area, they were asked at what price of cotton, considering

present costs of production, would alternative crop and livestock enter-

prises at present prices become more profitable. The cotton price ranged












from 15 to 25 cents per pound for the entire group of farmers inter-

viewed on the rolling loam soils, with the mode and average price

being 21 cents per pound of lint cotton,

The differences between the actual price response of the farmers

in the area to cotton price changes and the normative results obtained

in this study may be attributed somewhat to the advanced technology

and optimum use of farm machinery assumptions. These assumptions may

tend to lower the price of cotton at which farmers would find it pro-

fitable to plant at least a portion of their cotton allotment. However,

risk may be one of the major causes of the price differential since

cotton yields are usually considered to be more uncertain in the area

than the yields of other crop and livestock alternatives considered in

the model. Other factors such as leisure, off-farm labor alternatives,

and personal preferences with regard to production alternatives also

could be expected to have some effect on their response to the changes

in cotton prices.


Farmers Response to Cotton Price on the Amount
of Conservation Reserve Land Returned to Cropland


Figure III shows the per cent of the Conservation Reserve land

that would be returned to cropland on the row-crop and livestock farms

if maximum net farm income is to be obtained. Note that the entire

amount of Conservation Reserve land will not be returned to cropland

at any price of cotton. Also, if the price of cotton should fall below

17.5 cents per pound, it would be more profitable for the farmers in

the area to utilize all the land retired to the Conservation Reserve














FIGURE III,
Row-Orop and


Per cent of the Total Conservation Reserve Land on the
Livestock Farm that Should be Returned to Cropland at
Various Prices of Cotton and Capital


Unlimited Capital


Row-Crop Farm


rl

0

ao


*1 1 1 I
o o o ho so it
C.R. Land
- Percent Returned to
Cropland


Livestock Farm


Cotton


-3----


In- ~


01 .2.


- Percent


i 44 I


C.R. Land
- Returned to
Cropland


Limited gCapital


Row-Crop Farm


Cotton
Price








I.Z


/1i
S.O


Livestock Farm


Da'b Lb a h


- Percent -


C.R. Land
Returned to
Cropland


C.R. Land
- Percent Returned to
Cropland


Cotton
Price



As--


4J-


O A


I I I I


o loo


Cotton
Price


4,'
r-H
H
0
.0
4,R
P
-cl '.
u1
) ,-,


I _I


I


rric












Program for livestock grazing, The price of cotton would have to in-

crease almost to 20 cents per pound before a significantly large amount

of the Conservation Reserve land in the area would be returned to cul-

tivation. With any price of cotton above 22 cents per pound, approxi-

mately 30 and 50 per cent of the land returning from the Conservation

Reserve would be converted to cropland on the row-crop farm in the un-

limited and limited capital situations, respectively. In contrast,

approximately 58 and 30 per cent of the retired land would be returned

to crop production on the livestock farm in the unlimited and limited

capital situations, respectively.


Farmers' Expected Uses of the Conservation
Reserve Land at Present Prices


Farmers were asked during the personal interviews their intended

use of the Conservation Reserve land. The results of the farm survey

indicated that at present prices, 47 per cent of the released acres

would be returned to crop production, and the remaining 53 per cent

would remain in pasture for livestock grazing. In contrast to the nor-

mative results presented in the preceding section, the farmers intend

to return slightly more land to crop production than the programming

results indicated to be most profitable. There are several factors

that might contribute to this tendency. First, the relatively better

cropping seasons in the area during recent years would likely have a

favorable influence on the expected ctop yields of the land being re-

turned this year0 Rainfall has exceeded the normal expectations during

the growing seasons, and the first killing frost has been favorable for












late crops in the area. Second, and perhaps most important, is the ex-

pected fertility of the land that has been retired from crop production

in recent years. This land should have relatively large amounts of soil

moisture from recent years and considerable amounts of organic matter

which would be ideal for any type of crop production. Finally the farmers

in the area who have in the past been strictly row-crop farmers, may

not feel that they have the knowledge or experience to manage a live-

stock farm successfully.


Aggregative Implications of the Results


Although the results presented in this report indicate the esti-

mated profit maximizing response of farmers in a specified area with

certain modifications, these findings could be useful in estimating the

aggregate responses of farmers in the area to changes in the price of

cotton. Goodwin 1/ postulates that if individual farm production at

a given point in time is a function of labor, capital and acreage used,

then it follows that aggregate production must also be some function

of these variables. He also states that since the decision-making

function resides with the individual farm unit manager, the macro-

equation aggregativee equation) must be compatible with the microrela-

tionship (firm relationship). In Goodwin's study, the transition from

the firm supply to the aggregative supply was made by assigning certain



2/ Goodwin, John William, Aggregation of Normative Microsupply Rela-
tionships for Dryland Crop Farms in the Rolling Plains of Okla-
homa and Texas; Unpublished Thesis, Oklahoma State University,
Stillwater, Oklahoma, 1962, ppo 17-34.












weights to resources considered as feasible adjustments in the area.

Therefore, in this report, several general conclusions may be drawn

from any of the four model farm situations. Cotton would have to drop

below the present price by more than 7 cents per pound before any

appreciable change would occur in the cotton supply of the area. Also,

only a small change in supply would occur if the price of cotton would

drop to 20 cents per pound. However, at any price below 20 cents per

pound, cotton would become extremely sensitive to price changes and

would be produced only in trivial amounts if the price drops below 17

cents per pound.

General implications may also be drawn from the four model situa-

tions as to the amount of Conservation Reserve land that may be re-

turned to crop production in the area at various prices of cotton. Of

the 332,160 acres retired to the Conservation Reserve Program in the

area, approximately 40 per cent or 132,864 acres could be estimated to

return to crop production at the present 1962 prices. Approximately

83,000 acres could be estimated to return to cropland with cotton prices

between 20 and 23 cents per pound and only about 30,000 acres with

cotton prices between 18 and 20 cents per pound. The results of the

four model situations indicated that the price of cotton would have to

be below 17.5 cents per pound with other production alternative prices

remaining constant before the entire amount of the Conservation Reserve

land would remain in pasture for livestock grazing. The implications

presented in this section perhaps could be extended to other regions

which have similar production practices, soil resources, and climatic

conditions,













Marginal Value Productivity of Restrictive Farm Resources


The values of the disposal activities in the criteria function of

the final solutions at the various prices of cotton are referred to as

the marginal value productivities of the restrictive resources.2- If a

resource is not restrictive or the total amount of the resource avail-

able on the farm is not used, the marginal value productivity of this

resource must be zero. If the resource is restrictive, the marginal

value productivity of this resource must be positive. Precaution

should be exercised, however, when interpreting these marginal value

productivities of the restrictive resources.


Marginal Value Productivity of Cropland


Land is one of the most restrictive resources in both farm situa-

tions. Since the total acres of the two representative farms are

divided into three major categories--cropland, rangeland, and the

Conservation Reserve land, the marginal value productivity for each of

these land resources on the row-crop farm in the unlimited capital

situation is shown in Thle .7. The marginal value products of the

other three model situations are shown in the Appendix, Tables XVII

and XVIII. The same general trend is evident in all the farm models;

as the price of cotton increases, the marginal value productivity for

the crop producing land capability classes increases. The reverse is

true for the native rangeland and the forage producing cropland


22/ Earl R. Swanson, "Programming Optimal Farm Plans," Farm Size and
Output Research, Southern Cooperative Series Bulletin No. 56,
June, 1958, ppo 45-58.













Marginal Value Productivity of Restrictive Farm Resources


The values of the disposal activities in the criteria function of

the final solutions at the various prices of cotton are referred to as

the marginal value productivities of the restrictive resources.2- If a

resource is not restrictive or the total amount of the resource avail-

able on the farm is not used, the marginal value productivity of this

resource must be zero. If the resource is restrictive, the marginal

value productivity of this resource must be positive. Precaution

should be exercised, however, when interpreting these marginal value

productivities of the restrictive resources.


Marginal Value Productivity of Cropland


Land is one of the most restrictive resources in both farm situa-

tions. Since the total acres of the two representative farms are

divided into three major categories--cropland, rangeland, and the

Conservation Reserve land, the marginal value productivity for each of

these land resources on the row-crop farm in the unlimited capital

situation is shown in Thle .7. The marginal value products of the

other three model situations are shown in the Appendix, Tables XVII

and XVIII. The same general trend is evident in all the farm models;

as the price of cotton increases, the marginal value productivity for

the crop producing land capability classes increases. The reverse is

true for the native rangeland and the forage producing cropland


22/ Earl R. Swanson, "Programming Optimal Farm Plans," Farm Size and
Output Research, Southern Cooperative Series Bulletin No. 56,
June, 1958, ppo 45-58.











capability classes; as the price of cotton increases, the marginal

value productivity of these resources decrease. Also, generally the

marginal value productivity of the crop producing capability classes

of cropland on the row-crop farm is lower than on the livestock farm

at the lower prices of cotton. They are higher, however, than the

values for the livestock farm at the higher prices of cotton.

Note in Table XVIII that the marginal value productivity of an

acre of Class II cropland at the present price of cotton (30 cents per

pound of lint) is $21.51, Thus, an additional acre of this class of

cropland would increase the net farm income by $21.51. This value


Table XVIII. Marginal Value Productivity of an Acre of Land on the
Row-crop Farm with Unlimited Capital for Various Price
Levels of Cotton


Price of Cotton/lb. 17 20 23 30


Cropland Capability Class

II $ 7.90 $14.60 $18.90 $21.51

III 3.31 8.90 11.70 11.70

IV 5.60 5.90 8.80 8.80

V, VI, VII 5.60 5.60 5.60 5.60

Conservation Reserve Capability Class

II 17.41 13.30 15.30 18.09

III 14.33 10.21 8.30 8.30

IV 12.30 8.15 6.10 6.10

V, VI, VII 9.40 5.30 3.10 3.10

Native Pasture Land 10.11 10.08 10.04 10.04












when capitalized at 6 per cent gives a value of $358o Land of this in-

herent quality, with the high fertility level assumed for this problem,

is currently selling for slightly less than this figure. The fact that

certain overhead costs have been omitted and the assumptions of advanced

technology and efficient use of machinery, may tend to overstate these

marginal value productivities of land in the context of a longer produc-

tion period in which more costs are variable. However, the values will

serve as a relative comparison of the contributions to net farm income

made by each type of land and capability class at the various prices

of cotton.

Note that the values for the livestock producing land are higher

than the values for the crop producing land with cotton at 17 cents

per pound. Notice, also, that the values for the capability classes

of cropland IV, V, VI, and VII are higher than the value of the

capability Class II land. This may be attributed to the face that the

model permitted the reseeding of the lower crop yielding capability

classes back to pasture land. It may be recalled from the optimum

solution for this farm at this price of cotton that all the land in

cropland capability classes IV, V, VI, and VII was reseeded back to

native pasture for livestock grazing. As the price of cotton increases

to 20 cents per pound, the marginal value productivities of the crop-

land capability classes increase substantially. However, the values

of the livestock producing Conservation Reserve land still exceed that

of the cropland with the exception of the Class II land on which cotton

was produced. As the price of cotton exceeds 23 cents per pound, the












livestock producing land becomes of less value to the farm in terms

of contributions to the net farm income. As cotton becomes more

competitive for capital and labor, the productivity per acre of pasture

land is reduced; hence, the marginal value productivity of the land

decreases. Note, however, that all the figures in the table are

positive which means that unused land was not found in any of the op-

timal solutions on the row-crop farm with unlimited capital.

The marginal value productivity of the crop allotments are shown

in the Appendix, Table XIX.












CHAPTER VI

SUMMARY AND CONCLUSIONS


General


One of the biggest problems confronting today's farm manager is

how to efficiently organize and use resources available to him. He

must be able to rapidly take advantage of advances in technology and

changes in economic conditions as they develop.

This report provides information on the potential adjustments

of farms in a seven-county area which has land returning from the

Conservation Reserve Program. The production alternatives that were

considered feasible in the area were cotton, wheat, grain sorghum

and land-based cattle operations. Two representative farms were

established from the results of a farm survey which was conducted in

the area of a statistically elected sample of all farmers in each

county that had land returning from the Conservation Reserve Program

in December, 1961.

Two farm sizes with distinct differences in their restrictions

were suggested from the results of the farm survey. The larger farm

was a livestock farm with a smaller cotton allotment and grain

sorghum base and a larger percentage of its total farm acreage in

pasture land. The smaller farm was a more specialized row-crop farm

with a larger cotton allotment and grain sorghum base and a very small

percentage of its total farm acreage in pasture land.

The technique of linear programming was used to estimate the most

profitable organization for these two farms with different product












CHAPTER VI

SUMMARY AND CONCLUSIONS


General


One of the biggest problems confronting today's farm manager is

how to efficiently organize and use resources available to him. He

must be able to rapidly take advantage of advances in technology and

changes in economic conditions as they develop.

This report provides information on the potential adjustments

of farms in a seven-county area which has land returning from the

Conservation Reserve Program. The production alternatives that were

considered feasible in the area were cotton, wheat, grain sorghum

and land-based cattle operations. Two representative farms were

established from the results of a farm survey which was conducted in

the area of a statistically elected sample of all farmers in each

county that had land returning from the Conservation Reserve Program

in December, 1961.

Two farm sizes with distinct differences in their restrictions

were suggested from the results of the farm survey. The larger farm

was a livestock farm with a smaller cotton allotment and grain

sorghum base and a larger percentage of its total farm acreage in

pasture land. The smaller farm was a more specialized row-crop farm

with a larger cotton allotment and grain sorghum base and a very small

percentage of its total farm acreage in pasture land.

The technique of linear programming was used to estimate the most

profitable organization for these two farms with different product












price relationships. The specific objective of the study was to deter-

mine the relative prices for crops and livestock at which it would be

profitable to return the Conservation Reserve land to crops or con-

versely, the relative prices at which the land would be expected to

remain in grass for livestock grazing.


SUMMARY OF THE RESULTS


As indicated in the optimal farm plans the farmers in the area would

plant cotton at their maximum-allotted acreage if the price is 23 cents

or above per pound. Also, at this price of cotton the results indi-

cated that the entire allotted acres for wheat would be planted with

a slight reduction in the acres of grain sorghum base presently on the

two farms, The results indicated also at this price of cotton that

livestock operations would be integrated into both types of farms and

that between 38 and 43 per cent of the total Conservation Reserve land

on the two farms would be returned to crop production.

If cotton prices were between 20 and 23 cents per pound, the

results indicated that Conservation Reserve farmers in the area would

plant both their wheat allotments and grain sorghum bases to their

respective maximums and plant cotton on 70 to 80 per cent of the

allotted acreage. At this price of cotton, the number of cattle would

be increased substantially on the two farms; and approximately 25 per

cent of the acres retired to the Conservation Reserve Program would be

returned to cropland.

With a cotton price ranging from 17 to 20 cents per pound, it was




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