FARM MANAGEMENT GUIDE
...a reference of complete
PUBLISHED BY DOANE AGRICULTURAL SERVICE, INC., 5144 DELMAR,
ST. LOUIS 8, MISSOURI. SINGLE COPY PRICE, $5.95.
Copyright 1960, by the Doane Agricultural Service, Inc.
All rights reserved. This book, or parts thereof,may
not be reproduced in any form without permission of
Doane Agricultural Service, Inc.
Printed in the United States of America
IN TRO DUCTIO N ....................................................................................................... 5
CHAPTER 1 - Types of Farming ...................................................................... 7
CHAPTER 2 - Acquiring the Farm, Renting, Leasing and Ownership ........................ 25
CHAPTER 3 - Planning the Farm Business.......................................................... 45
CHAPTER 4 - Farm Records, Taxes, Insurance and Social Security ......................... 63
CHAPTER 5 - Farm Financing ...................................................................... 81
CHAPTER 6 - Contracts in Farming .................... ....................................... 91
CHAPTER 7 - Soils and Fertilizers ............................................................... 103
CHAPTER 8 - Crop Production ........................................................................ 123
CHAPTER 9 - Forage Grasses and Legumes ..................................................... 159
CHAPTER 10 - Livestock Production ............. .............. ................... 179
CHAPTER 11 - Dairy and Poultry Production ...................................................... 225
CHAPTER 12 - Livestock Feeds and Feeding ..................................................... 257
CHAPTER 13 - Agricultural Chemicals ......................................................... 281
CHAPrER 14 - Farm Buildings, Equipment and Machinery ............. ...... ........... 295
CHAPTER 15 - Farm Water and Irrigation Systems................................. 347
CHAPTER 16 - Marketing ................... ........................................................ 369
"What is farm management"? Basically, it is the use of one's
primary resources -- land, labor and capital -- to accomplish
a particular goal or goals. In most cases, the main goal is
to operate the farm in such a way as to obtain the highest
possible profit from the resources available.
Essentially, management is a matter of making decisions. A
manager is constantly faced with decisions in day-to-day and
year-to-year operations. He must decide what to do, how,
when and where to do it -- then, he must get it done. How well
he succeeds depends upon the soundness of his decisions.
Everyone would like to be a good manager -- to make correct
decisions. Unfortunately, not every course of action will
be the best one.
The best farm managers are aware of the rapid changes taking
place. Farming methods that are best this year may be out-
dated next year or the year after. A successful manager must
continually shift the use of his resources held in enter-
prises. He must improve his methods of farming, and do so
long before the average farmer. Just as the early bird gets
the worm, the alert manager reaps the benefits of changes
Regardless of your goals, or native ability, you can greatly
reduce the chances of errors when making farm management
decisions by applying the tested principles found in this guide.
Modern farming is a competitive business,
and if one is to compete effectively, he needs to
know who and where his competitors are. Why
have certain areas become important in the
production of particular livestock and crops?
This understanding helps a farmer to benefit
from the experiences of others and allows him
to select enterprises for his farming operation
which are most likely to be profitable under
TYPES OF FARMING FACTORS
For 300 years, American farmers havefelt
the influence of a number of factors which deter-
mine major areas for the various types of farm-
ing. It is our purpose here to examine
1. Soils and Topography -- cultivated
crops, such as row crops, require
reasonably level, fertile soils. Pasture,
hay crops and timber, on the other hand,
are well adapted to rolling, hilly, less
fertile land. On high cost crops the pro-
ductivity of the land and its adaptation
to mechanization have a tremendous ef-
fect on the profit made from production.
2. Climate -- the amount and distribution
of rainfall over the year, the tempera-
ture, its range by seasons, the number
of frost-free days or length of growing
season and even day lengths are
3. Market -- demand for the product and
nearness to sizable markets influence
production areas. Milkshed location
near major population centers is a
4. Transportation -- available transpor-
tation facilities and type of product,
whether perishable or bulky to handle,
play a definite role.
Many other factors contribute to the location
of production areas of a particular commodity.
One of these is land value, which is determined
in part by competition from industrial and sub-
urban development. Farm land near urban areas
is usually devoted to intensive cropping and
livestock programs. Also the ability and skills,
together with likes and dislikes of the people of
an area, have effects on the type of farming
that the area will adopt. Basically, there are
eight major types of farming in the United States:
1. Fruit, truck, special
2. Feed grains and livestock
5. Wheat and small grains
8. Tobacco and general
Each of these types of farming is best
adapted to a particular environment and location.
Under the influence of the factors discussed
briefly above, production of the various com-
modities has been developed and concentrated in
distinct areas of our country. For example, the
wheat areas of the Plains States can generally
produce wheat more economically than the
Southeast. This is known as the "law of
FLEXIBILITY IN TYPES OF FARMING
Regardless of the limitations which various
factors impose in determining types of farming
in specific areas, we must recognize that there
is a certain amount of flexibility in what a farm-
er can produce on his farm. Thus, each farmer
has a certain amount of leeway in which to ad-
just his production between crops and livestock.
Often this is learned through experience, and
trial and error. This is where management
TYPES OF FARMING
American agriculture produces a wide variety of crops and livestock. Through years of ex-
perience, farmers in a given area have learned they can raise certain crops and livestock more
profitably than others. Economists call this the "law of comparative advantage."
MAJOR TYPES OF FARMING IN
THE UNITED STATES
M Fruit, truck, and special crops .
M Feed grains and livestock (Corn Belt)
U S DEPARTMENT OF AGRICULTURE
Types of farming areas have resulted from:
Climate, including annual and summer
rainfall, length of growing season and temper-
atures. Crops vary widely in their moisture
and temperature requirements.
Most of the United States west of the
longitude 1030, (sometimes called the 20-inch
rainfall line) which runs through the Western
Dakotas and Nebraska, Eastern Colorado and
Western Texas, is a dry and semi-arid region.
Altitude and rainfall largely determine whether
this land will be used for grazing or crops.
Soils and topography -- Level soils,
naturally high in fertility and organic matter,
are suited for intensive grain production. Others
that are rolling and low in fertility should be
used for grazing or timber.
Markets -- The demand for a product
will influence the type of farming. Dairy and
l Wheat and small grains ?f
BUREAU OF AGRICULTURAL ECONOMICS
truck farming areas develop near cities where
a large market is assured.
Transportation -- Perishable products
must be produced where they can be marketed
quickly. Bulky products must be produced near
the market to avoid high shipping costs. Good
transportation makes possible the specialized
production of vegetables and truck crops in
Southern and Western states during the winter
The Dairy Belt- This area, extending from
Minnesota east to the Atlantic coast, is an area
of adequate rainfall throughout the growing
season. Pastures are excellent and good hay
crops can be grown, but the hilly and rolling
topography, along with a short cool growing
season, makes it hard to mature a good corn
crop. Large industrial cities nearby make a
good market for dairy products. The twelve
states in this region comprising 12 per cent of
the farm land in the country had 54 per cent of
the milk cows on January 1, 1960.
TYPES OF FARMING
The Corn Belt, covering parts of 10 states
extends from Central Nebraska eastward to
Central Ohio. Here a growing season of 150
to 180 days along with warm summer tempera-
tures and ample rainfall make the ideal condi-
tions for corn production.
Although corn is grown in every state,
areas do not have as favorable condi-
Farther north the growing season is too
to the West it is too dry, and in the
cotton growing is more profitable.
The six Corn Belt states of Iowa, Illi-
nois, Minnesota, Indiana, Nebraska and Ohio
produced 61 per cent of the Nation's corn crop
from 1948-57. In the same years, these states
also produced 53 per cent of the total oat crop
and 74 per cent of the soybean crop.
Livestock production is a major enter-
prise on Corn Belt farms. The North Central
States raised 72 per cent of the pigs from 1949-
58. Steers and calves on Corn Belt farms Jan-
uary 1, 1960 comprised 37 per cent of total
number on all farms.
The Cotton Belt extends from the Atlantic coast
westward to northwestern Texas. The northern
limit is the 200-day frost-free growing sea-
son line running through central NorthCarolina,
Tennessee, southern Missouri, and northern
Oklahoma. The southern limit is the subtropical
The eleven leading cotton states which
produced 90 per cent of the total crop from
1948-57 were: Texas, Mississippi, Arkansas,
Alabama, Georgia, South Carolina, NorthCaro-
lina, Tennessee, Louisiana, Oklahoma, and
During recent years the center of pro-
duction has moved westward.From 1948-1957,
Texas, New Mexico, Arizona, and California
produced 46 per cent of the total crop. In 1959,
these states produced 51 per cent of the crop.
The application of acreage allotments and mar-
keting quotas has tended to slow down the move-
ment of cotton production from the east to the
Peanuts, tobacco, rice, soybeans, cat-
tle, and hogs are also produced in the Cotton
Belt. Ninety per cent of the average 1.6 billion
pound crop of peanuts from 1948 through 1957
were produced in Georgia, North Carolina,
Alabama, Texas, and Virginia.
Considerable progress in livestock pro-
duction is being made in this area. Interest in
year-round pastures is growing by leaps and
bounds. Cattle numbers have increased 26 per
cent in the South Atlantic and South Central
states since 1960. Cattle numbers have increased
for the country as a whole 30 per cent during
this same ten-year period.
General Farming -- Between the Corn Belt to the
north and Cotton Belt to the south lies an area of
mixed types of farming. This area extends from
Virginia westward through Missouri. Many farms
-in this region are largely self-sufficing. Others
have specialized in tobacco, orchards, grain,
North Carolina, Kentucky, Virginia,
Tennessee, and South Carolina produced 84 per
cent of the tobacco crop which averaged 2, 090
million pounds from 1948-1957.
Wheat and Small Grain Belt -* Extending north
from Texas to the Dakotas, and in parts of
Montana, Washington and Oregon, is the area
where wheat and small grains are the main
crops. Rainfall from 15-25 inches per year
and a short growing season in the north make
this area unsuitable for corn production.
The seven leading wheat states from
1948-1957, producing 58 per cent of the total
crop, were Kansas, North Dakotas, Oklahoma,
Montana, Nebraska, Washington, and Texas.
Flax is grown in Minnesota, North and South
Dakota. Eighty-nine per cent of the average
39. 7 million bushel crop was produced inthese 3
states during the ten-year period. Texas, Kan-
sas, and Oklahoma produced 79 per cent of the
average 213 million bushel grain sorghum crop
during the 1948-1957 period.
Range Livestock "This area has been determined
by the rough mountainous topography and low
rainfall which makes its value limited to range
pasture and hay production. In many areas, the
soil is high in fertility but rainfall is a limiting
factor. Irrigation is making some of this land
Fruit, Vegetables, and Special Crops -- Fruitpro-
duction is a very specialized type of farming. A
semi-tropical climate makes Florida, California,
and Texas the leading citrus producing states.
In the ten-year period 1948-1957, California
produced 32 per cent and Florida 66 per cent of
the total orange crop. Florida produced 79 per
cent and Texas 9 per cent of the grapefruit dur-
ing the same period.
The even temperatures produced by
breezes blowing across large bodies of water
make the Great Lakes and ocean shorelines
large fruit producing areas. Other fruit pro-
ducing areas have developed because of suitable
soils, available labor, and nearby markets.
Although types of farming are largely
determined by natural and economic factors,
the final choice still rests with the individual
farmer. For this reason a wide range of farm-
ing operations are carried on in each type-of-
farming area. Through the years types of farm-
ing have changed or shifted to different areas.
Under government programs, types of farming
tend to be kept the same in each area.
Type of farming areas
Favorable climate, soils and markets
have made the Corn Belt -- the corn production
center of the world. Differences in topography
and soils in the central section have resulted in
three general types of central Corn Belt farming.
A. CATTLE FEEDING AND HOGS.
Mostof the land is rolling and a system of live-
stock farming has developed. The sloping crop-
land is susceptible to erosion. Therefore, the
cropping system has to include relatively large
acreages of grasses and legumes for protective
cover and to maintain organic matter in the soil.
Even with the large number of hogs, a
surplus of corn is produced on these farms
each year. Beef cattle are fed on many farms
to use up large supplies of hay, pasture and corn.
B CASH CORN, OATS AND SOY-
BEANS. Much of the level, fertile land in
central Iowa and east central Illinois can be
used for growing corn, oats and soybeans with
large-scale machinery and large farms. There
is insufficient hay and pasture for a beef-cattle
enterprise. Tenancy is the highest of any area
in the Corn Belt. Income is derived mainly
from the sale of the grain crops and soybeans.
C. HOGS AND SOFT WINTER WHEAT.
In the eastern part of the central Corn Belt,
farms are smaller and soils are lighter. Con-
ditions are favorable for winter wheat. Pro-
duction of corn per farm is generally no larger
than is needed for the hog enterprise.
Outside the central Corn Belt, corn is
not so dominant inthe cropping system -- soils
and climate are the chief influencing factors.
D. LIVESTOCK, DAIRY, SOYBEANS
FEED GRAINS AND LIVESTOCK (CORN BELT)
A. CATTLE FEEDING AND HOGS
A 1. Central Missouri River Valley. A 2. Eastern Iowa-Western Illinois.
B. CASH CORN, OATS, AND SOYBEANS
B 1. Central Iowa. B2. East Central Illinois.
C. HOGS AND SOFT WINTER WHEAT
C 1. Central Indiana-Southwestern Ohio.
C 2. Wabash and Lower Ohio River Valleys.
D. LIVESTOCK, DAIRY, SOYBEANS. AND CASH GRAIN
D 1. Northwestern Ohio-Northeastern Indiana.
E. HOGS AND DAIRY
E 1. N. E 'owa-N. W. Illnois-S. W. Wisconsin.
F. LIVESTOCK AND CASH GRAIN
F 1. Northwestern Corn-Livestock Transition.
F Southwestern Corn-Hard Winter Wheat Transition.
F 3. Western Corn Belt Fringe. F 4. Northwestern Corn Belt Fringe.
F 5. Northern Iowa-Southwestern Minnesota.
G. LIVESTOCK, CASH GRAIN, AND DAIRY
EJm 0 1. Western Missouri-Eastern Kansas.
H. LIVESTOCK AND PASTURE
SH 1. Southern Iowa-Northern Missouri-West Central Ilincls.
H 2. Northwestern Indiana-Southwestern Michigan.
AND CASH GRAIN. In northeastern In-
diana and northwestern Ohio, acreages of corn
and oats are about the same. Soybeans are
important and wheat is also grown. Hay and
pasture occupy a large proportion of the farm
land. Nearness to large cities and a favorable
cropping system encourage fluidmilk production
in combination with hog production.
E. HOGS AND DAIRY InnortheasternIowa
and northwestern Illinois corn and oats are
important crops, but large amounts of hay and
pasture are produced in proportion to concen-
trate feeds. Dairying is combined with hog pro-
duction, because the feed situation is favorable
F. LIVESTOCK AND CASH GRAIN. The
type of farming on the western side of the Corn
Belt is transitional between corn and livestock
feeding and wheat and range livestock. The low
productivity of hay and pasture land, mainlybe-
cause of low rainfall, results in fewer cattle
and the smaller quantity of corn results in fewer
hogs. More grain, particularly corn, is sold
from this part of the region than from the live-
stock feeding areas.
G. LIVESTOCK, CASH GRAIN AND
DAIRY. Dairy and poultry raising are im-
portant in western Missouri and northwestern
Kansas where large acreages of hay are com-
bined with corn or grain sorghums and wheat.
Soils are best suited to a grass land type of
farming in this area.
H. LIVESTOCK AND PASTURE. On the
southern side of the Corn Belt, more pasture
and a less abundant supply of concentrates are
grown. Because of the scarcity of good cropland
and the low yields obtained on the land usedfor
crops, grazing is more important than feeding
of cattle. Hog production is limited.
A. SPECIALIZED COTTON
Al. Southern High Plains.
A2. Texas Black .Way Prairies.
A3. Corpua Chrsti.
A4. DeIlts of Mississippi Ri.er and Tributaria.
Al. Mis issippi p nd T nnesle Clyl Bills snd S.ndy Loams.
A6. Sand Mountain, Aabaa. C. CCTTON AND WHEAT
AI. Southern Piedmont. ] GI. Rolling Plains, fre..--Oklahoa..
Al. Upper Corstal Plains. G2. Mixed Prairies and Crols Tm.bers If Oklahoa.
B. COTTON AND TOBACCO H. COTTON AND GENERAL FARMING
S Bl. Central Coasta Plains, North Crolin--Souh Col Western Sandy Coastal Plains, Ta- -Lou an
C. COTTON, TOBACCO, HOGS, AND PEANUTS O A o.. ll
I. LH. Arkan, s Rioer Volleys .nd Uplanos.
C..Lower Coastal Plains, Georgia--Florida. H3. Limestone Valleys and Uplands, T1nnessee--Georgia--Alabama.
D. COTTON AND LIVESTOCK H4. Pid.on of Cenrl North Csdrolrn .
Dl.aIbao ond MiMppi Blk Bol. .. Si. S.od Hill. of the Crolins n..od (;.or.i.
D2. Mi: isi:;ppi--Tonne?:: --oi.ilnt' Siolt Loa.... I. COTTON AND FOREST PRODUCTS
E. COTTON AND RANGE LIVESTOCK 1 I. Golf Coast Piney Woods.
SE. Pot Oak Strip of Texas. J. IRRIGATED COTTON AND ALFALFA
SF. COTTON AND SUGARCANE / Roo rn de-io s .
1 Fl. Central Lousiana. JS. San Joaquin Valley.
The Cotton Belt of the United States is
the largest cotton producing region in the world.
It covers all or most of nine Southern states
and a part of four more. Also important are
some irrigated areas in California, Arizona
and New Mexico.
Climate is the main factor which deter-
mines the location of cotton production. The
northern boundary of the Cotton Belt follows
fairly closely the line of 200 frost-free days.
Except for irrigatedareas, the western boundary
is about the same as the 20-inch rainfall line.
Excessive rainfall is also harmful, and little
cotton is grown in areas adjoining the Gulf of
Mexico and the Atlantic Ocean.
SPECIALIZED COTTON TheHigh Plains
and Corpus Christi Areas of Texas, and the
Delta area of Arkansas, Louisiana, Mississippi
and Missouri have from one-third to one-half of
the cropland in cotton. In these areas, and in
the irrigated areas of the west, farms are large,
topography is level, and mechanization of cotton
production has increased more rapidly than in
Other crops are also grown in these
areas. In Texas, grain sorghums are im-
portant. In the Delta either corn, oats, soy-
beans or combinations of these crops are grown
with cotton on a large proportion of the farms.
COTTON AND OTHER ENTERPRISES
-- In parts of the Coastal Plains of Ga., S. C.
and N. C., the light soils are well adapted to
production of peanuts and tobacco. These crops
increased in importance at expense of cotton.
In the Black Belt of Alabama and Mis-
sissippi and Louisiana, production of pasture
and livestock, .with considerable emphasis on
dairying is becoming more important. On
some farm's no cotton is produced. Range
livestock is common in the post oak strip of
Texas. Cotton farms, which are usually small,
are still found on those soils of the area that
are adapted to its production. In centralLouis-
iana sugar cane and rice are important crops,
but cotton occupies a higher percentage of crop-
land than either of these.
In the low rolling plains of Texas and
Oklahoma and in central Oklahoma wheat, grain
sorghum, and in some parts of the area, range
livestock, are important.
Cotton and general farming areas are
found in parts of several Southern states. In
the Western sandy Coastal Plains of Texas,
Arkansas and Louisiana some specialty truck
crops such as tomatoes and sweetpotatoes are
important. In the Arkansas Valley and uplands
and the limestone valleys and uplands in Tenn-
essee, Georgia and Alabama, rather highly
specialized farms are found. General livestock
and self-sufficing farms with little or no cotton
are numerous on the uplands.
In the Piedmont area of central North
Carolina acreage of cotton has been declining
and increased emphasis is givento small grains,
pasture and livestock farming. A large pro-
portion of the land in the Gulf Coast Piney Woods
is in timber. In the irrigated cotton areas of
California, Arizona and New Mexico acreage ol
cottonhas increased rapidly during recent years.
TYPE OF FARMING AREAS RANGE LIVESTOCK
Range land in the Western states
covers more than 700 million acres --
more than a third of the total land area
of the United States. Soils, elevation,
topography and climate make production
of livestock more profitable than pro-
duction of crops. Rainfall in much of
the region is low and uncertain. Crop-
land farming is not possible except
About half of the western range
area is Federal and State land, most
of which is public domain and National
forests. Most stock-farm areas of
Nebraska, Kansas, Oklahoma and Texas
are privately owned.
Year Long Grazing -- Year-long
grazing of livestock on the range is
generally practiced in the Southwest, ex-
tending northwest from the Rio Grande
plains of Texas to southwestern Nevada.
Winters are mild except at high alti-
tudes. Range feed is usually short in
late winter and early spring. Consid-
erable supplemental feeding is necessary
in dry years and some cotton seed cake
is commonly fed in winter.
Little or no crop production is
found on most of the livestock ranches.
The small irrigation areas in the region
supply very little livestock feed. Cattle
ranching is the chief enterprise in the
Rio Grande plains area. On the rougher and
brush-covered range in the Edwards Plateau of
Texas, goats are a major enterprise.
Seasonal Grazing -- In the remainder of the
range livestock region grazing is seasonal. The
northern range has great extremes in tempera-
ture, topography and rainfall. Some ranchers
have both dry and irrigated land. On areas
bordering the Winter Wheat Belt some stock is
moved to wheat fields in winter.
The seasonal grazing areas differ widely as
to season of use and type of ranch operation.
The Intermountain region includes most of the
migratory grazing areas except the Sierra
foothills, the California coast range and the
upland summer grazing areas. Grassland
and brush-covered areas furnish winter and
spring-fall grazing, and the mountains furnish
Public lands cover about 80 per cent of
the Intermountain region. Irrigated lands and
mountain meadows furnish pasture and hay and
other winter livestock feed.
SEASONAL Gk ZIN N-MIGRATUORY 1
>EASI:N 1L GkAZ I N(-N)NMl ^ k TOR)
LIPLNDL, SOIMMik GuRAZING
Y' Ak-LONG CG\ZING
The Sierra Foothills-coast range areas
in California, with open timber and brush, for-
age grasses, and adequate stock water, provide
grazing for both sheep and cattle.
TORY -- These areas include the sandhills of
Nebraska, the western parts of the Dakotas and
northeastern Wyoming, and extend across
Montana. Farther south, this area includes the
Osage-Flint Hills area in Kansas and Oklahoma,
the Canadian breaks in Texas and Oklahoma,
and the northcentral Texas grazing area.
Year-long grazing is possible in some of the
areas, but 2 to 4 months winter feeding is
In the Great Plains, there are combi-
nation wheat and cattle ranches. Most ranches
grow at least part of their winter feed supply.
UPLAND SUMMER GRAZING -- The
summer range is chiefly in the higher altitude
areas of the Rocky Mountains and associated
ranges and the Sierra Nevadas and southern
Cascade Mountains. These areas are not used
exclusively for summer grazing.
Dairy farming is concentrated in the
northeast, in the Lake States, along the North
Pacific coast, and in smaller areas adjoining
SPECIALIZED DAIRY. Dairyingis high-
ly specialized in the central Northeast, in east-
ern Wisconsin and northeastern Illinois, and in
the Pacific Coast Areas. Family sized dairy
farms predominate. Most farmers produce
part of their concentrate feed, but a major
share is shipped in.
DAIRY. POULTRY & MIXED FARM-
ING Dairy farming is combined with poultry,
fruit, or truck-crop farming in central Maine,
southern New England, the Hudson River Valley
of New York, around Puget Sound in Washington,
and in the Willamette Valley in Oregon. In
local areas of this region other cash crops are
important -- tobacco in the Connecticut River
Valley; seeds, grains, and hogs in the Puget
Sound-Willamette Valley area.
DAIRY AND OTHER ENTERPRISES
In other areas, systems of farming are a com-
bination of dairying and other enterprises with
dairying most important.
In east central Wisconsin and southeast-
ern Minnesota, the balance between the pro-
duction of feed grains and hay and pasture is
generally adequate for providing feed for both
dairy and hog enterprises. Farm flocks of
poultry are fairly large and dairy-herd re-
placements are raised on the farm, with some
surplus for sale. This is the center of cream-
ery butter production in the United States.
Butter production extends into the north-
A. SPECIALIZED DAIRY
A 1. North Pacific Coast. A 2. Eastern Wisconsin-Northeastern Illinois.
A 3. Central Northeast. A 4. Boise Valley and Star Valley.
A 5. San Joaquln Valley. A 6. Los Angeles Milkshed.
B. DAIRY AND LIVESTOCK
B 1. Minnesota Cut-over Fringe. B2. Southeast (Minnesota-West Central
S C. DAIRY, HAY, AND POTATOES Wisconsin.
C 1. Lake States Cut-over, Small Scale.
D. DAIRY AND CASH CROPS
D 1. East Central Michigan. D2. Western New York.
WF E. DAIRY, POULTRY, AND MIXED FARMING
E Puget Sound-Wlllamette Valley. E 2. Southern New England.
E 3. Hudson River Valley. E 4. Central Maine.
F. DAIRY AND GENERAL FARMING
F i. Central Wisconsin. F 2. Central Pennsylvania.
F3. Northern Piedmont. F4. Lake Erie Border.
F 5. Northern New England, Small Scale.
F 6. Allegheny Plateau, Pennsylvania, Small Scale.
erncut-over sections of eachof the Lake States.
But the cold climate, the scarcity of good till-
able land and the small farms in the cut-over
area limit the production of feed crops.
South of the cut-over area in Michigan
and in western New York, the soils and climate
are favorable for production of several culti-
vated crops in rotation with hay and pasture.
DAIRY AND GENERAL FARMING.
Bordering the central Northeast subregion, both
on the south and the west, are several areas
where dairying is a dominant part of a general
farming system. Among the dairy and general
farming areas are central Pennsylvania and the
In northeastern Ohio and northwestern
Pennsylvania, dairying is combined with produc-
tion of wheat, oats, hay and past u r e. This
area surrounds several industrial centers.
Dairying and general farming are also found on
the Allegheny plateau in Pennsylvania and in
most of northern New England where the dairy
farms are somewhat like those in the cut-over
area of the Lake States.
In central Wisconsin where the mixture
of sandy and heavy, poorly-drained soils are
generally low in productivity, farming systems
range from specialized dairying to a combination
of dairying and production of hogs, potatoes or
TYPE OF FARMING AREAS
WHEAT AND SMALL GRAINS
Wheat is produced over a wider climatic
range than corn or cotton. It is grown commercially
throughout most of the United States, except in areas
with less than 12 to 15 inches of rainfall and parts of
the deep South where rainfall is excessive. The major
wheat regions include much of the Great Plains and an
area centering in the Columbia Basin of the Pacific
HARD WINTER WHEAT REGION. The hard
winter wheat areas of central and western Kansas,
southwestern Nebraska, eastern Colorado, and north-
western Texas and Oklahoma are most important.
Hard winter wheat is grown in combination with grain
sorghums. Acreage of summer fallow increases con-
siderably in moving from east to west. As much as
half of the cropland on many farms in the westernpart
is in fallow.
Limited acreages of alfalfa and sweet clover
are grown on the eastern portions and along the
streams of the region. No legume has been developed
which is adapted to limited rainfall. Rotations are
primarily alternate wheat and summer fallow.
Livestock is usually found along streams and
where the topography is rough, or where soils are
tight and sorghum is grown.
SPRING WHEAT REGION: A second major
wheat and small-grain region is the group of spring-
wheat areas of western Minnesota, North and South
Dakota and Montana. Rainfall distribution throughout
the year is especially suited to wheat, flaxseed, bar-
ley and rye, but the winters are too long and severe
for winter wheat. An exception is the Triangle-Judith
Basin area of north central Montana. Here, the grow-
ing season of 120 to 140 days permits winter wheat
In the Red River Valley and in northeastern
South Dakota and southeastern North Dakota where
precipitation is highest, farms are smaller and less
specialized. Wheat is grown in combination with
- WHEAT AND SMALL GRAINS
] A. SPECIALIZED WHEAT
A 1. Columbia River Basin, Western Portion. A 2. East of Missouri River.
A 3. Central North Dakota. A 4. Central Plains.
B. WHEAT AND PEAS
B l. Columbia River Basin, Eastern Portion.
C. WHEAT AND RANGE LIVESTOCK
C 1. Triangle-Judith Basin, Montana. C 2. Northern Plains.
C 3. Central High Plains. C 4. Red Hills. C 5. Southern Montana.
D. WHEAT, GRAIN SORGHUMS, AND RANGE LIVESTOCK
D Southern High Plains.
K E. WHEAT AND GENERAL FARMING
7 E Southern Idaho. E 2. Red River Valley.
E 3. South Dakota-North Dakota, Spring Wheat-Corn Transition.
E 4. Central Kansas-Oklahoma.
V F. SMALL GRAINS
F California Valley Borders.
barley, oats, flaxseed and some corn. Special crops
such as potatoes and sugar beets also are grown in
the Red River Valley. Livestock is more numerous
than farther west, where yields are lower and sup-
plies of feed less dependable.
The production of wheat is more specialized
west of this area to the breaks of the Missouri River
in North Dakota and in northeastern Montana. The
crop is grown generally along with other small grains.
Farms are larger and more acreage is in summer
fallow. Legume acreage is small and there is little
Farming operations ar e most extensive in
Montana and in North Dakota, west of the Missouri
River. Rainfall is limited and much of the land is
too rough and broken for anything but range livestock.
Much of the wheat is produced on livestock-wheat
ranches, and is grown on summer fallow. Barley,
flaxseed and some corn are grown and native hay is
harvested for livestock feed.
PACIFIC NORTHWEST (PALOUSE) REGION.
In the Columbia River Basin of the Pacific Northwest,
soft red and soft and hard white wheats are produced.
Precipitation ranges from about 20 inches in the
Palouse area of eastern Washington and northern
Idaho to a low of little more than 10 inches in the
Big Bend area immediately east of the Columbia
River. Both spring and winter wheat are grown.
Winter wheat is generally preferred because it yields
better and provides some winter cover which retards
In the western, drier, Big Bend area, wheat
is grown exclusively on summer fallow. In the east-
ern parts where there is more rainfall, common
practice has been to rotate fallow with wheat every 2
or 3 years, primarily as a means of weed control.
Dry edible peas are the major crop besides wheat.
Barley, oats, seed peas and hay also are grown.
Production of livestock is important. The number and
type depend upon rainfall and available feed supplies.
TOBACCO AND GENERAL FARMING
This region comprises four-- o,
subregions which are located in the
east central part of the United States.
Each subregion grows a different
type of tobacco. That this is main-
ly a one-crop farming area is very
Production of tobacco re- -
quires 300to 500 hours of man labor C,. a oi
per acre, depending upon the type / m
grown. Much of this is hand labor
which is heavily concentrated in the
harvest season. Harvest operations are not mechan-
ized.' Farm units are usually too small to afford
mechanizing the preharvest operations. Family-
operated tobacco farms are small in acreage. Much
of the tobacco on the larger farms is grown by share-
The chief differences in the farming systems
of the four subregions are the nature and importance
of supplemental enterprises.
Tobacco farmers in the flue-cured areas of
the Carolinas and Virginia depend almost entirely
upon cash crops for their income. Southern Mary-
land also approaches the cash-crop economy of
the South. In the burley area in north central Ken-
tucky, tobacco is produced in combination with live-
stock. Farming systems in the dark-air-cured tobac-
co region, the Pennyroyal-Purchase areas in Kentucky
and Tennessee, are quite varied. The importance
of livestockdepends mainly upon the quality of pasture
and yields of feed crops.
Tobacco is also produced in small areas out-
side the main tobacco regions. The more important
of these local areas are found in the ConnecticutRiver
Valley, southeastern Pennsylvania, southern Ohio and
Indiana, Wisconsin, southeastern Georgia and north-
FLUE-CURED TOBACCO -- The flue-cured
sub-region includes a section of the Piedmont in south
central Virginia and north central North Carolina,
and a section of the central Coastal Plains in North
Soils, topographic and climatic differences
between the Piedmont and the Coastal Plains are re-
flected in the cropping systems of the two areas. The
"Old Belt" tobaccos grown on Piedmont soils have a
heavier body and a darker color than the "New Belt"
types that are grown on the light sandy soils of the
Coastal Plains .
Tobacco, corn and hay are the principal crops
in the Piedmont area. Wheat is the only important
small grain, but barley is grown to supplement corn.
A small acreage of cotton is grown in the eastern
Piedmont counties. Tobacco cannot be grown in
combination with many kinds of legumes so two ro-
tations commonly are followed with a large acreage of
tobacco land left idle.
Cotton is the major supplementary crop in
most of the central Coastal Plains area. Most farm-
ers grow some cotton along with tobacco in a highly
intensive farming system. Peanuts are produced
along the northeastern border. Relatively little crop-
land is left idle.
r ft TOBACCO AND GENERAL FARMING
V A. FLUE-CURED
A .Piedmont. Virginia-North Carolina.
A 2. Central Coastal Plains, North Carolina.
B Central Kentucky Bluegrass.
y 9c DARK
C1 Pennyroyal-burchase, Kentucky-Tennessee.
D. SOUTHERN MARYLAND
D I. Southern Maryland.
This subregion is characterized by a high de-
gree of stability in the farming system. Little change
has taken place in farm size or methods of produc-
tion during the last quarter century.
BURLEY TOBACCO -- The blue-grass area of
north central Kentucky, has a livestock-tobacco type
of farming. The fertile soils produce good yields of
high-quality burley tobacco and excellent blue-grass
pastures which occupy about half of the farm land.
Farms in this area tend to be somewhat larger and
more diversified than the typical tobacco farms in
other parts of the region.
Blue-grass is important in rebuilding the soils
depleted by intensive tobacco production. It also
furnishes pasture for the extensive livestock enter-
prises. Tobacco is seldom grown two years on the
same land. Acreage of hay is about double that of
tobacco. The acreage of tobacco and hay combined is
about the same as the acreage of corn. Small grains
are relatively unimportant on most farms.
Dairy and beef cattle, sheep, hogs and poultry
are all important. A large proportion of the hogs are
sold as feeder pigs. Very few lambs are grain fed.
DARK TOBACCO -- Agriculture in the dark air-
cured tobacco producing region of southwestern Ken-
tucky and northwestern Tennessee is varied. White
Burley has replaced the dark types as the principal
tobacco grown in the eastern part of the area. Pro-
duction of livestock is limited by the small production
of feed crops and low qualityof pastures, particularly
in the Pennyroyal counties Plentiful family labor,
lack of a more profitable labor-intensive crop, and
favorable soils have kept tobacco in its dominant role.
About a third of the farm land is in crops and
a somewhat higher percentage is idle or in plowable
pasture. Corn occupies the largest acreage Some
cotton is grown in the southwest Jackson Purchase
Counties. In some localities, truck crops, fruits,
potatoes and dairying are important. Most of the work
on farms in the Pennyroyal Purchase area is for pro-
duction of field crops: Tobacco, corn, wheat and hay.
SOUTHERN MARYLAND. On the five southern
Maryland counties that lie between the Chesapeake
Bay and the Potomac River, Maryland Leaf is pro-
duced. It is an air-cured type, light in body and col-
or. andpossess goodburning and blending qualities.
Only a small proportion of farm land is in
crops. Tobacco and corn occupy about equal acre-
ages. Minor crops include small grains, hay, pota-
toes and vegetables. The prevailing rotation for
tobacco includes large acreages of idle land. Live-
stock production does not meet local needs.
GENERAL, FRUIT, TRUCK, AND MIXED FARMING
AND SPECIAL CROPS
FRUIT, TRUCK AND MIXED FARMING
Fruit, rruck Crop & Mixed Farming Region
Fruit and truck-crop farming is localized and
widely dispersed throughout the United States, ( 17
widely scattered areas grouped into four subregions
based on the combinations of fruit, truck and mixed
farming.) Many farms include fruit or truck crops
as supplementary enterprises.
The principal specialized deciduous fruit areas
are located in intermountain valleys and on protected
mountain slopes. These areas include central Wash-
ington, southern Oregon, the Sacremento and San
Joaquin Valleys in California, the Colorado west
slope, the Ozark Plateau and' the Shenandoah and
Cumberland Valleys in Pennsylvania, Maryland,
Virginia and West Virginia.
Other important deciduous fruit and truck crop
areas are located on the eastern shore of Lake Mich-
igan and the southern shores of Lake Erie and Lake
Ontario. Deciduous fruits (apples, pears, peaches,
etc.) are better adapted to areas in which late and
early fall frosts are not likely.
Dairying and poultry raising generally are
combined with fruit and truck crop farming in the
lake-shore areas, and with fruit growing onthe Ozark
Plateau and in the Shenandoah and Cumberland Valleys
The citrus fruit and truck-crop areas are on
the central California coast, in southern California,
southwestern Arizona, the lower Rio Grande Valley
The more highly specialized truck farming
is in southern Florida where winter vegetables are
grown for the early season market. Areas of special-
ized truck and mixed farming are located along the
Gulf Coast and in the Atlantic sandy coastal plains.
EASTERN AREAS. Climate and soils favor
production from many enterprises. Corn, wheat,
oats, hay, and to a lesser extent soybeans, tobacco,
fruit and truck crops are grown. Much land is in
pasture because of the broken topography.
Farming centers around dairying, livestock
and poultry in the St. Louis milkshed,the Ozark Moun-
tains and border areas, and on southern Illinois gray
land. In the highland rim of Tennessee, livestock
and dairying are important; Shenandoah Valley, live-
stock, dairying and fruit.
In southern Ohio andlndiana, Kentucky,
Tennessee, and Virginia, livestock, tobacco, small
grains, truck crops, hay, and fruit are important
crops. In the tidewater area of Virginia and North
Carolina, truck crops, tobacco, and livestock are the
(Continued On Back)
GENERAL FARMING AND SPECIAL CROPS
(Continued From Front)
Small scale and part-time general
farming predominates in Ozark, Ouachita and
Appalachian Mountain areas and in the flatwoods
area along the Atlantic and Gulf Coasts. Live-
stock, truck crops, cotton and forest products
are the chief sources of income.
WESTERN AREAS. In the West, general
farming areas are usually small and often
widely separated. Irrigated areas in western
Nevada produce hay, dairy products, livestock,
potatoes and poultry. The lower Snake River
area in Idaho and Oregonproduces hay, potatoes,
sugar beets, dry beans, seed corn and other
seed crops, some fruit and small grains. It
has some dairying, livestock and livestock-
fee ding operations. The central Utah-south-
eastern Idaho areas produce hay, sugar beets,
potatoes, fruit, truck crops, grain, some dairy
products, and livestock.
Western Montana and the upper Ar-
kansas Valley produce sugar beets, hay, feed
grains and livestock; the San Luis Valley: hay,
livestock, potatoes, dry beans and some truck
crops; the San Juan Basin in eastern Colorado
and northwestern New Mexico. livestock, hay,
cash grain, potatoes, dairying and fruit. The
southern Yakima Valley has a few specialized
fruit farms and potato farms.
In the irrigated general farming area of
Nebraska, corn, sugar beets, popcorn, potatoes,
truck crops and hay are grown,. Some dairying,
beef cattle and f e ed e r cattle are found. The
northern Rocky Mountain cut-over area has
chiefly livestock and small scale dairy farming
on non-irrigated land. Small grain and potatoes
are the principal crops. Forest products are
Other small non-irrigated general farm-
ing areas are in northeastern New Mexico and
northwestern Texas. Grain sorghums, wheat
and livestock are principal sources of income.
Some corn, oats and barley are grown. An area
farther south in New Mexico also grows cotton.
Special Crops & General Farming Regions
Special crops include potatoes, sugar
beets, dry beans, peanuts, rice and sugar cane.
POTATOES. The late-crop areas are in the
northern third of the United States. The inter-
mediate and early crop areas are primarily in
the South. The principal late crop areas are
Aroostook County, Maine and the western irri-
gated areas --the Klamath Basin area of south-
ern Oregon and northern California, the Snake
River Area, the southern Yakima Valley in
Washington and the San Luis Valley and part of
the South Platte River area in Colorado.
Important early and intermediate crop
areas include Kern County, California, the lower
Snake River Area in Oregon and Idaho, the At-
lantic seaboard, the Gulf coast and farther in-
land in the South. In the Red River Valley of
Minnesota and North Dakota, in central Wiscon-
sin, parts of Michigan, Ohio, New York, Penn-
sylvania and New England, potatoes are grown
in combination with other crops.
SUGAR BEETS are the major crop on irri-
gated land in the Yellowstone River and Milk
River areas in Montana, the Big Horn Basin and
North Platte River areas in Wyoming andNe-
braska and in northeastern Colorado. Sugar
beets are grown with other crops, in the upper
and middle Snake River area in Idaho, the
Sacramento Valley and along the central Cali-
fornia coast. Important irrigated areas are
the lower Snake River area, central Utah and
southeastern Idaho, western Montana, and the
upper Arkansas Valley in Colorado.
In the Mi dw e st sugar beets are grown
in rotation with potatoes and small grains; in the
Red River Valley, as a part of dairy and cash-
crop farming in east central Michigan and as a
part of livestock farming in northwestern Ohio.
SUGARCANE is grown chiefly in Louisiana
in the lower Mississippi River Delta. Some
sugar cane is produced in other sections of the
state and in Florida.
DRY BEANS are grown principally in the
dry-land farming areas in New Mexico and Col-
orado. Grain sorghums and livestock are sup-
plementary enterprises. Highest yields are ob-
tained in irrigated areas in Colorado, Wyoming,
Idaho and California. Other important dry-bean-
producing areas are the dairy-cash crop areas in
east central Michiganandwestern New York.
RICE. The major rice areas are the Gulf
coastal prairies in southwestern Louisiana and
southeastern Texas, the prairies in Arkansas
and parts of the California Central Valley.
PEANUTS. A large part of the commercial
crop is concentrated in three intensive peanut
areas, although some peanuts are grown from
Virginia to Texas.
The North Carolina-Virginia coastal
plains area is the oldest and most intensive
peanut producing area in the United States.
Virginia-type peanuts are produced in this area.
The southern coastal plains of Georgia and
Alabama is the largest peanut area in the United
States in both acreage and production. The
chief area of commercial peanut production in
the western part of the Cotton Belt is the West
Cross Timber Area of Texas.
THE ORIGIN OF
I. .- i; : ,' -;1
Soil, as we think of it, is the
result of many varying weather ac-
tions upon a parent material. The
dirt that we so often take for granted
took centuries in forming. Some of
our soils were formedby glacialac-
tion, some are laid down by water or
wind, others are residual. The maps
in the lower right-hand corner show
the location of the major types of
Residual Accumulation is animpor-
tant parent material. Soils develop
from rock residual by various proc-
esses of weathering. Generally, this
material remains where it is formed,
therefore the term "residual," in
contrast to other soil parent ma-
terial that has been transported by
ice, water or wind.
There are several important
areas of residual soils in the United
States. The great grasslands of Kan-
sas and Oklahoma are basically de-
rived from limestone and sandstone
deposits, as was much of the south-
ern Corn Belt and the Midsouth.
These soils formed from limestone,
shales and crystalline rocks tend to
have high clay content, while the
sandstone soils are usually sandy and
more or less drouthy in nature.
Alluvial Deposits. Fine material,
which was picked up by water as
rocks, weathered, broken upandde-
posited elsewhere, is called alluvi-
um. The Great Plains parent mater-
ial was originally laid down as broad
alluvial fans with some volcanic de-
posits and various other formations.
Farther west, parent materials
are a varied accumulation, including
alluvial fans formed from wash-off
of the mountains. Geologists say
these soils were spread out at the
base of the mountain ranges during
extremely heavy rainfall periods.
The climate at that time was a de-
cided contrast to the semi-arid to
desert conditions of the present.
Lake deposits, too, have formed
some very fertile soils. The most
important agricultural area of this
classification is the Red River Valley
in North Dakota and Minnesota.
River alluvium soils are actual-
ly the old flood plains of rivers and
are very fertile. The most famous
deposit is the Mississippi River Del-
ta. Likewise famous, the Great Cen-
tral Valley in California was formed
by the deposits of the Sacramento
and the San Joaquin rivers.
Wind Deposits account for parent
materials over considerable sec-
tions of our country. It is hard to
tell the exact origin of the soil ma-
terial. However, most of the result-
ing soils, except the sands, tend to
be highly fertile and productive.
Windlaid deposits are broken
into 2 classifications, loess and
sands. The loessial soils are pri-
marily fine, silty particles that make
up many of our more fertile soils.
Much of the Corn Belt is loess over-
laying glacial drift. The major wind-
laid sand deposit, the Sandhills of
Nebraska, has become a world re-
nowned native grassland area. Much
of the Pacific Northwest's produc-
tive wheat lands is loessial.
Marine Deposits. Most of the par-
ent materials of the Deep South and
Southeast were deposits of the sea.
PARENT MATERIALS OF SOILS
GREAT PLAINS MATERIAL -- ALLUVIAL FANS, UTAINCONSOLIDATED DEPOSITS
,.M.P-OTHER DESERT ACCUMULATIONS AND GRAVEL -- MOUNTAINS fkjj GLACIAL ACCUMULATIONS -- MARINE DEPOSITS
The Coastal Plains along the Atlantic
are the major marine deposit. These
are largely sands, clays and lime-
stone. The Black Belt of Texas is a
marine deposit also, but is of uncon-
solidated parent materials such as
marl and chalk.
Glacial Accumulations account for
our largest areas of fertile soils
and the rich productivity of the Corn
Belt. The glacial drifts were trans-
ported to their present positions by
the great ice sheets. The amount of
lime deposited is the major differ-
ence in the various deposits.
Climate, particularly variation
in rainfall, has been the chief factor
in developing different type soils
from similar glacial deposits.
The soil that was laid down by
the several glaciers has mixed to-
gether, and when each glacier re-
treated, there were periods of very
low rainfall, and in some areas ex-
treme wind erosion. This formed
the finer windlaid loess covering
over the glacial deposits through
much of the Midwest.
GLACIAL ICE SHEETS
A glacier is formed when the
heat in summer is not great enough
to melt the snow that falls in the win-
ter. During what is now called the
Ice Age, this happened several times
in Canada. As the snow accumulated
from year to year it became com-
pacted to ice. As the weight of the
ice increased it finally spread. The
sketch map at the top of the next
page shows the area covered by the
great ice sheets at the time of their
MAXIMUM EXTENSION OF GREAT ICE SHEETS
AND CENTERS OF ICE ACCUMULATION
These glaciers carried with
A X *i 2,-. 4
At i ts greatest extent, the ice
the south, west and east. The Mis-
These glaciers carried with
them much of the loose stone and
clay which was in their paths. When
the ice melted, this material was
left on the land as glacial drift.
At its greatest extent, the ice
covered almost all of Minnesota and
Iowa, as well as parts f states to
the south, west and east. The Mis-
souri and Mississippi rivers were
pushed west of their originalsites
by these ice sheets.
The glaciers and the deposits of
drift which they made are named by
the state in which the ice reached its
greatest extension, or in which the
drift features are particularly well
displayed. The five in order of age
were: 1. The Nebraskan, 2. Kansan,
3, Illinoian (estimated age 140,000
years), 4. Iowan, 5. Wisconsin (es-
timated age 20,000 years). Unglaci-
ated land adjoining the areas is es-
timated to be more than one million
years old. This makes the Wisconsin
glacial period fairly recent in terms
of soil development.
Intervals of mild weather caused
each glacier to be melted away, and
soil formed from the glacial depos-
its. This new soil was in turnpicked
up by the next glacier that pushed
forth over the country. This material
was again left when the ice melted.
This accumulation of newly devel-
oped topsoil is credited as the reason
that the deposits of the last glacier,
the Wisconsin, were so fertile.
There were 2 distinct phases of
the Wisconsin glacier. An early lobe
extended in the northern part of Wis-
consin and Minnesota. It carried a
red drift material with few limestone
fragments. Later, ice moved in from
the Northwest carrying what is known
as the Late Wisconsin, Keewatin,
or Young Gray Drift.
Certain Topographies developed
due to the actions and deposits of the
glaciers. The flow of the ice sheets
was not continuous during any period.
When the front of the ice sheet melt-
ed more rapidly than it advanced,
drift was deposited in large, smooth
areas of heavy soils. These are
called "till plains."
When the ice advanced about as
rapidly as it melted, or retreated
just a short distance and then re-
advanced, the deposit was deep and
rough. What was left when the ice
finally retreated was what we call
One other definite topographical
characteristic developed from the
melting of the ice sheets. The water,
as it rushed off, carried vast amounts
of fine material that later became
the loess that was redistributed by
the wind. The water also carried
sand, gravel and stones that stopped
when the velocity of the water de-
clined. These stony deposits are
known as the "outwash plains."
Between the glaciers and the ac-
companying loessial deposits, most
of the outstanding productive land in
the United States was formed. The
other outstanding soils in the coun-
try are in smaller concentrations.
ACRES OF OUTSTANDING LAND
Throughout the previous discus-
sion we have talked about the devel-
opment of the soil areas. The maps
in the center of the page vividly
point out that the Midwest has been
blessed with tremendous soil re-
The figures in each state show,
in thousands of acres, the approxi-
mate acreage of good or excellent
land for the production of grains,
grasses and legumes. These figures
do not include land improved by ir-
rigation and drainage.
The 3 leading states in the Union
in acres of excellent land are Min-
nesota, Illinois and Iowa. These 3
have over one-half of the total.
By Regions, there is a breakdown
of the acres of excellent land:
" Corn Belt ......... 75 million
* Spring Wheat Belt ... 5 million
* Winter Wheat Belt... 5 million
* Dairy Belt ........ 5 million
* Mississippi River and
other river bottoms pri-
marily of the central
Cotton Belt ........ 4 million
The remaining acreage is found
in the bluegrass districts of Ken-
tucky, Tennessee and West Virginia,
the black prairies of Texas and Okla-
homa, and scattered areas of the
Pacific Coast States.
Of the soil rated "good," about
one-third is in the Great Plains ex-
tending from the Dakotas to Texas.
One-fourth is contained in the Dairy
Belt, and about one-fifth in the Corn
Belt States. Less than 2% of the good
land is in the 11 western states. How-
ever, this is due primarily to a de-
ficiency of rainfall rather than to
undesirable and infertile soils. Ir-
rigation is changing the western
picture to a great extent.
Only about 5.3% of all land in
the U. S. is considered excellent,
and approximately 11% is rated good
based on the above definition.
In total, it is interesting to note,
the 4-state area of Iowa, Minnesota,
Missouri and Illinois has over one-
third of the nation's good andexcel-
lent soils. It is this area that was
covered by every known glacier that
pushed into the United States during
the Ice Age.
APPROXIMATE ACREAGE OF EXCELLENT AND GOOD LAND
WEATHER AND CROPS
and diseases are a constant threat. Man-made
aids, such as fertilizer, insecticides, weed
S sprays, improved varieties and supplemental ir-
,j rigation, are all helping to offset these hazards.
NORMAL TOTAL SUMMER RAINFALL
JUNE JULY AUGUST-- Inrhes
Total yearly rainfall tends tcrvary in a south-
east-northwest direction generally and an east-
west direction inland. Conditions are most fa-
vorable to the east and southeast and less favor-
able to the northwest and west.
Rain along the West Coast is mostly winter
rain. In the great central plains most of the rain
comes during the growing season, but in the
western plains summer drouths are frequent.
The effectiveness of rainfall is not measured
entirely by the total -- distribution, intensity and
evaporation all enter in. Winter rainfall is im-
portant so that subsoil moisture is adequate at
Summer temperatures in all parts of the
United States are high enough to support plant
growth. Short growing seasons in some sections
limit the type of crop to be grown; but, for the
most part, moisture is the deciding factor in
what will yield well in an area.
Many factors affect the growth of cropsbe-
sides temperature and rainfall. Insects, weeds
CROP WEATHER REQUIREMENTS
Corn is a warm weather plant and requires high
temperatures both day and night during the grow-
ing season. The region of greatest production
in the United States has a mean summer temper-
ature of 70 to 80 degrees.
For best growth and grain production, corn
requires a plentiful supply of moisture well dis-
tributed throughout the growing season. Moisture
requirements reach a maximum during silking
Small Grains, except rice, are generally
grown where the annual precipitation is 15 to 45
inches. Annual rainfall is as low as 15 inches in
the northern Great Plains and 17 inches in the
southern Great Plains -- two of our principal
small grain areas. Production year after year
in these low rainfall areas is possible because
of the rainfall distribution and other favorable
climatic conditions. Summer fallowing also al-
lows the moisture falling in two or more years
to be stored for one crop.
Extensive production of small grains is lim-
ited generally to areas with a frost-free period
of 100 days or more. The temperature preceding
harvest is important. It is generally considered
that the northern limits of fall-seeded grains are
largely determined by winter temperatures, al-
though there are exceptions.
WHEAT. The four wheat-producing areas are:
1) The eastern winter-wheat area -- usually
ample rainfall, moderately cool winters.
WEATHER AND CROPS
2) Hard winter-wheat area of Kansas, Ne-
braska, Colorado, central Oklahoma and the
Panhandles. Rain varies from 15 inches annually
in the west to 35 in the east. Winters are moder-
3) Hard spring-wheat region. The winters
in general are too severe for winter wheat. An-
nual rainfall varies from 15 to 25 inches.
4) Western region, mainly in Washington
and Oregon. Limited precipitation occurring
mostly in the fall, winter and spring. Winters
are mild to moderately cold.
OATS are best adapted to cool climates with 30
inches or more rainfall, and can grounder less
suitable conditions than some other crops.
BARLEY is grown mainly in the spring-wheat re-
gions and in the far west. It can be grown in al-
most any type of climate, but most varieties do
best in cool-climate with moderate to light rain.
RICE is grown only in sections where the grow-
ing season is relatively long, the summer tem-
peratures relatively high and the supplies of wa-
ter for irrigation abundant.
CROP TIME RAIN AMOUNT NEEDED
Corn Summer 3-6" per month
Small Grains Annual 15-45" under
Sorghums Annual 15-17"
Cotton Annual 20"+, with good
Tobacco Growing season 10-13"
Vegetables Annual 30-40"
Growing season 20-25"
Fruits Annual 30"+
Sugar Beets Growing season 10-15'
Alfalfa Annual 20"+
Sweet Clover Spring and
Soybeans Annual 12"+
Summer 3-6" per month
Soybeans require a five-month growing sea-
son with warm temperatures and fairly heavy
rainfall during the summer months.
Sorghum can be grown in areas where the aver-
age annual precipitation is fairly light, the aver-
age frost-free period 130 to 140 days and the av-
erage July temperature 70 degrees and above.
Cotton. The most favorable conditions are a
mild spring with light but frequent showers, a
moderately moist summer, warm both day and
night, (over 50-60 degrees) with plenty of open,
sunny weather and a dry, cool and prolonged au-
tumn. Cotton normally is not grown north of the
200-day growing season area.
Tobacco. Average temperature during the
growing season ranges from 70 degrees in the
North to 77 degrees in the South. Too much rain
in late winter and spring makes seedbed prepa-
ration difficult. Moderate rain is needed during
growth period of the seedlings. Sufficient rain at
transplanting time is especially important. For
normal, rapid growth in the field, tobacco re-
quires a liberal, well-distributed rainfall or its
equivalent in irrigation water.
Vegetable Crops, with the exception of dry
beans, require relatively large amounts of avail-
able water in the soil throughout the crop season.
Commercial production is confined chiefly to re-
gions having either ample irrigation water or
heavy annual rainfall.
Citrus. Lowest temperature at which growth
can take place is 55 degrees. About 35 inches of
water is needed a year. Rain is most needed
from February to November -- irrigation mak-
ing up for the lack of rainfall.
Deciduous Fruits require a winter dormant
period for proper development and fruit produc-
tion and are limited to temperature regions hav-
ing sufficient winter cold to break the natural
rest period. At least 600 hours of below 45 de-
gree temperature are needed, although prolong-
ed temperatures below 20 degrees will cause
injury to the trees.
For best growth and production these fruits
require ample available moisture in their root
zone soil throughout the growing season.
Sugar Beets. Temperatures 45 to 48 degrees
or above are needed for seed to germinate. The
sugar beet is most sensitive to cold during the
emergence stage, then it becomes very hardy.
Summer temperatures around 70 degrees speed
crop growth. Fall temperatures should be cool.
Rainfall or irrigation is needed most between
April 15 and October 15.
Alfalfa needs moderate rainfall annually. It
is more tolerant of extremes of hot and cold
than most perennials.
Sweetclovers may be grown anywhere with
fairly heavy summer rainfall. Low winter tem-
peratures limit the distribution and adaptation
of the winter-annual species of all clovers.
FROST AND CROPS
Frost as we think of it is really frozen dew. It
occurs as a white deposit on the ground and over
exposed surfaces where temperatures fall below
320F. Frost damage to growing crops occurs
when moisture inside the plant freezes and bursts
the delicate cell walls.
On a still, clear night frost and frost damage
frequently occur without the air temperature
falling to freezing. The reason for this is rapid
loss of heat from the exposed surfaces without
enough air movement to prevent freezing.
Frozen soil conditions are also referred to
as frost in the ground or "frost penetration." In
some areas it is common to speak of "degrees
of frost." This term simply means the number
of degrees the temperature falls belowfreezing.
In most localities, frost appears in the au-
tumn long before the first snow or the freezing
of water, and lingers in the spring long after
these signs of winter have disappeared. Accord-
ingly, it is a menace to many crops at their most
critical periods, those of budding and harvesting.
Winter weather on the average freezes the ground to
great depths in the North -- barely freezes the topsoil
in the South. This map will serve as a guide for deter-
mining the depth to lay pipes to prevent freezing during
the winter. Always allow more than the actual depth of
FROST AND CROPS
For the growth and maturity of any crops
a certain minimum number of growth days are
required. Under natural conditions the growing
season is determined by the number of days
between the last killing frost of spring and the
first killing frost of fall.
A frost-free season of less than 125 days
makes it almost impossible to produce most
crops. Cotton requires a growing season of
about 200 days; corn 150 days.
Wheat, oats and barley mature under a
shorter frost-free period than do corn or sor-
ghum because they can be
sown safely 2 months be-
fore the average last spring
frost. The frost-free dates
are as important to crop
production as rainfall.
The high altitude of //
much of the western graz-
ing and irrigated crops
belt, and the dry air which
permits rapid cooling at
night are two important
reasons for the short grow-
ing season in the West.
It should be noted that
the Pacific Ocean exerts a
powerful influence on the
frost-free dates of the West
Coast but that the Atlantic .
Ocean has only a slight
effect in lengthening the
growing season along the
East Coast. The reason is -
that prevailing winds are
from the West.
No part of the conti-
nental United States is en-
-7 tirely free from frost.
SThe planting and har-
vesting seasons of most
crops are closely related to
\ Tender crops like corn
and soybeans are planted 10
--" \ to 20 days after the average
S \ frost-free date to avoid
possible danger from late
S frosts. Harvest of most
full-season crops occurs
S' near or shortly after the
first killing frost in the fall.
The first killing frost
7 of the fall determines the
practical limit to late
planting of crops. When emergencies arise,
such as flooding out of crops or poor germina-
tion because of extremely dry weather, late
planting may be necessary. If so, provision
should be made to utilize the crop in a way that
will reduce the early fall frost hazard.
Frequently in the fall a large mass of cool
but not frigid air will settle over a locality,
bringing fair, sunny days and windless, cloud-
less nights -- these are the frost danger signs.
To help growers of perishables, the Weather
Bureau issues special frost warnings.
M ill FARM
Acquiring a farm demands a lot of thought
and requires far-reaching decisions. Decisions
made at this point will greatly affect your future
success in farming.
The initial step in renting or buying a farm
is to choose a type and area of farming. Then,
confine yourself to selecting a farm which offers
the greatest potential for your proposed invest-
ment. This is done by examining those factors
which control your decision. They may be clas-
sified under two sections:
1. Personal Resources
a. Your likes and dislikes are vital
points to consider. Greatest success
is usually possible when you do the
things you like most.
b. Your goals, to farm the rest of your
life, or for only a short period, are
important factors. Plans to move to
another farm later, or tb expandthe
initial farm, must be taken into
c. Your capital position -- in other
words, how much money you have
available now, how much credit you
have, and how much debt you are
willing to assume -- will pose cer-
d. Your available labor (including fami-
ly labor), plus its degree of skill,
must be analyzed.
e. Your experience and ability to run a
farm are definitely controlling fac-
tors. Your technical and practical
knowledge, from both past experience
and schooling, rpust be balanced
against any weaknesses you may have
in this area. You should choose an
operation you can handle well; it
should present a continuing chal-
lenge, one which will allow growth
2. The Resources of the Farm and Area
a. Types and sizes of farms available,
and how well suited they are toyour
goals. Any changes or improve-
ments necessary, including the
costs to be met.
b. Present inventories of such things
as livestock, machinery and build-
ings. What is missing and how long
before you will be able to acquire it?
c. Environmental factors, supplies of
labor in the area, roads and rail-
roads nearby, plus location in re-
spect to towns, churches and
STEPS IN ACQUIRING A FARM
A farmer may take several approaches in
acquiring a farm. These are outlined as follows:
1. Leasing -- cash or share basis (crop
or livestock share). An importantpoint
to remember in drawing up anyformof
lease is that income should be shared
in the same proportion as expenses and
risk. With agriculture changing as fast
as it is, it becomes highly important to
review leasing terms each year. A
lease which is fair one year may be-
come unfair if drawn up under the same
terms the following year. For instance,
if a shift from ear corn harvest to a
sheller-drier system is made, the
problem of how drying costs will be
2. Father-son and other partnerships --
each party shares in the management,
profits, losses and ownership of the
farm business. In setting up any part-
nership arrangement, it's highly im-
portant to consider the legal aspects in-
volved. You need to understand what
your liabilities and rights are in a par-
ticular arrangement. For instance, un-
der a partnership, you may be held
responsible for the damages to a third
person caused by your partner if he
fails to settle damages.
For any partnership arrangement
to be successful each party must have
mutual trust in the other. Otherwise,
the arrangement will be one of constant
disharmony and eventual failure.
3. Purchasing a farm becomes the final
goal of most farmers. Before attempt-
ing to buy a farm, be sure you have
a sufficient cash payment. The amount
of cash payment you need in order to be
safe depends upon your age to a large
extent. If you are 35 or 40, a 1/3 cash
payment is a minimum. But as you
become older, you will need to make
a greater cash payment. The younger
you are the more chances you can take
in protecting your operating capital by
mortgaging your machinery and live-
stock. But this becomes much less
desirable at an older age. You won't
want to reach retirement age with out-
standing mortgages yet to be paid.
OWNERSHIP -- PART-TIME FARMING
A rather large number of people engagedin
farming attempt to gain full ownership of afarm
by operating it on a part-time basis. By acquiring
outside employment they hope to accumulate
capital with which to build up their business to a
size where farming can become a full-time job.
Although this is one road to farm ownership,
tenancy or some partnership arrangement ap-
pears to be much more satisfactory. However,
there are some limitations to the part-time
farming method of acquiring ownership.
1. Often the limitation of capital forces
one to buy a farm too small to support
him once he becomes a full-time
farmer. Thus, he is limited by the fact
that he cannot expand his business un-
less land is available to rent.
2. With continually rising costs of produc-
tion and relatively low commodity
prices, it takes a large farm and con-
siderable capital to operate an efficient
business. Accumulating this land and
capital through off-farm employment is
a long and laborious road.
3. Often the high wage rates in outside
employment and low farm prices dis-
courage one from breaking away from
off-farm employment completely and
taking on the task of full-time farming.
Rather, the person continues to operate
his farm in an inefficient manner. Con-
sequently, the farm never pays a high
return and eventually may be given
up as a lost cause.
HOW TO RENT A FARM
Nearly 3 million farmers rent land in the
United States each year. Almost 6 million
people face the basic problems of farm leasing- -
problems which are as old as agriculture itself.
Technical advances and the growing complexity
of modern farm business practices have in-
creased the chances for trouble in what was
once a rather simple relationship.
Most of the 3 million renters and their
landlords are working together in harmony.
This requires a sincere effort on the part of both
plus an appreciation of the other man's rights
walkingg things over at the farm.
Picking The Right Farm Operator is the
most important step that a landowner can take
to insure satisfactory experience with his farm.
Here are a few guides:
Make sure that the farmer has been doing
a good job of farming at his present loca-
tion or has the ability to do so if he is
just starting out for himself.
Talk with his neighbors and the people who
do business with him. Find out if he pays
his bills and if neighbors like to exchange
work with him.
Determine if he is ambitious and interested
in learning how to farm better.
Observe his farmstead and fence rows to
see if they are neat. Notice how he cares
for his machinery and livestock.
SSee if he has the necessary machinery
and labor to operate your farm properly.
Check banks, mortgage records and other
sources to determine if he is in good fin-
SSatisfy yourself that he will be cooperative,
that there is no serious clash in your
personalities, and that he is the kind of
man with whom you want to do business.
SFind out if his wife is interested in the
farm and is a help to him.
Choosing The Right Farm And Landlord
is a major decision for the man who is renting.
The farm should be large enough to furnish a
livelihood and a home for his family and also
produce a net income for the owner.
First consider your available labor,
machinery, livestock, and capital. Then try to
find a farm which will use these to the utmost.
Do the best you can to get good soils,
adequate well-adapted buildings, a modern home,
good farm-to-market roads and adequate
churches and school facilities.
The right landlord can do much to help
you up the agricultural ladder to farm ownership.
So before leasing from a man, see how many of
his previous renters left to buy their own farm
or at least left in better financial condition than
when they came. Talk with him about his farm
and see if he is interested in improving the soil
and maintaining the buildings. Find out if he
has practical farm knowledge and whether he
will expect you to work with him or for him.
But, do not get upset if you can't get the
exact farm you want. Instead be thankful anl do
a top job regardless of the difficulties. This
is a sure way to open the door to bigger op-
IMPORTANCE OF LEASES
After the landowner and operator de-
cide that they want to do bus in es s, the first
thing to do is to plan the operation together and
write out a good lease. In this way, many
misunderstandings can be avoided.
Both parties should be reasonably sat-
isfied before it is signed. The terms should be
in line with those generally used in the area of
the farm. Each year both parties should get
together, make plans for the coming season,
review the lease terms, and make any nec-
One-year leases are to be preferred by
both the owner and the operator. Longer leases
should provide for termination through notice
prior to a definite date. A land owner will do
little for an operator who is staying another year
only because the lease cannot be cancelled. The
farm operator who is held to a lease against his
will seldom does a satisfactory job.
HOW TO RENT A FARM
MAINTAINING GOOD RELATIONSHIPS
Establishing an agreement as to how one
man is going to farm another man's land may
be rather simple in the beginning. Maintaining
a good working relationship is more difficult,
because it involves the day-to-day living of
human beings. Here are some suggestions:
Se [,enerous in your praise of a job well-done, but
ion t overdo it.
Be tactful in all your criticisms. Let the oper-
ator suggest ways to do a better job).
Ihink of your operator as another human, with an-
bitions, pride, probleiis, and faults, the same
as everyone else.
Visit the farmr often enough to contribute your
part in making major decisions.
Listen to the farmer and try to get his point of
Take care of your business yourself, or through
your manager, rather than ask the renter to do
it for you.
Keep yourself posted on recent farm developments.
Make an effort to cooperate with your landlord on
any reasonable requests. CGo out of your way to be
courteous to himi.
Keep the fanastead neat and the weeds mowed.
uMake it a point to repair minor things around the
buildings. Put the fences in condition.
'!ell the owner things which you feel are of interest
Iry to care for the house as if it were your own.
Offer to do something extra when you ask for
Give your landlord his fair share of the crops --
let him know when crops are being harvested.
Put yourself in his place and consider the amount
of money invested in the farm
HOW A BOY BECOMES A FARMER
In dealing with farm people it is extrem-
ely important to know inwhattheyare interested
and toward what goals they are working.
going to high school and is influenced by new
ideas. He wants his father to try new fertilizers,
crop varieties, or machinery. His outlook is
widened and he develops feeling of superiority
over adults, including his parents. He doesn't
know whether he will farm or enter some other
business. He gradually becomes more dissatis-
fied with home conditions.
During his teens the typical boy is -get-
ting more interested in girls. In his early
twenties he will likely marry a local girl and
start out on his own. He may work as a hired
man on a farm in the community or possibly
at home. If he happens to go to the city to take
a job, he is not likely to come back after stay-
ing a few years. The fellow who works on
the farm accumulates enough stock and ma-
chinery to start farming for himself.
In the period from twenty-five to forty
years of age, most of his children are born.
He becomes settled. His mental and physical
energies are at a peak, and he is at the easiest
age to become a superior operator. He and
his wife should be working together to make
decisions. They like to compare favorably to
their neighbors. During the latter part of this
period, the urge to buy a farm is getting
stronger. The farmer is accumulating some
money which can go towards this goal.
From forty to sixty the typical farmer
makes his bid for land ownership. If he buys
he will have a mortgage against his farm. His
energy is lessening but he has better judgment.
He is getting some help from his children but
they are a heavy expense. Thefarmer becomes
more civic-minded at this age and is likely to
be on the school board or participating in other
activities which slow him down as a farmer.
His wife becomes more interested in club work.
In his sixties he gets out of debt and
starts easing up. He is a good operator if he
has ample help. He is not interested in doing
field work himself. He prefers to trade andfeed
the livestock. At seventy, the average farmer
is practically retired.
Both operators and farm owners should
understand these year to year changes in deal-
ing with each other
PROFESSIONAL FARM MANAGEMENT
Landowners who do not have the
time to look after their farm, lack know-
how, or live at a great distance fromtheir
property, willfind it to their best interest
to employ professional farm management
services. Few sections of the country are
without able, well trained farm man-
agers who can do a good job. The better
farm operators appreciate the help they
can get from the right kind of management.
Consider a typical farm boy, and how he
grows up and reaches retirement. Until about
10 years of age he is mainly a helper for his
mother and does small chores at the farmstead.
As he becomes older, he gets interested
in learning to drive the tractor and in doing a
man's work. Up until 14 he is generally sat-
isfied with home conditions. He is interested
in 4-H Club work, F.F.A., and similar activ-
ities. He thinks his dad is a great fellow.
The boy's most creative period isfrom
fourteen to nineteen. During this time he is
FARM LEASING PRACTICES TO HELP YOU
Real estate should never be occupied with-
out a written lease because it protects both the
farm owner and the farm operator. Unfortunately
the written lease is more often the exception than
the rule. Many people have a distinct dislike for
signing their name on a legal document, while
others pride themselves in having their words
good as their bond.
Written leases are invaluable in cases where
memories tend to be short, disputes arise or
one of the principal parties dies during the life
of the contract.
Important factors you should consider be-
fore drawing or signing a lease are discussed on
page 27. Observing these basic fundamentals
helps insure a sound working agreement.
To be successful, a good lease must provide:
A fair division of expense and income
A system of farming which is profitable
-> A system of farming which maintains and
improves the land and buildings
A full statement of all agreements made up
to the time the lease is drawn and signed
-) Beginning and ending date.
CHOOSING TYPE OF LEASE
The Cash Rent Lease has low risk, but on
the average it is more favorable to the operator
than to the owner. Absentee owners may prefer
it because they have no desire or opportunity to
oversee their property. The income is definite
and there's less chance for misunderstandings.
The cash lease eliminates any chance for
the owner to get extra income in years of higher
than average yields or prices. Cash rents tend
to lag behind rising prices. The operator may be
unable to pay rent when he has a short crop.
The Crop-Share Lease, which more nearly
represents the true return from the land, gives
the landlord an opportunity to cash in on good
yields and prices. In turn, he generally gives
the operation closer supervision and is more
willing to maintain and improve the property. It
also means the owner assumes some of the risk
which comes with lowered yields or prices.
The Livestock-Share Lease should be consid-
ered only when it is felt more income can be
made than with a crop-share lease. Crop pro-
duction always comes first. Livestock is a sec-
ond step to more income. Livestock operations
should make more profit to pay for the extra
work, risk and investment.
The owner generally retains considerable
interest and control of the management as noted
in the table. So it is most important that he
and the tenant be able to work together in har-
mony. A mutual spirit of willingness to coop-
erate with each other is essential in any lease --
it will enable both parties to solve most dif-
ficulties which arise.
LENGTH OF LEASE
One-year leases are usually the best for all
concerned. They can provide for automatic re-
newal unless notice of termination is given by
either party before a specific date -- this gives
a good tenant some assurance of long tenure.
This type of lease allows frequent revision to
keep it up-to-date -- often overlooked or neglect-
ed in leases written for 3, 5 or 10 years.
Long-term leases offer no more advantages
than the one-year term. Indeed -- some tenants
LANDOWNER-TENANT DIVISION OF EXPENSE
Capital Investment & Livestock-
Current Expense Items Cash Rent Lease Grain-Share Lease Share Lease
Tenant Landowner Tenant Landowner Tenant Landowner
Land A-- AlI -- All -- A
Buildings -- All -- All All
and tool s All -- All -- All
Livestock All -- All -- part Part
Feed Al -- All -- part part
Operating cash All Part part Part part
Hired labor All -- All -- Ali --
Boarding hired labor All -- All -- All
All other family
labor All -- All -- All
Tractor fuel All -- All -- Variable Variable
repair r of farm
machinery All -- All -- All
Depreciation and re-
par of buildings All -- All All
Skilled labor not
provided by operator -- All -- All -- All
Fence material and
depreciation -- All -- All All
Fence repairs All* -- All** -- All --
Machine work hired** All Part Part Part Part
Livestock expense All -- All -- Part Part
Legume and grass seed All -- variable Variable Variable Variable
Other crop seed All -- Variable Variable Part Part
expense Al -- Part Part Part Part
Agricul tural lime-
stone and rock
phosphate Variable Variable Variable Variable Variable
Insurance on buildings -- All -- All -- All
Insurance on livestock All -- All -- Part Part
Real estate taxes -- All All All
taxes All -- art Part Part Part
Cash rent All -- All -- -- --
*In some instances costs of owning and maintaining some machines are shared
to offset labor used by intensive livestock enterprises. These might in-
clude feed grinders, dairy barn gutter cleaners, upright silo unloaders, etc.
When new fence is built, owner may agree to reimburse tenant for labor at
a flat rate if he leaves fanm in less than a stated period of time.
** May include machinery used for combining, baling, digging post holes, etc.
FARM LEASING PRACTICES TO HELP YOU
on poor farms have lost the opportunity to move
on to better opportunities because of a lease
which had additional years to run. They also con-
tribute to unpleasant situations when either party
is dissatisfied with his bargain.
The successful lease benefits both parties
and improves their relations with each other.
Due dates for payment of rent should be set when
the operator expects cash income. Ignoring this
may lead to delay or temporary default of pay-
ments. Leasing arrangements should be made
early in the season. The better farms and tenants
are available early.
Delaying notice of termination often leads to
bad feelings. The landlord may not get a good
tenant or the tenant may lose out on that good
farm down the road. Just after small grain
harvest is a good time to reviewthe matter. This
allows time to make necessary changes.
Many things can go into a lease, but there
are some minimum requirements to be met if it
is to be of value as a legal document. They pro-
tect both farm owner and operator.
Name and address of both parties; it is
well to include the tenant's wife in the contract
Legal description of the property
Beginning and ending dates with provisions
for rendering possession at both dates, and
provision for renewal or termination
Division of crops, place of delivery and
responsibility for delivery of owner's share of
those crops; he must also reserve any storage
A designated time, amount and place of
payment of any cash rent due
Signatures of all parties
Witnesses may be required by some states.
Most leases go beyond these minimum re-
quirements and further outline the rights and ob-
ligations of both parties. Each lease must be
made to fit the individual needs involved. These
items may also be added:
Provision for reimbursing tenant for per-
manent improvements he may make or install.
If the owner or new operator does not purchase
them, permission is often granted for removal
of such improvements.
Providing for adjustments in rents in case
of fluctuating farm crop prices or in times of
near or complete crop failures.
Right of entry for landlord must be reserved
in some states or he becomes a trespasser in
the eyes of the law. This provision allows him
to come on the property to direct building re-
pairs, plan or inspect the operation of the farm.
Method of arbitrating and settling any dis-
putes and responsibility for costs involved in
Binding the agreement on each other's heirs
Provision for upkeep of fences and minor
maintenance of buildings.
Landlord's lien on crops and livestock. In-
terest on deferred rent payments, and penalties
for failure or default of payment.
Details of management such as crop rota-
tions and control of weeds.
Restriction for tenant's working off the
farm at other than usual neighborhood exchange
of farm work.
Tenant's guarantee of workmanship.
Provision for written permission from own-
er before tenant can sublease property.
HELP WITH LEASE PLANNING
Qualified help before signing a lease will go
a long way toward insuring its success. Local
custom influences lease terms in most areas.
It is hard to change such items eventhough they
may not be fair to one party or the other.
Excellent bulletins are available from the
Extension Service of most state agricultural
colleges. Many often supply standardized lease
forms at small cost.
County extension agents and professional
farm managers can be of help in determining
what should go into a lease. Each case should
be considered on its own merits.
Usually, no two farms or leases are ever
identical and that's as it should be.
The actual lease should be drawn by your
lawyer, who is best fitted to supply the form
and proper legal interpretation.
Some states may require leases to be filed
or recorded. A short, simple lease is more de-
sirable provided it contains all the essentials.
Operating with hired labor is usually the
answer for the owner who wishes to retain com-
plete control of the property. The operator fur-
nishes labor and is paid a wage with living quar-
ters and "furnish." This may include meat, milk,
eggs, garden space, fuel and electricity.
The owner pays all expenses, furnishes all
real and personal property and receives all in-
come. It is usually not the most profitable way
to operate but does provide a means of running
the property to suit the owner's desires. The
big disadvantage is trying to secure and keep the
type of labor needed to make such an operation
I FARM LEASES
Obsolete leases are straining tenant and
landlord relations in many cases today. Lease
terms often have not been fully modified to take
the changes in agriculture into consideration.
The question often comes up, "What's wrong
with our lease? It's the standard type of lease
in the community." This may be the block to
progressive lease terms. The "standard" or
"used-for-years" lease does not fill the needs.
It generally fails to consider the changes that
have taken place in agriculture in the area.
FAIR-SHARE LEASES need to be devised. Neither
the landlord nor the tenant will be satisfied unless
the farm operation is on an equitable basis.
An accurate listing of each party's contri-
bution is more important now than in the past.
High equipment costs and increased land value
have likely changed the amount and proportion
that the tenant and the landlord put into the farm
business. Special farming needs should be given
more attention and figured into lease terms.
Irrigation creates special expenses for both
the owner and tenant. Most controversy revolves
around the question of which party should provide
the equipment and labor needed to operate the
irrigation setup. Two types of leases have been
studied by the University of Nebraska -- one, a
2/5-3/5 crop-share lease, and the other, a 50-50
livestock-share. The following is typical of the
way expenses were figured on those operations.
See the table for more details.
THE WELL represents a capital improvement
and is provided by the landlord. Interest on
investment and depreciation are used when figur-
ing the value of the landlord's contribution.
PUMPS AND POWER UNITS are provided by the
landlord in both the 2/5-3/5 and the 50-50 lease
arrangements. Interest and depreciation are
again used to determine annual participation.
SPILLING BASINS are considered the landlord's
cost, and so is the cost of installing a natural
gas line in both types of lease.
SIPHON TUBES, CHECK DAMS and other small
irrigation equipment may be purchased either by
the tenant or the landlord. In the crop-share
lease the tenant usually provides this equipment.
However, in a 50-50 livestock-share, the tenant's
labor contribution is higher and the owner pro-
vides all the irrigation equipment.
GATED PIPE and sprinkler pipe create a problem.
The tenant should provide pipe if he wants it and
pipe would not be needed to operate the irrigation
system. The tenant should not be expected to pro-
vide this equipment if it is necessary to the
operation of the system.
LEVELING COSTS belong to the owner. This is
a long-term investment. Minor leveling may be
shared by the tenant and the owner.
REPAIRS, MAINTENANCE AND FUEL for the irriga-
tion machinery are often shared. But it is
more typical for the owner to bear the entire
cost of the repairs and the maintenance, with the
fuel operating costs being shared.
LABOR AND FIELD MACHINERY is supplied en-
tirely by the tenant in both the crop-share and the
livestock-share lease. Other things such as seed,
weed spray and fertilizer are supplied by each
party as they would be under an ordinary lease,
FIGURING LANDLORD-TENANT CONTRIBUTIONS
Interest on investments Landlor
Land: 175 acres, irrigated
@ $225 ($39,375 @ 4%) ... $1,575
25 acres, dry land @ $150
($3,750 @ 4%) ... 150
Buildings, fences, improvements
($10,625 @ 4%) ...4.. .... 425
Irrigation equipment: motor, pump, casing,
siphon tubes, natural gas line
($6,250 @ 6%) ... .. 375
Landlord ($1,000 @ (, 60
Tenant ($2,000 @ f.
Machinery and livestock ,1$5 "'W) .r, 6j-
Building and fence repairs $ 200
Taxes: on land and buildings ..... 275
on personal property.. 49
Labor hired, supplies, repairs, fuel
Water, electricity, auto upkeep, livestock
Machine hire, trucking and shelling...
Fertilizer, insecticide 357
Seed ......... .. 101
Buildings and improvements
($10,625 @ .., $ 319
Irrigation motor i$1 '.u ,.- I,".. 150
Irrigation equipment ($4,750 I 1 190
M achinery ......... ....... .
Operator's labor and management
Total ....... $4,25
Total contributions by both parties
Tenant's per cent of total...
Landlord's per cent of total .
For your For your
S farm Tenant farm
NEW FARMING METHODS
The speedy growth of mechanization has
created many problems in developing equitable
leases. Farm dryers and corn combines, espe-
cially when they are used together, are two pieces
of equipment that are causing difficulty.
Unlike the irrigation development, there has
been little study concerning who should absorb
the costs of this equipment.
It would appear that this is merely farm
equipment and the operation would be primarily
the tenant's concern. However, there are definite
benefits to the landlord because they allow the
tenant to do a better job of farming. A few ideas
have evolved on what would be an equitable way to
handle combines and dryers.
* In some cases the owner provides the dryer.
The two parties share dryer operating costs
and the tenant bears the picking and shell-
* For harvesting only, one arrangement is for
the owner to pay the operator the going custom
shelling rate on the owner's portion of the corn.
In most areas this runs 2' to 3' per bushel.
* The owner should not be expected to share
corn combining costs as such if he did not
previously have to pay for picking his share.
* If a combine-dryer operation requires the
landlord to provide new storage facilities for
the tenant, this investment must be taken into
consideration as part of the owner's contribu-
tion to the operation.
If the tenant provides both the dryer and the
combine, the owner should pay drying and
shelling costs on his share.
PERMANENT FEEDING EQUIPMENT that the land-
lord installs can be handled in one of two ways.
Either the tenant can pay a cash rent for the
annual use or it can be figured as the landlord's
contribution at its annual value. The landlord
should receive credit for the facilities since they
do lower the tenant's labor requirements.
The Federal government is a source of farm
revenue that creates a problem in many leases.
The recent government programs, especially
the conservation reserve, have often created
much difficulty in landlord-tenant relations.
There are certain parts of the conservation
reserve law that require both the landlord and the
tenant to be in agreement when they sign for con-
servation reserve payments. Under the lawboth
parties are entitled to a share of the payments
from this program. A tenant cannot be displaced
from the land and the owner then place the soil
into the reserve. This interpretation of the law is
made in order to protect the tenure of the renter.
In the event that a landlord wants to partici-
pate in the reserve and get the full payment, he
must acquire a written waiver from the tenant
forfeiting the tenant's share of the payment. The
landlord may make a financial settlement with
the tenant in order to acquire all future rights.
College research has been conducted for
many years to determine the carryover effects of
fertilizer. As a rule, there are few conclusive
results; just enough to confuse the issue and
make it a controversial subject.
However, some tenants may not want to
fertilize to the full extent unless there are
provisions for a settlement on the unused balance
of fertilizer he has applied. This probably will
become increasingly true as more information
is published on the subject of fertilizer carryover.
NITROGEN CARRYOVER BOOSTED OAT YIELDS
E Due to Residual
J Carry-over of Nitrogen
SDue to t4.1rogEr i
', 1 Apoi.ed a, Seed.,ng Tme
In many of today's leases where the tenant
is responsible for some of the cost of lime and
rock phosphate (where used), there are pro-
visions for settlement if the tenant leaves the
farm before the benefits are used up. The graph
shows you some of the test datathat indicate that
the other fertilizers also provide benefits to the
soil for more than one year.
In view of the many difficulties involved in
trying to determine carryover the logical ap-
proach seems tobe this: Since both the owner and
the tenant benefit from a strong annual fertiliz-
ing program, such a program should be outlined
in a lease. And finally, since there is a tremen-
dous amount of fertilizer spread on most farms
in an area where this question of carryover would
arise, the tenant could look forwardto going onto
another farm with fertilizer carryover. In other
words, if he does leave a carryover on one farm,
he'd pick it up on the next. The carryover effects
are generally so small that it wouldbe economic
folly for a tenant to let this point be a bottleneck
in leasing a good, productive farm.
FATHER-SON FARMING PARTNERSHIPS
Should father and son go into a farming
partnership? There's no easy answer to this
question. Some fathers who took their sons into
partnership have said,
"I would quit farming if my son wasn't
"My son will have more interest in building
up the farm as a partner."
"I want to have a continuing income without
having to sell the farm."
"It is an advantage to share the responsi-
bility with someone."
"We can operate on a larger scale by working
Father-son partnerships help both father
and son. A father getting along in years can keep
his farm operating at full efficiency. He is not
forced into abrupt retirement by having to sell
his farm. Retirement can be gradual as the son
takes over more of the responsibility.
A son gets the benefit of starting farming
with a fully-equipped farm where his abilities
can be used to greatest advantage. Few young
farmers have the amount of capital to start
farming alone on a good, well-equipped farm.
WHAT MAKES A PARTNERSHIP
The nature of partnership shouldbe clear-
ly understood because of income tax returns and
possible legal considerations. For income tax
purposes, the existence of a partnership is
based upon ownership of capital such as land,
cattle, or machinery that is used to produce
income. Courts commonly hold a partnership
to exist if all partners participate in manage-
ment, carry on a business together and share
in profits as well as losses.
Chances For Success are good if the
conditions listed below can be met.
* Separate housing for two families can be
* Father and son get along well together.
* The son sincerely wishes to be a farmer.
* The son has the abilities required to become
a successful farmer.
* The farm business is large enough to adequate-
ly support two families.
* The partnership is agreeable to other members
of the family.
Size up your own situation in terms of the
above. If you can answer all of them with an un-
qualified "Yes," there should be little doubt about
going into partnership.
INCOME AND EXPENSES
The net income from the farm is usually
divided equally between father and son. Expenses
are shared equally except for real estate taxes,
building repairs and capital improvements to
the farm property.
Expenses such as newbuildings, tile drains,
permanent fences would be paid by the father
since they are capital improvements. Expenses
such as lime, fertilizer, or extra hired labor for
the farm operations would be shared equally.
Sons usually own one-half of the livestock
and machinery purchased after the formation
of the partnership. The father is entitled to
interest on the amount by which his investment
in the business exceeds that of the son.
Management responsibility is usually shar-
ed about equally. Fathers are usually the final
authority. If the son contributes considerably
more labor than the father, this should be con-
Monthly allowances for living expenses
should be made to both father and son. An
amount equal to wages for hired men is often
used. Settlement of accounts is usually made at
the end of each year. A good plan is to have a
partnership bank account to pay out farm ex-
penses and each partner have a personal account
for living and personal expenses.
Separate Living Quarters should be
arranged in father-son partnerships when the son
is married. A New York study showed only 1
situation in 20 where father's and son's families
shared one household--and in some of these
cases it was only temporary until a house
could be built.
Who pays the cost of the extra house?
This will vary with different situations. Some-
times the father will build a new house and live
in it. The son lives in the old house rent free.
Sometimes a house is rented or owned by the son.
Definite Plans for transferring ownership
of the farm to the son are desirable. About one-
third of the cases studied in New York had such
plans. The son was to get the farm as a gift in
only one case out of six.
DRAWING UP THE AGREEMENT
The actual drawing up of the partnership
papers should be done by a lawyer. However,
you should plan your agreement carefullybefore-
FATHER-SON FARMING PARTNERSHIPS
hand. For your lawyer to draw up a good agree-
ment, he should know the facts and circumstances
of your particular situation.
The following considerations are vital:
* The purpose of the agreement should be
clearly understood and stated. For example,
"The above named father and son mutually
agree to form a partnership for the sole purpose
of operating a farm on the premises described
below." A brief description of the farm follows.
* The period of time covered by the agreement
should be decided upon and stated. It is desirable
to have automatic annual renewal until such time
as the partners want to make a change. Provision
for ending the agreement should be made. Either
partner should have the right to end it by 3
months written notice.
* The type of legal relationship resulting must
be understood. A statement to the effect that the
agreement does not create a partnership, as is
sometimes suggested, is no guarantee that
partners may not be held responsible for each
other's debts. If father and son are to operate
a farm together, it is best to consider it
* The contributions of each partner to the
partnership business should be listed.
* Provision for a system of accounting should
be made. Responsibility for keeping the records
should be assigned to one of the partners.
* Dividing of profits should be clearly defined.
The value of contributions to family living pro-
vided by the farm should be taken into account.
* The eventual transfer of the farm property to
the son should be considered at the time of
planning the agreement. A plan by which he can
pay for the farm, unless he is an only heir,
should be made.
e Limitations upon independent actions of the
partners should be agreed upon and incorporat-
ed in the agreement. Neither party should enter
into binding contracts without the consent of the
other. In most cases a limit should be placed
upon the size of financial transactions which
will be handled independently by the partners.
* A plan for the settling of differences should
be made. The usual plan is for each partner to
appoint one referee, and for those two to appoint
the third one. The partners would agreetoabide
by their decision.
Each partner is required to file a partner-
ship income tax form (1065) as well as forms
1040 and 1040F. The partnership does not pay
a tax, but the amount shown on form 1065 is
shown on each individual's form 1040.
For Social Security tax purposes, both part-
ners are considered to be self -employed.
PARTNERSHIPS FOR ALL?
There isn't a place for all farm boys on
the farm. Not all home farms are big enough
and good enough to provide the son with his best
When a father and son do not usually get
along well together, a partnership would not be
One of the big attractions of farming is
independence, and a partnership somewhat limits
freedom of independent action. Turning down an
opportunity for going into partnership may be too
big a price to pay for this independence, however.
The father with a choice to make between
an older and a younger son may prefer to wait
for the younger son as a partner. Partnerships
have greater appeal for farmers nearing retire-
ment age. The young and active farmer sees less
advantage in a partnership. In order to give the
older son a chance, he may help him get start-
ed on a good share lease or rental basis.
A variation of the partnership relation that
has been satisfactory is for the father to lease
the farm to himself and his sons as equal part-
ners. The lease is a typical farm lease. While
the father and son were on equal terms as part-
ners, the father was getting a return on his
investment in addition to the partnership profit.
Other heirs sometimes fear that a partner-
ship may give the son an unfair share of the
estate when it is eventually settled. They should
be taken into confidence before a partnership
is formed, and given assurance that their
interests will be protected.
Family Farm Operating Agreements, Special
Bulletin 368, Michigan State College.
Case Studies of Father-Son Farm Agreements,
Southern Farm Management Extension Publica-
tion No. 2., North Carolina Agricultural Ex-
Father and Son Farming Arrangements, Bulletin
E 892, New York State College of Agriculture,
Father and Son Agreements, University of
Missouri Experiment Station Bulletin 624.
Father-Son Farm Operating Agreements, USDA
Farmer's Bulletin 2026.
HOW TO BUY A FARM
For most farmers, buying a farm is the
biggest financial transaction of their lives. It
can bring increasing wealth and well-being or
bankruptcy and unhappiness.
WHEN BUYING AFARM, A COMPLETE
AND SYSTEMATIC APPROACH IS OF VITAL
IMPORTANCE. Many people buy a place be-
cause they happen to like some particular
feature. Many weaknesses are overlooked.
Others buy when they would do better to con-
tinue renting or even quit farming altogether.
-- ".' .-.- w *- .. .
SHOULD I BUY A FARM?
Do I want to farm for the rest of my
life? Do I know enough about farming to meet
the competition? Why do I want to buy a farm?
Can I make just as much money by renting?
Would I be happier on my own place or would
the mortgage be a millstone around my neck?
These are a few questions to discuss with your
family before deciding to buy a farm.
If you've never farmed before, cer-
tainly it would be better to work for someone e
else to gain some experience. After a few years
you might be ready to rent a place and set up
your own farm business. Then your final move
would be farm ownership.
CAPITAL INVESTMENT PER FARMER
(Averages In Four Areas Of Missouri, 1951)
Renters Owners Owners
Number Of Farms 65 55 92
Acres In Farms 252 262 215
Real Estate $------ $15,595 $22,496
Livestock 6,447 8,642 11,224
Machinery 6,545 7,359 6,465
Feed & Supplies 2,762 2,913 2,489
Total $15,754 $34,509 $42,674
University Of Missouri
A large sum of money is needed for an
efficient farm operation, even without invest-
ment in land. You would be making a big mis-
take to use all- of your money to buy a farm and
then be so short on operating capital that you
couldn't do a good job of farming it.
Do not be surprised if you find that you
can't afford to buy a place large enough to fully
use all your expensive machinery. Sometimes
it--works out better to buy a small place and
rent additional land. The problem is that you
tie yourself to one community and the property
you rent may not always be available. Desir-
able as farm ownership is, many farmers find
that they can make more money by renting a
large unit than by owning a small one.
Naturally there are many advantages
Gives feeling of pride and independence.
Permanent and stable farm business.
Provides a hedge against inflation.
Gives an opportunity to invest more
capital in a concentrated operation.
Gives benefit from all work put into
improving the farm.
The increase in value is taxed only as a
Owner becomes more a part of the com-
munity and its activities.
WHAT KIND OF FARM?
First, decide what type of farming you
want to do. Then look for a farm in an area
where this type of operation is established.
Remember that many people have farmed in
this country before you and they have found
what is best suited to each area. Of course,new
crop and livestock systems are being developed,
but most of the basic types of farming are
definitely located in certain areas.
BUYING THE FARM
The farm you buy will not only have to
furnish you a living -- it will also be a home for
you and your family. You will become a part
of the community where it is located. Your
children will have to attend school there and
possibly church. The roads should be passable
so that farm products can be marketed at any
time. The products you want to sell may re-
quire a location near to a special type of market.
Earning Capacity-- The ability of a farm to
produce is the main thing for most farmers to
consider. This must come from the soil. Good
soils will support buildings, but good buildings
will not support soils.
HOW TO BUY A FARM
Even though a farmer has worked with
soils all his life, he is not necessarily qualified
to judge their productivity by driving around
the farm or even by walking over the land.
More is involved than meets the eye, particular-
ly when you go to a new area.
Depth of top-soil and texture of sub-soil
should be checked by using a soil auger. The
top-soil may have been washed away by sheet
erosion or the sub-soil may have poor internal
drainage. Lenders found that they could spot
plastic sub-soils by their foreclosure records
during the depression.
A prospective buyer should have the
soils checked by someone who is trained in soils
and can give an estimate of their present and
potential production. The neighbors can often
give much information in regard to the farm's
past treatment and crop production. Size of
stalks from past crops gives an indication of
What happened to the farmers who were
on the place ahead of you is important. Did
most of them buy farms or rent better ones?
If others couldn't make a "go" of it, maybe
you can't either.
Buildings are another factor in the earning
capacity of a farm. Remember that the build-
ings needed for modern farming are quite dif-
ferent from those desired even 15 years ago.
Many people are impressed by a large set of
buildings, which may include an old horsebarn
which cannot be adapted to any profitable use.
:~ ; ,
^S Ylg t^H-
Look for a good machine shed and work
shop, cattle sheds in which a tractor manure
loader can be used, grain storage which is well
built and handy, hog houses and hen houses
which are well ventilated and sunny, and a house
which is reasonably modern and convenient.
Usually it is cheaper to buy good buildings on
the farm than to build them later
Most farmers are ahead whenthey buy a
"good" farm rather than a "poor" one if both
can be bought in line with the current market.
The better farm is ready to start paying its way.
The "bargain" place may need several years for
soil treatment and other improvements to take
effect. In the meantime, there is little for the
family to live on.
Several exceptions can be made to the
rules. Some farmers want to put in large
quantities of.fertilizer and legume seed which
are deductible from present income taxes and
will improve their future income. Other farm-
ers have family labor which can be used at no
additional expense to clear land, build terraces,
repair buildings, build fences, and generally
improve the farm.
Size Of Farm -- Mechanical power has brought
about the need for much larger farms than those
of the "horse-power" days. On small farms,
the machinery cost per acre is sohigh thatprof-
its are rather small. The traditional quarter
section of the Mid-west is being replaced by a
"240". Large wheat growers in the Plains
country measure their farms in sections.
RENTING a farm that is LARGE enough
is better than OWNING one that is too SMALL.
Taxes -- No farm should be purchased without
first checking the tax records to see what the
assessment has been. Large consolidated
school buildings in small districts often mean a
heavy tax load. Sometimes a farm is in a
drainage district where occasional heavy assess-
ments are necessary for ditch maintenance or
other purposes. These continual costs must be
met out of the farm's earnings.
FINDING THE FARM
Even if you know the kind of farm you
want to buy, finding it has been hard to do in
recent years. It is best to start looking well in
advance. Locate a reliable real estate dealer
and tell him the type of farm that you want.
Talk with bankers and other businessmen in the
area and let them know that you are interested
in buying a farm.
After becoming somewhat familiar with
the currentland market, you can pick out one or
two farms which seem to come close to your
needs. At this point hiring a capable appraiser
is good business.
He will make a complete appraisal of the
farm and give you a report on its basic value
and present market value. His report should
include a complete soils map, a map of the
physical features and an earnings statement.
He should be a completely disinterested party,
upon whose judgement you can depend.
Can You Afford
to Buy Land?
"Productive farm land in the Corn Belt is
again selling readily in a range of $100 to $200
per acre with some sales being made at $300
per acre or more" -- this is from a Doane Digest
page issued in 1943. Today we find lots of Iowa
corn land selling at $425 to $450 per acre. The
best Illinois land, especially if the location is
good, will move at $700 per acre. Is this land
Whether or not you can afford to buy land
depends upon your individual situation. If you
need more acres to add to an existing farm or
ranch you are probably in the best position of
anyone to pay today's prices and make a prof-
it. Farm economists for the U.S. Department
of Agriculture have worked out a procedure for
calculating how much you can afford to pay for
additional land to add to your present operation.
It is not simple but this is an important deci-
sion and deserves careful figuring.
Example estimation of value of I additional acre for a 200-acre
farm, with 190 rotation acres for the crop year 1956.
I. Total value of all crops produced during the year
2. Average value of crops per rotation acre ..
3. Total operating costs for crop production
4. Average operating costs per rotation acre
5. Find estimated annual cost per acre of added land:
Current value of present farm by total acres
($72,200 200 A. = $361 per acre)
Multiply per-acre value by percentage
($361 x 0.06 = estimated annual cost per acre
6. Find rate of expected return per each added $1:
Add cost per acre to operating cost per acre
($21.66 + $14.17 = $35.83)
Divide value of produce per acre by added costs per acre
($37.87 $35.83 = expected return per each $1
7. Find estimated land income per acre:
Cost of added land multiplied by expected return per $1
($2 1.66 x $1.06 = estimated land income per acre
8. Find estimated value of I added acre:
Divide expected return per acre by percentage used in Step 5
($22.96 0.06 = estimated value of I added acre
NOTE: Steps 1-4 should be based on data from individual farm records.
IOWA FARM SCIENCE
The example above was based on conditions
in 1956. In considering purchase of land, we
suggest that you take a look at your own records
and then adjust figures from the recent past to
conform to what you expect in the future. 1958
will probably be more favorable than average
for figuring total value of crops produced on
your present farm.
This procedure is based mainly on crop
income, but if part of your rotation land is used
for pasture you can convert this to equivalent
hay income or add it in at the going cash rent
rate. Then in step 2 divide the number of crop
acres into the total income to get the average
value of crops per acre. Do the same thing
with operating costs, including your own family
labor for crops.
Under step 5 you need to set the current
value of your present farm per acre. Then you
calculate the annual cost of owning an additional
acre of land similar to that on your own place.
This is done by taking the usual farm mortgage
interest rate, adding 1% to it, and multiplying
this times the present value per acre of your
farm. You may want to use 6.5%, since most
real estate loans are now up to 5.5%.
Step 6 is self-explanatory -- mainly involves
arriving at how much return you could expect
for each dollar put into extra land. The average
Value of crops per acre from your presentfarm
is divided by the sum of the cost of owning the
land and annual operating costs to get a figure
of $1.06 in this example.
Multiplying this times the annual ownership
cost of the new land gives you an estimated
annual income per acre. In step 8 this is
capitalized at the same interest figure used in
step 5 to get the estimated value per acre for
the added land.
In this case the home farm was valued at
$361 per acre and you could afford to pay $382
for the extra acres. If income and operating
costs were estimated correctly, the new land
would pay for your labor and other costs, plus
showing a return on investment equalto the go-
ing interest rate. If bought below the $382 figure,
the land would show additional profit.
One of the really big advantages in enlarg-
ing your farm is the opportunity to spread fixed
costs over more acres. For instance, say you
have $4,000 per year in fixed costs for build-
ings (other than crop storage), machinery in-
surance and depreciation, telephone and elec-
tricity, auto depreciation and other items which
go on regardless of the volume of business. If
this $4,000 is spread over 200 acres it is $20
per acre; if spread over 300 acres it is only
$13.33. Thousands of farmers have already
recognized this situation and consequently 40%
of all land purchases in 1958 were for the purpose
of enlarging existing farms or ranches. This
concept of spreading fixed costs over more
acres can also apply to renting land as well
as to purchasing additional acres.
Farm management records in Kansas show
also that farms with a larger gross income
usually have a larger percentage left as net in-
come. For instance, 1958 records on one group
of farms show those with under $10,000 annual
gross income have a 25% net. Farms with
$25,000 gross have a 36.7% net.
SHOULD RENTERS BUY A FARM?
Land ownership is the lifetime goal of most
farmers who are renting the land they operate.
However, with today's high capital require-
ments in agriculture, it may be much more
practical to operate a good-sized rented farm
than to buy a small place that is not really
an economic unit. Also, if buying a farm
seriously limits your operating capital it may
be better not to buy.
One approach is buy a small place touse as
a headquarters with the specific idea of renting
extra land to make your total operation large
enough. Of course,you run the risk of not always
being able to rent this land within a short dis-
tance of home, but it is practical to move most
modern machinery several miles over the road.
Amount of Debt to assume is a hard de-
cision. Your age and health have a great deal
to do with it. Here is a general guide:
Under 30 -- It is usually safe to assume all the
credit that a reliable lender will extend.
From 30 to 40 -- You can normally be safe in
borrowing up to 65% of the appraised value.
From 40 to 55 -- Reduce the maximum loan by
1 to 2% per year as your age advances (sub-
tract from 65%).
Beyond 55 -- It is usually not wise to assume
major debts unless a younger man is avail-
able to take over at any time.
There has always been quite a bit of "out-
side" capital invested in farm real estate. There
may be a need for even more of this as total in-
vestments in land, machinery and livestock
soar even higher. However, farm land must com-
pete with other investment opportunities to get
this capital. The graph (upper right) shows a
comparison of the return on market value of
land and what an investor would receive from
common stocks. At times land showed the best
return, but since about 1948 common stocks
have yielded more.
The graph does not reflect the capital
gains on either land or stock. If you're consider-
ing land as an investment, you may be interested
to know that over about the last 20 years farm
real estate prices have increased approximately
50% more than the general price level. This
represents an annual real gain in purchasing
power of capital invested in land of about 3% per
year. Of course, common stocks have appreciat-
ed in value almost twice as much as land.
Farmland and Common Stock
RETURN ON MARKET VALUE*
1910 1920 1930 1940 1950 1960
4J-YEAR MOVING AvERAce IncoaE AVAILABLE AIS A URAN ON FARMLAND AND BUILDIMCN
U. S. DEPARTMENT OF AGRICULTURE MEG 58(4)-2482 AGRICULTURAL RESEA 1RH SERVICE
If you are conservative, you will find farm
real estate one of the safest long-time invest-
ments that you can make. As the late Louis
Bromfield said, "I had seen the security based
upon banks, bonds and industry, waver, disinte-
grate and vanish. In the 25 years spent in half
the countries of the earth, I had seen only one
form of security which survived everything.
That was the security which comes of the land,
of owning good, productive earth."
Keep in mind that land is the only really
limited productive resource. The supply cannot
be increased in response to demand.
Of course, fertilizer can replace land to
a certain extent. Even if inflation proceeds at a
slower pace than in recent years, there will
still be pressure on land prices. It has been
estimated that a million acres a year are taken
out of production for superhighways, and all
other non-farm uses. This constant pressure
on a limited amount of land is causing those who
have good land to hold onto it tightly. If you want
land for an investment it is best to not wait.
It has been the general experience of Doane
farm managers, in handling property for in-
vestment buyers, that low quality land is seldom
a good buy for this purpose. An operator who
is going to live on afarm has certain advantages
in buying a low quality farm where soil is run
down and eroded, buildings and fences are in
poor repair, etc. He may have family labor
that can be utilized in improving the place. An
investment buyer may have to spend much more
to bring a poor place up to high production.
For the nation as a whole, land prices went
up only 3% in the year ending last March, com-
pared to a rise of 6% to 8% in each of the three
previous years. From November 1959 to March
1960, a gain of only 1% was reported.
Looking at specific areas in the map below
you can see that the Corn Belt has had the most
leveling-off in land values. These are averages
for the entire state, including areas around cities
where land prices were increasing. Farm land
has shown noticeable decreases in many parts
of the Midwest and the Northeast.
CHANGE IN DOLLAR VALUE
Percentage, November 1959 to March 1960
Farm real estate reporters for the USDA
in the eastern Corn Belt indicated less confidence
in the future land market than those in any other
part of the country -- 40% of them expected a
decrease in the coming 6 months; 54% foresaw
little change. In the western Corn Belt, 27%
thought land prices would go down. For the
whole country, 74% expected little change.
Growing Population Areas of the South and West
have seen some big increases in land values in
recent years. Florida, Texas and the West Coast
States are foremost among these. However,
there is evidence that the trend is reversing in
Florida. For the year ending July 1959, the
state average of land values went up 16%. From
July to November 1959 it went up 3% and in the
next four months it went down 1%.
California Prices have continued to soar upward
in most cases. Obviously other factors are at
work on land prices besides agricultural demand.
Real estate developments have popped up all over
the southern California desert as the population
spreads out in all directions from Los Angeles.
Sales of Farm Land for Non-farm Uses, California, 1959-60
Sales Size Of Average
Intended Use Reported Tract Acre Price
Single-family dwelling 69 77 acres $2,939
Future resident. develop. 26 65 acres 2,231
Industrial, commercial site 15 49 acres 2,737
Rural residence 10 32 acres 1,166
Other non-farm use 22 111 acres 1,792
At the recent summer meeting of the Ameri-
can Society of Farm Managers and Rural Ap-
praisers, in Davis, California, a number of
reasons were given why land values would con-
tinue to go up. The present 15 million population
is expected to reach 50 million by the year 2000.
About 100,000 acres are diverted from agricul-
tural uses in California each year.
One appraiser told of a prune orchard being
sold near a growing city for $9,000 per acre.
The grower then purchased another orchard in
a less populated area for $3,000.
The general feeling of the Californians was
that land values will continue to go up. Skeptical
midwestern appraisers, remembering the
1920's, wonder if the bubble is about to burst.
Doane Comment: At this time we do not advise
buying land for speculative purposes around
cities. There is a fair chance that there will be
less rapid development in the future than in the
If you want to buy land for agricultural pur-
poses, avoid buying where location has a strong
influence on the value. Usually the earnings from
such land cannot pay off this extra cost and high
property tax cuts earnings.
Land Contract Buying increased sharply in the
Corn Belt last year and also went up in the Lake
States. If buying on this low equity plan, bear in
mind that annual payments are going to be high
-- returns to labor and management will have to
pay part of the annual costs.
In 1959 it is estimated that the average rate
of return for money invested in farm real estate
was only 3%. If you buy land with a 20% down
payment, 6% interest and 20 years to pay, the
annual payment for interest and principal will
amount to 8.2% of the total purchase price.
If you are farming and want more land, you
will probably make more money if you can lease
the land instead of buying it. Many large com-
mercial operators prefer to use capital for ma-
chinery, fertilizer and other production items
which pay a higher return.
ESTIMATED FARM LAND VALUE PER ACRE
MARCH 1 VALUES
State and Average Value Index (1947-49 = 100)
Geographic Per Acre
Region 1949 1960 1920 1930 1940 1950 1957 1958 1959 1960
MAINE $ 58.90 $ 74.44 102 89 69 95 114 118 125 131
NEW HAMPSHIRE 77.43 114.10 91 79 67 97 113 119 129 137
VERMONT 58.55 79.38 86 71 58 101 112 120 129 137
MASSACHUSETTS 199.08 311.08 91 86 74 99 117 126 137 147
RHODE ISLAND 240.35 490.72 71 73 66 101 122 133 145 155
CONNECTICUT 253.54 412.18 72 73 65 100 126 138 149 155
NEW YORK 93.20 138.44 92 71 59 105 133 137 146 149
NEW JERSEY 297.55 591.15 69 66 62 103 156 168 183 190
PENNSYLVANIA 112.31 190.65 91 69 58 102 154 163 172 181
DELAWARE 117.70 225.41 86 69 55 9,8 148 163 177 184
MARYLAND 129.75 243.82 82 61 50 99 153 167 179 185
NORTHEAST 117.58 183.79 60 102 139 147 158 164
OHIO 142.41 245.61 95 54 46 101 161 171 178 180
INDIANA 138.23 250.04 96 47 44 103 166 173 182 186
ILLINOIS 170.57 293.60 106 61 50 108 161 169 182 182
IOWA 157.80 245.21 146 77 51 108 142 147 157 161
MISSOURI 63.08 108.88 142 78 50 106 146 156 169 172
CORN BELT 134.10 222.79 49 106 154 162 173 175
MICHIGAN 100.41 177.46 78 61 46 100 152 158 170 173
WISCONSIN 92.07 129.51 119 81 58 101 127 133 142 144
MINNESOTA 81.87 147.29 138 86 55 109 160 171 181 182
LAKE STATES 93.43 148.64 54 104 147 154 165 167
VIRGINIA 85.55 141.15 81 58 48 101 152 161 174 178
WEST VIRGINIA 65.92 90.64 105 71 58 95 125 132 142 145
NORTH CAROLINA 98.05 160.91 69 49 43 106 154 161 170 173
KENTUCKY 83.56 126.72 75 48 42 102 127 133 145 153
TENNESSEE 78.96 122.88 78 48 42 103 129 136 150 156
APPALACHIAN 85.83 133.34 44 103 139 146 158 163
SOUTH CAROLINA 76.06 117.27 110 50 43 97 136 143 155 163
GEORGIA 46.51 88.64 119 55 45 99 157 171 188 201
FLORIDA 55.58 193.99 76 74 57 97 183 213 245 252
ALABAMA 51.27 81.32 69 56 47 101 142 152 169 174
SOUTHEAST 60.27 116.69 48 99 156 171 191 199
MISSISSIPPI 55.63 103.70 94 53 46 106 159 169 186 191
ARKANSAS 62.95 103.42 94 60 40 105 144 154 163 170
LOUISIANA 85.27 161.34 94 62 57 105 161 174 192 198
DELTA STATES 68.45 116.76 94 46 104 152 163 177 183
OKLAHOMA 53.28 83.75 89 68 50 108 148 155 168 177
TEXAS 47.42 80.32 97 76 55 102 151 158 169 176
SOUTHERN PLAINS 48.77 80.99 54 103 150 157 169 176
NORTH DAKOTA 29.92 48.82 135 89 48 107 150 162 178 182
SOUTH DAKOTA 31.30 49.15 207 107 47 111 146 156 171 173
NEBRASKA 61.56 86.85 144 90 47 104 131 146 159 160
KANSAS 66.59 101.28 95 71 45 106 136 147 156 160
NORTHERN PLAINS 48.49 72.93 46 107 138 150 162 165
MONTANA 18.08 32.38 99 64 43 104 162 171 183 191
IDAHO 67.26 113.10 80 60 43 107 152 158 169 176
WYOMING 13.00 18.12 97 61 40 100 121 128 138 145
COLORADO 33.67 45.64 91 57 37 104 121 130 138 145
NEW MEXICO 17.26 25.07 66 52 36 107 133 141 149 157
ARIZONA 19.04 32.90 74 63 40 99 145 157 168 176
UTAH 36.28 55.09 100 75 49 107 136 142 150 158
NEVADA 19.35 33.94 101 74 49 99 145 153 164 173
MOUNTAIN 23.36 36.67 88 61 41 104 139 148 158 165
WASHINGTON 86.01 150.86 67 54 45 101 147 156 167 179
OREGON 61.94 97.64 73 63 41 99 137 144 152 159
CALIFORNIA 173.83 326.30 71 70 42 94 147 158 172 182
PACIFIC 122.09 222.90 71 66 42 96 146 156 168 179
UNITED STATES 65.92 111.46 105 70 49 103 147 156 168 173
FARM LAND APPRAISAL METHODS
If you are buying or selling a farm, getting
a farm loan, or if your farm is being taken for
city or highway purposes, you need to know the
value of the property. Unless you are willing to
rely on your own judgment or accept the opinion
of a real estate man who may have a personal
interest in the level of values set, you need the
services of a qualified rural appraiser.
WHAT IS AN APPRAISAL?
An appraisal is an opinion. It is an opinion
of value based on the facts about a property --
judiciously interpreted, to arrive at a sound con-
clusion. The dependability of the opinion is based
on the thoroughness and accuracy with which the
facts are gathered, and the skill and experience
of the one who interprets them.
An appraisal is not a mathematical answer
to a series of calculations. Figures are used,
of course, and they must be accurate, but they
are just aids to the appraiser in forming his
opinion of value.
What distinguishes an appraisal from an
"offhand" guess is the logical and systematic
manner in which the appraiser approaches his
estimate of value.
A systematic appraisal, whether it is on a
farm, city residence, a factory or any otherkind
of property, considers value from three stand-
points or approaches. They are:
1) Depreciated reproduction cost of the
2) Capitalized worth of the estimated earn-
ings of the property.
3) Comparison of the property with similar
ones which have been sold.
Each of these approaches acts as a check on
the others. From a consideration of all three the
appraiser arrives at an amount which is his
opinion of final value.
Reproduction cost is not directly applicable
in farm appraising, as it is not possible to re-
produce land. The reproduction costs of build-
ings, and often other improvements, are given
in appraisal reports as a basis for estimating
depreciation, insurance and maintenance. Such
costs, however, do not ordinarily enter directly
into an appraised value of a farm.
Capitalized earnings and comparison con-
stitute the major considerations in appraising a
farm. The job of the appraiser is to discover
these sources of value.
SOURCES OF VALUE
Rural appraisers analyze the elements
which make up the value of a farm, or sources
of value, under three categories:
1) Earnings under typical operation
2) Location and economic influences
3) Home uses.
The appraisal process is a step-by-step
consideration of the various elements of value,
starting with earnings, which is the primary
approach used in farm evaluation.
Crop yields, of course, are dependent on the
productivity of the soil. The appraiser must know
the kind of soil, its fertility level, rainfall and
temperature and many other facts'about afarm.
These facts are expressed in terms of what the
farm will produce.
Earnings are usually based on the rent in-
come, preferably from a crop-share lease. Rent
is that part of the total farm product which is in-
come to the land (all other income is due to the
labor input of the operator). Typical cropplans,
typical yields, customary shares and long-time
average prices of products are used to estimate
the gross rent expected.
The expenses of the landowner are then
deducted from the gross rent. These include
taxes, insurance, maintenance, seed, fertilizer,
management and the like. The difference between
gross rent and expenses is the landlord's net
which is capitalized to obtain the estimated
Most rural appraisers use average prices
received over the past 10 to 20 years in esti-
mating the landlord's earnings. The American
Society of Farm Managers and Rural Appraisers
has led in setting up standard crop prices for
their members to. use throughout the United
States. The approved prices, together with
average yields and other information,
are published in a book, "STANDARD AP-
The interest rate at which net income is
capitalized determines earnings value. Rural ap-
praisers usually use a rate slightly above the
going interest rate for first mortgage farm loans
in the territory. Such a rate will ordinarily re-
flect a correct relationship between earnings and
value. In most of our work we use a 5% rate.
FARM LAND APPRAISAL METHODS
The arithmetic of capitalization is simply
(Net Income) divided by (Interest Rate)
equals (Earnings Value). For example:
$100,000 Earnings Value
Rate 5% 1$5,000 Net Income
This part of the process shows earning
value. If there were no other factors affecting
value, the appraisal would be finished but two
farms with the same earnings, usually have dif-
ferent values. This is due to differences in lo-
cation, economic influences and home uses.
The appraiser, therefore, adjusts the earn-
ings value to reflect the influence of these other
sources of value.
ADJUSTING BY COMPARISON
The way in which the earnings value is
adjusted can best be shown by a list of the
things on which the property being appraised is
compared with others:
LOCATION OR ECONOMIC USE --
Markets, roads, transportation
Community, nationalities, available
Hazards -- floods, drouth, insects,
Improvements -- buildings, fences,
Physical features -- shape, trans-
section by railroads, streams
Natural resources -- soil, minerals
HOME USES --
House and yard
Church and school
Recreational and scenic features
The appraiser's estimate of the amount by
which each of these items influence value is set
down and added up. In total this is the amount
by which earnings value is adjusted to arrive
at the final or basic value.
Professional appraisers usually make a
report of several pages, including maps, some-
times photographs, descriptive details, sales of
comparable properties and full explanations of
how value is estimated. Many farm appraisers
follow an outline or form recommended by the
American Society of Farm Managers and Rural
Appraisers, known as the "AMERICAN RURAL
APPRAISAL SYSTEM." A summary of an actual
appraisal, without the details is shown above.
On a 160-a::re Illinois Farm
0 acres 65 bu /a 1/2 share $1.11/bu.
10 43 .62 "
Fertilizer & Seed
Harvesting & Delivery
EARNINGS VALUE AT 5%
House & Yard
Church & School
TOTAL BASIC VALUE 160
KINDS OF VALUE
Use of the price level recommended by the
American Society of Farm Managers and Rural
Appraisers and a corresponding level for ex-
penses and adjustments show the long-time or
"BASIC VALUE" of the farm.
Value at a particular time or for a
particular purpose may be different. "PRESENT
MARKET VALUE," for instance, has for
some years been above basic value, meaning
that land is overpriced compared to long-
term value concepts. During the 30's the op-
posite was true.
Other special purpose appraisals may be
made to set "CONDEMNATION VALUE,"
"LOAN VALUE," "LIQUIDATION VALUE" and
"TAX VALUE." For these special values, the
appraiser adjusts the basic value according to
his judgment as to the influence of these
As America's surging population spreads
from the cities out into suburbs and even well
into the country, some real problems are arising
due to lack of planning in the past. Your commu-
nity may be involved in such a haphazard pattern
of rural and urban living or perhaps it soon will
be. Proper zoning for land use may help both you
and your children have a more enjoyable com-
munity in which to live and work.
Zoning started in the city, but in recent years it
has been applied to rural areas. The first state
law authorizing rural land-use zoning was en-
acted by Wisconsin in 1929. By 1951, 38 states
had enacted such laws.
Zoning is defined as "the regulation by
districts under the police power of the height,
bulk, and use of buildings, the use of land, and
the density of population." Agricultural zoning
mainly involves land use. County zoning ordi-
nances usually establish these classes of dis-
tricts: residential, agricultural, forestry and
recreational, commercial, industrial and re-
sidual. The agricultural class consists of general
agriculture, residential-agricultural and country
WHY HAVE ZONING?
From Florida comes the complaint of cattle
ranchers and others that property taxes are
getting so high on land near new subdivisions
that they cannot afford to own it for agricultural
purposes. In the cutover timber land of northern
Wisconsin and Minnesota the problem arose of
people settling in scattered spots on poor farm-
ing land, then needing roads, schools and other
facilities, but with little tax base to support them.
In California, there is the story of Vaca
Valley where 1,000 acres of productive orchards
have been taken over by subdivisions in the past
ten years and another 2,000 acres are about to be
swallowed up in the near future. Citrus groves
and dairy farms have gone the same route in the
southern part of the state.
Around cities in all parts of the nation you
find many undesirable situations because of no
well-planned zoning. Cities have often zoned out
garbage dumps, junk yards, rendering plants
and similar things that cause lowered property
values. These may be pushed into the center of
a pleasant country living area.
Without proper zoning, city dwellers may
buy scattered lots for home sites and then want
good schools, sewers, water mains, police pro-
tection and other facilities that they had in the
city. As a neighboring farmer you mayfindyour
taxes being raised to help support these new
facilities. If such country homes were grouped,
the desired services would be less costly.
Along many major highways you find a
"stringtown" development. Businesses build up
on both sides of the road, almost from one city
to the next. This causes traffic congestion and
eventually the highway may have to be relocated
at considerable expense.
Too often the present rural zoning is aimed
at stopping such farm enterprises as a hogfarm,
a cattle feed lot or possibly a livestock auction,
but little attention is paid to preserving fertile
farm land for food production.
Here is on urban community that may soon be expanding to
the productive farm land adjacent to it. Without rural
zoning laws subdivisions and industrial developments can
be placed anywhere. They often invade the highest value
farm land in a community even when less productive areas
would be just as suitable.
Looking Ahead, it must be realized thatfertile
land is a limited, irreplaceable resource. We
must consider the future needs of a growing
population. In the last quarter century the world's
food production increased about 5% while the
human population increased 25%.
A mile of modern highway uses about 26
acres of land. Modern suburban ranch homes and
the newer types of factories all require much
more land area per person than in past years.
Responsible community leaders must face the
problem of trying to save as much productive
farm land as possible by directing new develop-
ments toward rougher terrain.
HOW TO SET UP ZONING
Before you can have zoning, your state legis-
lature must have passed the necessary enabling
law, allowing your county or township to adopt
rural zoning ordinances.
The map shows the counties empowered to
zone by 1951. A few more may have been
added since. Even at that time 1,169 counties
were empowered to zone; over one-third of
all counties in the nation.
COUNTY RURAL ZONING LEGISLATION
fi C H C ount ies em ow rd .. .;s...s" .: ,r .
ou g -orin a nc es euau ...... ..
--.- ,,.1 u u... A
For county zoning, the first thing needed is
a zoning commission that can be appointed by the
county board of supervisors or other county gov-
erning body. A petition or action of a farm organi-
zation may be needed to get the board to act.
The new zoning commission then prepares a
proposed ordinance for all of the unincorporated
area of the county. Expert outside help may be
necessary in writing up this ordinance. Various
districts are laid out, such as agricultural,
country homes, residential, localbusiness, com-
mercial, light industry and heavy industry.
The way it works in Illinois, the commission
then holds public hearings in each township to
give local people a chance to point out special
problems. After the hearings, the ordinance is
presented to the county board of supervisors.
They adopt it, change it or send it back. After
the ordinance is finally passed, the zoning com-
mission is dissolved and a zoning officer and a
board of appeals are appointed by the supervisor.
The zoning officer will probably be some
county official, but he may be a full-time em-
ployee if the county is large. His decisions can
be appealed to the five-man board of appeals
which then holds a hearing and gives its decision.
The ordinance will usually provide for a fine or
a jail sentence for offenders.
Township Zoning is permitted in some states
such as Michigan. Procedure is much the same
as in a county. Briefly, here are the 10 major
legal steps required in that state:
1. Legalize zoning in the township.
2. Appointment of township zoning board.
3. Preparation of a zoning plan and map by
the zoning board.
4. Public hearing.
5. Approval of the county zoning commission
or coordinating committee.
6. Enactment of a zoning ordinance by the
7. Publication of the ordinance.
8. Referendum on the ordinance.
9. Record of nonconforming uses.
10. Creation of a board of appeals.
PRINCIPALS OF ZONING
Rural zoning is primarily a matter of desig-
nating land use by districts and then setting up
regulations for those districts where they seem to
be necessary. The land uses set out should be
those for which the land is naturally best adapted.
Where possible, combinations of land use should
be worked out for the district that harmonize
with one another. Those that clash are then lo-
cated in their proper place in the community.
To be successful, zoning must recognize the
rights of all major interest groups in the area.
It should not be started with the idea of "looking
out" for the special interests of one group.
Close Cooperation is needed on the part of
local government officials, farm organizations,
chambers of commerce, realtor's organizations,
school boards, service clubs and other influential
groups if your efforts at zoning are to succeed.
The majority of the people must be sold on the
advantages in order for the movement to even
get started. If many objections are raised at
the first open hearings, chances are the ordinance
will never be adopted by the county board.
It should be explained that zoning is not ret-
roactive. Land can continue to be used indefi-
nitely for any legal use that is being carried out
at the time the ordinance is enacted.
Also, it is wise to have a zoning program
that is flexible enough to permit changes as new
conditions develop. Patterns of living and work-
ing are constantly changing.
A major source of information on this subject is
"Rural Zoning in the United States," Agricultural
Information Bulletin No. 59, U.S. Department of
Agriculture, Washington 25, D.C. For local infor-
mation contact the Agricultural Economics or
Rural Sociology Department of your state college.
A well-planned operation forms the founda-
tion of a profitable business. The importance of
planning shows up in the profit or loss column
in the farm's record book. Basically, the farm
business has four elements of production. It is
necessary to recognize, then to evaluate,
1. Land -- Know how much can be farmed
or ranched, and its limitations (as
measured by fertility, topography, cost
of improvements and the products for
which it is best adapted).
2. Labor -- Information needed is: the
amount available from the family or
hired sources, its cost, and the suita-
bility and skill of the workers being
considered. Also, know the labor de-
mands, total and seasonal, of various
enterprises under consideration for
your farm program.
3. Capital -- Consider the amount of
money available for immediate use, an-
ticipated funds, your credit rating and
position, interest rates or cost of money
as well as capital requirements of the
4. Management -- This vital factor is
determined by the owner's and/or op-
erator's ability to plan, organize and
operate the farm, including his capacity
to make decisions quickly and wisely.
(Management ability is the most critical
factor of farming.)
Planning the farm business, therefore, rests
on understanding the actual and potential amounts
of the four factors of production available and the
quality of each;
COMBINE PRODUCTION PROFIT FACTORS
Once you have thoroughly evaluated the
resources you have available, their limitations
and capacities to produce, your next step is to
combine them into various enterprises that will
result in maximum profit. Concentrating too
much land, labor or capital in one enterprise and
not enough in another can lead to inefficiencies.
In any one business a plan may be developed to
best use each factor of production (land, labor and
capital) in the most efficient manner. Some fac-
tors to consider in combining enterprises into
an efficient and economical over-all farming
operation are as follows:
1. Select enterprises which willdistribute
the use of labor throughout the year and
make optimum use of your land.
2. Select those enterprises for which
you can use the same equipment
and machinery as much as possible
to avoid excessive investment. Some
enterprises go together better
3. Plan your operation around existing
facilities as much as possible.
MAKE USE OF FARM PLANNING TOOLS
There are various tools to help you select
from the enterprises adapted to your area, which
ones and what size of each is best suited to your
farm and available resources.
1. Study records of your farm and those
in your area.
2. Make complete cost and returnbudgets
for each enterprise adapted to your
area. Secure aid from your agricultural
college and county agent.
3. Although still a new tool, linear pro-
gramming promises to be a valuable
aid in solving complex farm planning
PLANNING -- A CONTINUAL PROCESS
Long-range planning is the first and most
important phase of farm planning. One must es-
tablish his goals and decide what kind of business
he wants in the future. But in order to obtain
these goals or objectives, considerable short-
range planning in day-to-day and month-to-month
operations is necessary. However, when making
these shorter range decisions, always do them
with longer range plans well in mind.
The rapid pace in new farming developments
makes it necessary to keep plans flexible to
allow freedom of action and to make possible
changes. These new developments need not
change goals but they may involve changing plans
from time to time in order to accomplish these
goals in a more efficient manner. Thus, the
path to accomplishing long-range goals is usually
not a straight and narrow one. It more often is
a crooked path with many forks from which the
manager must choose the best route to arrive
at his ultimate objectives.
GREATER FREEDOM IN FARM PLANNING
As a farm manager you have a much greater
realm of possible farm plans from which to
choose than your father did when he started
farming. You are not limited to merely selecting
farm enterprises, as he was. Our age of farming
allows greater flexibility in "systems of manage-
ment" for a given enterprise.
Take the production of hogs as an example.
No longer is the decision just to produce or not
to produce hogs. If you produce hogs, you have
several programs from which to choose.
1. You can decide whether to raise them on
pasture or under a confinement system.
2. You can produce for a specific type
of market. You can raise breeding
stock, produce feeder pigs or fin-
ish hogs for market. If you mar-
ket hogs, you have a choice whether
or not you want to produce a lean
OTHER PLANNING CONSIDERATIONS
Many things must be considered in managing
a farm other than what enterprises and systems
of management will be most profitable. Here is
a list of only a few things you must consider and
plan for your business. Although a number of them
are not important when first starting in farming,
they become important as your business grows
1. Plan your financial needs and
2. Determine insurance needs and spend
what you can afford to pay in premiums
to get the most possible protection.
3. Decide if incorporation wouldbe advan-
tageous. This is not a problemuntilyou
have built up a large net worth.
4. Lay out buildings, equipment and the
farmstead for maximum efficiency.
5. Government programs will play a part
in planning your business. They place
definite limitations on managementde-
cisions and have far-reaching effects
on farming operation.
6. Plan for good labor relations with
employees and provide them with
necessary incentives to get the
gej 9tatf Size
Farm size is most commonly thought of
in terms of acres -- when used alone it can often
be misleading. Other measures to use include:
(1) capital invested, (2) number of livestock,
(3) number of man work units, and (4) total farm
income. Total farm income is probably the
best yardstick. After all, it's the return for
your investment, management and labor that
Best Income Level And Farm Size depend
upon the operator and his farming goals. First
of all, each farmer should operate the size
farm which he can properly manage. Secondly,
farmers should manage their farms with various
goals in mind. As shown in the table below, the
volume of business or net return above fixed cost
is related to this second objective. Farming for
maximum profits will usually give a higher net
income than farming to reduce risk and uncer-
tainty or to insure soil conservation.
EFFECTS OF GOALS ON A 160-ACRE IOWA FARM
S.oy- e. ... C1. D,,.a l.
Goal Corn beans a M.adows Level Lie deferredd naturee Cow Hens Cots
R c I .ld) aed)
8 2 1 i. 4I ,
.o,... ro.fits 82 41 15 15 04d-Hig 40 t3 0 0 0 t5.B30
.un..,, ry 82 28 8 35 Med 14 0 11 0 200 4,648
Ma ... ..i e .o ..,e.v tion 61 0 1 6 Lo 0 54 0 0 77
BEST COMBINATION OF RESOURCES
Every farmer is faced with a very impor-
tant question -- how to combine land, labor
and capital in the most efficient way to reach
his goals. The answer is dependent upon many
factors -- among them are the following.
, Management ability.
i Availability of the resources -- land, labor
Quality of these resources.
f Type of farming.
( Production costs and values of different
Various combinations of these factors to
yield the greatest returns were determined for
240-acre Iowa farms. Research data and the
newly developed techniques of linear program-
ming were used. These different combinations
are shown in the table in the next column.
Maximum Profit Combinations for Owner-Operated
240-Acre Iowa Farms
Low- to medium- High-quality
quality land land
Low Amount of Capital
I'l .....ana.. r. nr t .. ......... . era.e S e r Avera e tp r
( orn atles S, 6, 154
Oat acre, .. 4 43 00 0
Soybean acres ...... 0 70 76
Rotated meadow acres ......... 4 43 0 0
Permanent pasture acre 75 75 0 0
Fertilizer level ..... . .. ..... Low-medium \lrdiutm-high Low Low
Number hog litters ....... 0 1 0 0
Number dairy cows ............ 9 0 0 0
Number beef cows 0.......... 0 0 0 0
Number long-fed steers ............ 0 0 0 0
Number short-fed cattle .......... 0 0 0 0
intI Capital ............. Yes Yes Yes Yes
fioimting Labor ............... No No No No
resources Housing ......... No No No No
Capital requirement ........... $5.000 $5,000 $5.000 $5.000
Medium Amount of Capital
.e\rl tf n.taep, t .. ........... Ae S A era S eri
I rofil r i . 4
Cuorn acres ... ......... 64 66 48 150
Oat acres .. .......... ..... 40 43 3 2
Soybean acres .... .......... 0 0 75 74
Rotated meadow acres ... .... 48 43 5 4
Permanent pasture acrt s ...... 75 75 0 0
'ertlilzer level ................ Medium Medium-high High High
Number hog litters ....... .. 19 37 29 26
Number dairy cows ............... 17 0 0 0
\'umber beef cows ............... 0 0 0 0
Number long-fed steers ........... 0 II 0 0
Number short-fed cattle ........ 0 0 0 0
Capital ............. Yes Yes Y Yes Yes
iesourcesg Labor .............. Yes No No No
e Housing ............. No Yes Yes No
Capital requirement ............ $10,000 $10,000 $10.000 $10.000
High or Unllmiting Amount of Capital
1"n."!f 4r.inerl .TacrX Suertr Average Serir
I ..i or l reeturn . 7 30 ( >
Corn acres ........... 61 I -
Oat acres ...................... 38 ; 25 23
Soybean acres .................. 0 0 35 38
Rotated meadow acres ........... 53 53 50 46
Permanent pasture acres .......... 75 75 0 0
Fertilizer level ......... ..... Medium High High High
Number hog litters .......... 25 37 24 37
Number dairy cows .............. 15 0 0 0
Number beef cows ...... 0 0 0 0
Number long-fed steers ........ 0 38 0 20
Number short-fed cattle ........ 17 42 132 83
Li g I Capital ......... No No No No
Limitingesources ........... Yes Yes Yes Yes
SHousing ............ Yes Yes Yes Yes
Capital requirement ............. $12,674 $22.167 $22.176 $26,183
IOWA FARM SCIENCE
Management Ability --Compare the returns
for a farm with high quality land and a low
amount of capital under different levels of
management. Even when the same crop and
livestock programs and the same amount of
capital were used, the farm under superior man-
agement returned a profit of $7,058 as com-
pared to $5,747 when under average management.
Availability Of Resources -- A farm opera-
tor, farming high quality land with an un-
limited amount of capital and superior manage-
ment ability, achieved a profit of $17,788.
However, with a low amount of capital available
the same manager was able to make a prof-
it of only $7,058. Larger amounts of available
capital make it profitable to shift crop acre-
age to provide forage for livestock. Thus,
more capital allows you to operate
Quality Of Resources Used -- A superior
manager with a medium amount of capital avail-
able was able to net $4,675 on low- to medium-
quality land. Land of high quality made it pos-
sible to increase the proportion of high profit
crops in relation to pasture and oat acreage.
While roughage-consuming livestock are kept
on low- to medium-quality land to consume the
feed, hogs are considered the only feasible live-
stock enterprise on high-quality farm land
Type Of Farming -- The combination and
amount of resources required to return a given
income varies throughout the country depending
upon the type of farm. The table compares the
amounts of land, labor and capital required by
various types of farms in different sections of
the United States.
For example, to return incomes comparable
to those of North Carolina tobacco-cotton farms,
Southern Plains wheat farms require a much
larger capital investment, as well as a larger
acreage. However, less labor is needed. Notice
the wide difference in capital and labor require-
ments between wheat-pea farms of Washington
and Idaho and irrigated cotton farms of Texas.
In the West, Northern Plains sheep ranches
require less investment in livestock than Inter-
mountain cattle ranches to produce similar in-
comes. Nevertheless, total capital requirements
are greater for Northern Plains sheep ranches
largely because of greater investment in land
HOW RESOURCES CAN BE COMBINED TO ACHIEVE SIMIL AR NET INCOME, 1956
Total Farm Captal Assets
Net Acres L abor L and & Machinery I ive-
Type of Farm Incomen Total Clopland (hours Tota Buildings & Equp men stock
Wheat Ro"aIa eeL ageslock
(NoIthe in Plains) $2,899 800 423 3,620 $43,030 $25,300 $8,470 4,230
Small Tobacco (N Car.) 2,970 50 9_ 060 11,310 9,250 240 380
Hog-Beef (Corn Belt) 3,169 234 106 3,490 38,990 25,740 4,350 5,350
TobaccoD- livestock ~(K .) 3200 117 29 890 25850 20760 60 1870
Tobacco-Cotton (N. Car.) 3,674 100 36 5,470 22,650 18,400 2,960 560
Wheat (Southern Plains) 3,764 726 2 0 2,340 78,360 63,890 9,400 3.050
Cattle ranch(Intermountaln) 5,728 1,715 182 5,030 64 070 78,880 4760 26.190
Sheep (Northern Plains) __ 05 6,272 239 7_ 910 84770 56.460 6.450 18 630
(Corn Bell) 6.899 206 145 4,010 62,570 40,990 6,990 9,010
northernn Plains) 930 713 410 210 48430 28660_ 0 2 510
(Texas High Plains) 12,594 342 288 6,110 88,240 73,190 13,660 670
Wheal-Pea (Wash.ldaho) 13363 50 374 3,370 6 00 13 00 16760 1 3
Production Costs And Value of farmproducts--
The costs of production and the price re-
ceived for different farm products determine, to
a great extent, the most profitable farm plan.
The most profitable farming program changes as
wage rates and milk prices vary. Note the chart
at top of the next column. With an increase in
the price of milk from $5.50 to $5.80 per cwt.,
a farm paying $.75 per hour for labor will no
longer find combination A the most profitable --
but rather combination B (shown in the chart by
a shift from point 1 to point 2). On the other
hand, with the price of milk at $5.10 per cwt.,
combination D, rather than A, will be most
profitable with an increase in wages from $.90
to $1.15 per hour (most profitable combination
will shift from point 3 to point 4 in the table).
A .t profiable. f.,rming pogrom with n.et e urs .a Grade A dowry farm with varying
g ra .nd milk prices. P i.d ont Ne llth Cr ina.
o1 an. con 30 cows
1.00 7 a. patue 38 a. pasture 1820 hens
S9l cows 55 a. pasture
9................ ..3 12 a. con, grain C
9U5 a. aorn, silage
Nan Rien. 9 a. lalalfa N., Rn.n ..'3 Rcns
S l '. 29 a. iairte $9,306 S9 6064 t.
$8,738 $10,602 Sf ,498
D .... .. ... ..... ............ .3
$ $8,457 1 $10,1 16
$4.75 4.90 500 5.10 5.20 530 5.40 550 5.60 5.70 5.80 5.90 6.00 6.10 6.2
Price of Milk Per hundredweight
.70. C1...... EXATalY e.1 . . . .
FINDING THE BEST PLAN
What guides can be used to find the best
combination of resources?
1. Good farm records are essential in
determining what improvements can be made in
your farm organization and operation. These
records should include farm receipts, expend-
itures, investments and inventory, as well as
crop and livestock production. Complete cost
account records are very desirable.
2. Budgeting various combinations of live-
stock and crops which are feasible on your farm
may reveal some weaknesses in your present
program. It may show that by expanding or cutting
back in some areas income can be improved,
either by increased receipts or reduced expenses.
Linear programming, as used to determine
the maximum profit combinations shown on page
519, is a more complete method of comparing
different programs. Linear programming has
been successfully used on several farms by
Doane Agricultural Service, Inc.
3. Many agricultural colleges conduct
studies to determine resource combinations
which they consider to be best in their state.
These studies can be useful for comparing
your farm to others, provided their limitations
are borne in mind.
4. Comparison of your farm with other pros-
perous farms in the area may reveal weaknesses
which can be corrected without much difficulty.
Try to incorporate into your farming those
practices of your neighbor's which appear to be
working well. However, use good judgment in
adopting new methods.
5. Gross farm income, as a general rule,
should be at least double that needed for your
personal and living expenses. On rented farms,
remember to add the income needs of both the
tenant and landlord together.
A new technique in farm management plan-
ning has recently been developed. -> This pro-
cedure is called linear programming.
Linear Programming is the technical term de-
scribing the application of arithmetic to regu-
lar farm budgeting processes.
Many farmers plan each year's operation by
making budgets for various farming plans. They
compare the returns of each budget plan and
select the one that appears to return the highest
net income to the farm.
Budgeting a complete farm plan is tedious
and time consuming. Many farmers limit the
different enterprises andfarm plans considered.
Often a more profitable crop and/or livestock
combination is completely overlooked.
By using this arithmetic procedure, many
more different production systems can be con-
sidered -- all at one time. "L.P." can, to a
considerable degree, substitute mathematics
for bias or prejudice in determining the best
operating plan for an individual farm.
,I} The Fu. Business
R-sn .. l Labor
Net income Possible From Land Net Incoe Po ble F Labo t Inc e Posible From Mony
1A Lineal Programming CoRParison of Best Income P
CompIorsonJ P blhte
Combined to Give
Best Farm Profit Plan
How linear programming helps select the best enterprises for a farm business.
The processes of linear programming are
shown in the diagram above. First considered
are the available farm resources -- land, labor
and capital. These can be used to produce many
different livestock or crop enterprises.
"L.P." enables the farmer to determine
which of his resources he must make best use
of in order to get the highest income from all
his resources. The income possible from the
different enterprises is limited on the basis of
resource availabilities. In the illustration, land
can be seen to be the most limiting resource for
the production of corn. Labor is the most limit-
ing resource for wheat, while capital is the most
restricting on cattle and hogs.
The next step is to determine which enter-
prise, among those being considered, returns
the highest profit for the use of each resource.
In the illustration, hogs make best use of
land. Cattle make best use of labor, and corn
is the most efficient user of capital.
In the final stage of programming, these
enterprises are combined by a mathematical
formula to result in the highest total profit pos-
sible from all resources of the farm -- land,
labor and capital.
What Makes "L.P." Different Complete
farm plans are not pre-made and compared
one against the other. Instead, each enterprise
is compared one against the other in determining
the final farm plan.
Budgets are made for single units of pro-
duction of each enterprise, such as one acre or
one sow unit. The farm plan is made from the
ground up. As the farm plan is being built, the
addition of another unit of an enterprise is com-
pared to the net income opportunities when the
same resources are used by other enterprises.
-- This type of selection is based on what econo-
mists call "opportunity cost." "Opportunity
cost" is the net income one gives up from other
production opportunities when he chooses touse
his resources in the production of a particular
enterprise. This is the basic theory of "L.P."
It permits you to select an enterprise for your
farm plan only after comparing it with all other
When "L.P." is completed, the best farm
plan will have been built. It will tell you the
combination of enterprises, and how much of
each, will make the highest total profit from the
resources of the farm.
The answers obtained through the use of
"L.P." are much more detailed than those ob-
tained from ordinary farm budget analysis.
"L.P." assures you that if your cost and return
figures are correct, no other combination of
these enterprises will return more profit.
Other Unique Answers provided by "L.P." are
that dollar values are placed on the contribution
each resource makes to the total profit potential.
5K You can determine what direction you
should expand your operation -- buy land, in-
crease the labor force or add capital.
Further, the "opportunity costs" of produc-
ing other crop or livestock enterprises are given.
Hence, the "L.P." answer tells you in dollars
and cents how much it will cost you in net profit
to switch to other crops or livestock systems
than those "L.P." recommends.
Sometimes the production of an enterprise
ties up one resource, such as land, sothat labor
and capital cannot be used to their best advan-
tage. An "L.P." answer might recommend that
a part of your land not be used. Draining needed
labor and capital from another enterprise, so that
this land could be farmed, would hurt totalprof-
its more than if the land were left idle! You
would be better off to rent or sell this acreage!
"L.P." STEP-BY-STEP ON YOUR FARM
The following steps would be taken if pro-
gramming were done on your farm.
STEP 1. Measure your farm's resources --
4 LAND, by types based on productivity;
4 LABOR supply, -- the amounts available dur-
ing different periods of the year; 4 CAPITAL
available -- including the money supply on hand
and your credit, plus an inventory of buildings
and equipment on the farm.
STEP 2. Select the enterprises adapted to your
farm. Consider soil types, markets and other
factors when making these selections.
STEP 3. Make cost-and-return budgets for each
enterprise selected. Farm management experi-
ence, past records and consultation with vari-
ous agricultural specialists are important here.
This information must be correct.
STEP 4. Make programming calculations and
analyze "L.P." results. This step requires
specially trained personnel. Desk calculators
are the minimum equipment needed. Electronic
computers will prove the most efficient for large,
complex farm planning problems.
Linear programming can oe very profitable to those farm
or business operations large enough to justify its cost. The size
of a farm operation has little to do with the cost of an "L.P."
study. This is because small operations have many of the same
management problems and enterprise opportunities as a medium
or large farm -- only the scale of operation is smaller.
The cost of such analysis should not be looked at from
the short run. Instead, the cost of mapping out the best long-run
farm operating plan should be prorated over the period of its use-
fulness. Being sure your operating plan is as near optimum as
practical is a must. Today profit margins are too narrow and in-
vestments too great for your operating plan to be in error.
PROGRAMMING SHORT CUTS YOU CAN DO
"How can you improve your budgeting pro-
cedures without using 'L.P.'?" A simple short
cut that can be used to help select enterprises
is the $1,000 net income comparison.
Enterprise budgets are set up so they can
be compared on an equal basis, one against the
other. Each enterprise budget is developed on a
NET INCOME COMPARISON
CONFINED FEEDER PIG PROGRAM*
ITEM UNIT Resources Per Unit Resources Per $1,000 Net Income
Buy Corn Grow Corn Buy Corn Grow Corn
Hogs 10 Head 1 1 30.77 17.73
Land Acres 0 0.7 0 1.24
Dec.-March Hours 4.0 6.1 123.1 108.2
Apr.- May 2.0 3.4 61.5 60.3
June-Aug. 3.0 5.8 92.3 102.8
Sept.-Nov. 3.0 3.7 92.3 65.6
Direct Costs Dollars 123.40 99.90 3,796.90 1,771.30
Added Investment 125.90 125.90 3,873.80 2,232.30
Net Income 32.50 56.40 1,000.00 1,000.00
Mississippi Delta figures representing projected averages over a period ot years. I these
figures should not be considered accurate for any one given year.
"unit" basis (see table). The net income for one
"unit" of each enterprise budgeted for compari-
son is divided into $1,000. Each resource re-
quirement is then multiplied by this figure. In
this way, you can determine the amounts of each
resource required to obtain $1,000 net income.
Many valuable decisions can be made from
a $1,000 net income comparison. In the example
below, we are trying to decide whether or not to
grow corn and feed it to the hogs or to buy it.
The first two columns are summaries of bud-
gets made on a per unit basis for these two
systems. Growing our own corn returns the
highest profit per unit. Let's see howefficiently
these two systems use all resources.
This is done in the last two columns which
show the resources needed to make $1,000 net
income. Different farmers (even if their bud-
gets were the same as these) would make differ-
ent decisions based on their individual resource
supplies. If a farmer had only a small acreage
of land, he might very well decide to buy his corn
and put the land to another use.
If his labor supply was restricted or limited
in the summer, it's obvious that corn cultivation
would conflict with hogs during this period. If
his labor supply is not adequate or usually can't
be hired during June-August, growing corn for
his hogs may limit best use of other resources.
In many circumstances the hog operation would
have to be cut back. He might find that buying
corn, permitting his hog operation to run at
full volume, would return a higher total profit
to the farm. 9C The enterprise plan you
should work toward is one with the highest total
profit rather than an enterprise combination
based on the highest profit per unit or per acre.
1 0 non
noW TO MEASURE FIELDS AND FARMS
Crop adjustment, acreage controls and effi-
cient farm management all require accurate land
measurements. These are parts of today's farm-
ing and must be considered by every farmer.
UNIT OF MEASURE
In figuring land area, the lengths of the dif-
ferent sides are the measurements you need. The
table shows the common units used for the mea-
surement of distance. It can also be used for con-
verting one unit to any of the others.
FOOT = 12 INCHES
YARD = 3 FEET OR 36 INCHES
PACE = I YARD OR 36 INCHES
I ROD = 162 FEET OR 51 YARDS
CHAIN = 66 FEET OR 4 RODS
I MILE = 80 CHAINS, 320 RODS OR 1,760 YARDS
The measuring units to be used will depend
on the size of the area as well as the units most
familiar to you. EXAMPLE: For small plots the
foot or yard may be the most convenient, but for
larger areas you might use the rod, chain or even
mile depending on which is most familiar.
The Acre is the most common area measure
used and is familiar to most all agricultural
work. It is a fairly simple process to change
square area measurements (square feet, square
chains, etc.) into acres. The table below can be
used for making these changes.
CONVERTING INTO ACRES
I ACRE = 43,560 SQUARE FEET
I ACRE = 4,840 SQUARE YARDS
I ACRE = 160 SQUARE RODS
I ACRE = 10 SQUARE CHAINS
DOING THE MEASURING
Accurate measurements will depend on how
well you follow simple basic practices. Make
your measurements in a straight line and keep
an accurate record of all distances as well as
corners and odd-shaped boundaries.
A good idea is to make a rough sketch of
fields before you start measuring. If this is
impossible, sketch as you go along. Label each
side as soon as it is measured.
A number of devices can be used for deter-
mining the length or the distance around the
area to be measured. It's up to you to decide
which is most practical for your purposes.
The Pace is a fair measure of distance and can
be used when extreme accuracy is not needed.
The extended step (pace) that is often used in
measuring land is considered to be a yard long.
It takes conscious effort to keep the pace from
becoming shorter after a great distance has
been measured and the person tires.
CAUTION: The pace should not be used unless
the length of the pace is carefully checked over
a measured distance.
The Chain (66 feet long) can be used for accu-
rate and easy figuring of large areas. The
number of square chains in an area, divided by
10, gives the number of acres.
Two men are required to carry the chain.
For long distances you should tally with a set of
11 wire (No. 9) marking stakes. One stake is
placed at the start. The leading man sets a stake
at each 66-foot interval measured off by the chain.
When the rear man has gathered up 10 stakes, the
distance covered by the front man is 10 chains.
Other Measuring Tools may include a steel
tape, or a cable or wire of an exact length. The
same method of using stakes, as described for
the chain, should be used to keep count.
DETERMINING THE ACREAGE
After you have all the field measurements,
change them into area measurements (square
yards, square chains, or square whatever units
you are using). EXAMPLE: A field 5 chains long
and 4 chains wide has an area of 20 square chains.
The number of acres in afield is determined
from the square area. Divide the number of
square units in the field by the number of square
units in an acre. The formulas below are used
for the area units most commonly used.
AREA IN SQ. FT.
(I) NO. OF ACRES = 43,560
AREA IN SQ. YDS.
(2) NO. OF ACRES = ,840
AREA IN SQ. RODS
(3) NO. OF ACRES = 150
AREA IN SQ. CHAINS
(5) NO. OF ACRES = 10
(6) NO. OF ACRES = AREA IN SQ. MILES x 640
FIELDS OF DIFFERENT SHAPES
Different ways of figuring the square area
are used for fields of different shape. After you
find the area use the same methods already dis-
cussed to convert the square units into acres. By
HOW TO MEASURE FIELDS AND FARMS
using one or more of the following examples the
area of most any field can be determined.
L x W = Sq. Area
Two Sides Equal: P
field that is not a rectan-
gle, but has two equal or
parallel sides can be
figured the same as the
rectangular field, except
that you use the average
of the two parallel sid
are the easiest to figure.
Find the area by multi-
plying the length times
W LENGTH I
t LI +L2
Area = W x
es for the length figure.
H Right Triangle fie lds
E | are three-sided fields
I I having one square cor-
G ner. To find the area,
T BASE figure as if it were 2 of
Area = 2H x B a rectangle. Thus 2 of
the length (base) multi-
plied by the width (height) will give you the area.
Other Triangles or
triangular fields not /H
having a square corner I
can be figured the same ]H
way as the right triangle, Ti BASE
but the height must be Area = H x B
measured square from
the base line (at right angles to it). Thus 2 of the
height times the base gives the area.
Many-Sided Fields : Areas of fields with more
than 4 sides or with 4 unequal sides can usually
be measured by using one or more of the methods
already discussed. The trick is to divide the
fields into triangles or rectangles that can be
easily measured. A good rule to follow is to
measure from one corner to an opposite corner,
dividing the field into more easily measured
plots. Find the area of each of the new plots by
using the formula for rectangles or triangles.
Here are some examples of how fields may be
divided for easier measurement.
N \ /
Curved Boundaries. Where contour farming is
practiced, this may be one of the most important
measuring methods. First, measure off a
straight base line. Put it as near the center of
the field as possible, but keep it straight. At
equal distances take a number of measurements
of the field width. Make these measurements
square across (at right angles to) the base line.
Find the average of these width lines and multi-
ply this average times the length of the base
line. This gives the area of the field. If the base
line does not meet the ends of the field square
(at right angles) you will have to figure the area
of the small triangles A and B separately, as
listed on the figure below.
A ) 1(2) (3) I ) (5) (6) 7)
Area Len h PQ Length( ) t(2)+(3)+(4)4(5)4(6) (7)
Area Lencgth PQ X 6
When fields are curved too much for a
straight base line to be drawn as the above.
do this: Measure a base line down the center of
the field, or as near the center as practical. Let
it curve as the field curves. At equal distances
measure the width of the field. Make these
measurements square across (as near as
possible) the base line and use the same method
of figuring area as used with a straight base line.
OTHER AREA MEASUREMENTS
In figuring land areas for surveys, apprai-
sals or any purpose except where actual surface
measurements are needed, distance should be
figured horizontally. Uphill and downhill mea-
SLOPE CORRECTION TABLE
Horizontal Distance for
100 Feet Surface Distance
57 99.9 0. %
10% 99.3 0.5%
15% 98.8 1. %
20% 98.0 2.0%
25% 97.0 3.0%
30% 95.8 4.2%
40% 92.8 7.2%
Univ. of Maryland
during will give a longer distance than actually
exists on a straight line. For figuring horizontal
distance determine the grade (slope) of the land
and then use the correction table.
Aerial Photographs are commonly used for
determining land area. Acreage can be measured
directly from them. In most areas photos can be
checked for acreage at your local ASC (Agricul-
ture Stabilization and Conservation) office.
PLANNING YOUR FARMSTEAD
A Good Farmstead Arrangement pays off in
many ways -- better living, increased work effi-
ciency and greater farm production.
PLAN FOR PRESENT AND FUTURE
Few farmers have the opportunity to build a
new, "ideal" farmstead. Usually only changes are
made in the existing farmstead -- too often with-
out adequate planning. Buildings are poorly lo-
cated since no over-all plan is worked outfirst.
A better way is to study the present farm-
stead, decide what changes are needed and then
set up a step-by-step plan for making the trans-
ition. Keep objectives in mind while planning.
Needs. Plan the farmstead around the over-all
farm operation since building needs depend on
the crops and livestock produced.
Efficiency. High production per man hour of
labor will boost farm profits. Poorly arranged
buildings, lots and fields reduce labor and ma-
chinery efficiency. A modern farmstead arrange-
ment can eliminate miles of walking and endless
hours spent carrying feed and water to livestock.
Buildings should be designed and arranged so that
livestock do most of the work, eliminating much
of the lifting, forking, pushing, scooping, carry-
ing, climbing and hard work.
Flexibility. Allow room for expansion. Build-
ings should be arranged so that some flexibility
between enterprises is possible but plan your
arrangement around the major enterprise for
ADAPT PLAN TO LOCATION
Consider such factors as drainage, prevail-
ing winds, sunlight, snowfall, etc. when planning.
The building arrangement should be planned to
take advantage of any desirable effects of these
natural influences and at the same time minimize
their bad effects.
Good Drainage Is Necessary Buildings,
service areas and lots should be on well-drained
locations. Most important is that there be good
drainage away from the farmhouse and yard --
both for surface water and sewage disposal. A
gently sloping farmstead greatly helps natural
drainage. A high spot or knoll is an ideal location.
It may be necessary to change slope or
drainage by grading. With modern earth-moving
equipment it is easier and better to change
farmstead topography than to arrange buildings
to fit natural conditions.
Prevailing Winds And Sunlight. summer
winds are usually from the southwest and winter
winds from the northwest. Arrange the farm-
stead so that the cooling effects of summer
winds are gained, yet so that the buildings will
protect work and livestock areas from cold
winter blasts. Have fronts of buildings open to
south or east if possible and group them so that
they form a wind barrier. South fronts let sun
in during winter. This helps dry out bedding
and reduces moisture problems.
Use windbreaks on north and west to help
protect against winter winds. In snowfall areas
windbreaks and proper building placement Will
help control drifting and save snow scooping.
PLANNING YOUR FARMSTEAD
A well-planned farmhouse should fit into its
farmstead surroundings as well as having con-
veniently arranged living, working and sleeping
areas. Here are some guides to remember
1. If possible, build house at least 100 feet
from the road. Cuts down on noise, dust
and increases privacy.
2. Put driveway close to main entrance
3. Locate kitchen so driveway and service
area can be seen from kitchen window.
4. Locate bedrooms for summer breezes
or use mechanical cooling.
5. Have garage attached or near house.
Avoid facing garage toward road -- open
doors are unattractive.
space for visitors and WI/D/
connect areas with con-
crete walks. )
A FARM SERVICE YARD Z/UI/A C[//6
is the hub or center of the
farmstead. It reduces
the distance between Q
buildings, yet provides
reasonable fire protec-
tion and allows room for
moving machinery about
Shape is not fixed -- it
can be square, rectang-
ular or L-shaped but 80
feet is the minimum $4
width needed for turning
machinery and big
trucks. More width is better. Use gravel or
crushed rock to make an all-weather drive to
major buildings. Other areas of the yard should
be in grass.
MACHINERY CENTER. Having the machinery in
a central storage building is better than storing
machinery in several buildings. Repairs are
easier to make and attachments and mounting
brackets are less apt to be mislaid or lost.
Locate the machinery storage building (includes
the farm shop) for easy access to lanes and fields.
Allow plenty of space for maneuvering
machinery. A minimum of 50 feet is needed for
large machinery. Use space in the service yard
whenever possible. If the machine shed has
doors on both sides allow at least 30 feet of ser-
vice yard on the back side for turning. If back
doors are rarely used they could open directly
into a pasture lot and the building be lined up with
the service yard fence. Allow 50 feet of open
space in front of end doors. Machine sheds are
sometimes built along the lane to fields. In this
case allow plenty of room to get machinery in and
out. Leave room for expansion in any location.
If possible face big doors that are often left
open away from the house and road for a neater
farmstead appearance. Ice and snow problems
can be partly eliminated by facing doors to the
south and east.
GRAIN CENTER. Grain storage is usually at the
farmstead unless portable equipment is used
for storing where it will be fed later. A spot
in the service yard is the best location -- pre-
ferably near one side so that there is enough
room for the elevator and for driving trucks and
wagons in and out.
Various types of
storage buildings are
suitable -- size and type
depending on farm
H/lADEI needs. Plan to use me-
chanical loading andun-
loading equipment. The
grain center may be
combined with a proc-
,i2ZyV essing and feeding
/t F/L center for direct han-
-'V6/CE "O dling of feed from stor-
age bins to livestock.
'[lTER E FEEDING CENTER.
ft Wfl i"--Shelter and feeding facil-
S cities should be provided
( E for each class of live-
stock produced. This
would include storage
for roughage (hay and silage) and bedding, lots
and concrete feeding floors.
Arrange buildings to give livestock sunlight
and maximum protection from winter winds.
Summer winds should carry odors away from,
not toward, the house.
Structures for storing hay, silage and bed-
ding should be easily reached from the service
yard and should be adapted for self-feeding.
Let the livestock come to the feed instead of
hauling it to them.
ADDITIONAL INFORMATION on farmstead planning is avail-
able from Agricultural Engineering Departments of many
agricultural colleges. Two good bulletins are:
PLANNING YOUR FARMSTEAD- Bul. 732, Univ.of Illinois.
PLANNING THE KANSAS FARMSTEAD Kansas State College.
FARMSTEAD PLANNING SERVICE for your personal farm-
stead problems isavailable through Doane Engineers. Write
for more information.
IMPROVING EFFICIENCY ON THE FARM
Production efficiency is no longer a goal
for farmers -- it is a necessity for profitable
operations. Mechanization and other technolog-
ical advances have increased the load one man
can handle. However, in recent years a com-
bination of factors has placed the farmer in a
position that demands efficiency on his farm to
the fullest extent possible. Profit margins have
decreased. Modern farming takes large cash
outlays for equipment, fertilizers, fuels and
other purchased items. As the manufacturers'
costs have risen, so have the farmers'.
Labor Costs Have Increased -- The farm
labor force has moved to the city at a rapid rate
over the last 20 years. Some of this was due to
farmers moving who could not succeed on the
farm. The greatest cause was the higher re-
turn to labor paid by non-agricultural industries.
The over-all reduction of the farm labor force
and the demand by the remaining laborers for
wages and benefits more in line with city work-
ers have pushed farm labor costs much higher
than they used to be.
Everything points to a continuation of this
situation. The migration from the farm will con-
tinue so long as there is a wide difference be-
tween the wages paid in the city and on the farm.
The high cost of labor will accentuate the trend
toward complete mechanization.
BALANCING PRODUCTION FACTORS
Every farm operation takes a balance of
land, labor, capital and management. However,
management and labor are the largest limiting
factors today. Generally land is available for
rental or purchase. Capital can be obtained if
the operator can display management ability
and a sufficient labor force to handle the opera-
tion for which he wishes to borrow money.
Planning is the first step toward an efficient
operation. A long-time farm program should be
planned with three purposes in mind:
1. Getting maximum production of crops andor
2. Making the most efficient use of the available
labor and equipment.
3. Conserving and building soil fertility.
MANAGING FOR TOP PRODUCTIVITY
Making the most of the resources at hand is
the primary goal. There are few farms in the
country today that could not improve returns by
simply reducing unnecessary costs.
FARM LAYOUT is one major area where savings
can be made in many existing operations. Pages
53 and 125 deal specifically with farmstead
layout and laborsaving in crop production. By
applying some of the principles discussed in
these pages, it is possible to save field time
fuel costs and reduce feed handling. For example,
you can save up to 20% on machine labor re-
quirements by changing three-sided fields into
rectangular fields. Page 303 discusses feed lot
layout and equipment for more efficient feeding.
VOLUME PRODUCTION -- To most farmers,
small gross income is the number one problem.
It may be necessary to increase cash outlay for
feed or for labor. Here is an example of the
economies involved with volume production.
THE FACTS SHOW HIGH PRODUCTION PAYS OFF
Yearly Production Per Cow 6,500# 8,500s 10,800#
Siloge $7/ton $ 15 $ 19 $ 18
Hay $22/ton 26 30 33
Concentrate $3/cwt. 69 84 99
Pasture charge 24 26 29
Total feed costs $134 $159 $179
Other costs, except labor 67 79 89
Total Expenses $201 $238 $268
Income from milk $4.15/cwt. $270 $353 $448
Return to Labor $ 69 $115 $180
Note: FEED CONSUMPTION AT EACH PRODUCTION LEVEL FROM
MISSOURI DHIA RECORDS. FEED AND MILK PRICES ARE
NATIONAL AVERAGE FROM USDA DATA. OTHER COSTS
ARE ESTIMATED AT 1/2 FEED COST.
This table indicates a truth that many have
nto accepted. Low total cost does not always
mean "least expensive." The goal in volume
production is to realize economies that will
permit a low cost per unit of product relative
to the sale price.
For example, a man putting on a pound of
beef gain for 21V that will sell for 27 is way
ahead of the man whose beef gain cost 18< per
pound, but will only sell for 21V.
RECORD KEEPING is a required tool for farm
planning and efficiency analysis. It shows ex-
actly what is taking place, and where real ef-
ficiency is being accomplished. Take the above
table for example. It shows that a dairy cow pro-
ducing 10,800 pounds of milk is a much better
financial asset to the farm than a lower produc-
er, despite higher total costs. Without cost and
return data it wouldn't be possible to say which
cow was the most profitable.
Records also show which enterprise on a
farm has the best return per unit of outlay.
IMPROVING EFFICIENCY ON THE FARM
Return per $100 feed fed is an example. This
gives a measure that will help you plan changes
in the farming program.
BALANCING LABOR USE through the year is
another major step toward production efficiency.
Many farmers are going toward a specialized
operation that has large labor requirements in
certain seasons and does not use labor in others.
Due to conflicts that may arise during the labor
season of the specialty, they may not handle
other crops or livestock.
For example, a corn farmer may not feed
livestock for the most profitable market because
it would require too much time during the spring
and fall crop seasons. Here mechanization and
feeding arrangement may reduce the labor re-
quired so both enterprises can be handled. Or,
an alternative program may be worked out that
will utilize the labor in the off-season and pro-
vide a larger income for the year. A cattle
wintering program or fall-farrowed pigs may
provide use for labor in winter.
Short-range planning avoids overloading
labor at peak times and assures that the avail-
able labor is used when openings appear in the
work routine. Having alternative jobs ready in
case it isn't possible to get to the major job is
the mark of good management.
HIRED LABOR INCENTIVES -- In recent years
the growth in farm size has increased labor
requirements of farms. Often the family labor
supply is not sufficient to meet the needs. To
acquire and keep a good hired hand on the farm,
many are using a bonus arrangement based on
production over certain established goals. A
bonus plan will tend to increase the interest of
the laborer in the farm operation.
There can be no set policy for bonuses.
They must be worked out on the basis of the
farm business, the ability of the hired hand and
the length of tenure of the hired laborer. The
bonus should be based either on a production
factor or gross income.
The bonus should not be considered as a re-
placement for wages. A hired man should re-
ceive the going wage in the community and have
a comfortable, pleasant place to live.
Payment should be based on several or all
of the farm enterprises rather than only one,
unless the farm is highly specialized. This will
encourage active interest in all of the farm
business and make payments come throughout
the year. If the hired man has to leave the farm
for no fault of his own (sickness, for example)
he should be paid the bonus, based on time
worked, for any enterprise that was a "going
concern" when he left.
It is of primary importance that the bonus
agreement be simply stated and mutually under-
stood. It would be best to have the agreement
drawn up into contract form by a lawyer.
Any bonus plan should be selected so that the
rate will provide substantial but not unreasonable
payment. If a production standard is used, it
should be within reach of good management.
POSSIBLE BONUS FACTORS
A bonus plan should be carefully selected.
It must be based on the individual problems and
goals. Some of the following ideas might be
used in making an agreement.
DAIRY -- Three to six percent of the milk
checks, payable monthly or when the milk check
is received. Or fifty cents to one dollar per 100
pounds of milk sold over an agreed amount of
milk per cow (say, 5,000 to 7,000 pounds de-
pending on breed and other factors).
MEAT ANIMALS -- The payments can be based
either on poundage or per head. For example:
Fifty cents to a dollar per 100 pounds of pork or
beef produced during the year. This would
amount to $500 if production was 100,000 pounds
and the bonus was fifty cents a hundred.
Other bonus suggestions for meat animals:
Fifty cents to one dollar for each pig weaned.
Four to six dollars for every sow that weans
seven or more pigs.
Five to ten percent of gross hog income, with
change in inventory considered.
One to three dollars for every calf weaned.
One to two dollars for every lamb saved above
one per ewe.
CROPS -- Figure the bonus as two to five cents
per bushel of grain, or twenty-five to fifty cents
per bushel of grain above an agreed yield per
acre. Here the standard might be the average for
neighboring farms or farms with similar soil
types or the county average for the year.
GENERAL -- The following are rewards for work
well done and go beyond the production phase.
One-third to one-half of the premiums re-
ceived at fairs for any placing of livestock
An all-expense-paid trip to an annualfarmers
conference at the state agricultural college.
And a one to three week vacation with pay,
with a reasonable amount of time off for rest
and attention to personal and family matters.
,.tTuq _oInZturrfruL,.sn, .4.T.,.fl~t~
!II *9Otiw~jlg~lfe lt
Incentives of some type for farm employees,
tenants or sons are almost a necessity to maintain
their interest in wanting to continue working on
your farm and doing the best job possible to im-
prove farm production and net profit. Two essen-
tials must be met before any incentive plan will
work. You, as a farm operator must be a good
manager of your employee and he in turn must be
a reasonably good and interested farm worker.
Otherwise, even the best incentive plan may not
improve your farm business. According to a
university study excellent labor relations are
often more important than a high wage or in-
centive payment in increasing farm productivity.
Normally we think of incentives as strict-
ly monetary in nature -- direct payments or
bonuses to reward a hired hand for an out-
standing job. However, there are many other ways
of encouraging employees to do a better job.
FACTORS IN FARM EMPLOYMENT, 1959
(In order of importance)
Incentive plan No incentive plan
(23 farms) (15 farms)
By By Hired By By Hired
Factor Farmers men Farmers men
Good labor relations 3 1 1 1
Good wages 1 2 2 2
Adequate house plus
privileges 2 3 4 4
Good buildings and
equipment 4 4 3 3
Vacation or time off 5 6 5 5
Incentive payment plan 6 5 6 6
Bonuses 7 7 7 7
In the table above you'll note that several factors are con-
sidered more important than incentive plans and bonuses to
both farm owners and their employees in good farmer'farm em-
Essentials needed before an incentive plan
should be considered:
1. Provide employee with a comfortable
home, which has modern conveniences.
2. Make him feel he is a part of the business
by keeping him informed about what is going on.
3. Give your employee some responsibility
by asking his advice on various management
decisions. This can also be done by giving him
major responsibility in an enterprise.
4. For a young man interested in farming, it's
often an incentive for him to work with a good
farmer to gain experience. Make a special effort
to pass your experience on to him.
5. Give your employee a feeling of security.
Longer term contracts may be a means of
assuring your employee that the job is his if
he continues to do well.
6. Review written agreements from time to
time to make sure that both you and your employee
are satisfied with the terms.
7. Furnish good buildings and equipment for
your employee to work with.
8. For a son working into the business, assure
him that he will become eventual owner by making
out a will or some other agreement to that effect.
9. Grant your employee certain privileges,
such as use of the farm truck or auto, payment of
his electric bill, and free milk, eggs and meat.
10. Allow employee the right to invest inthe
business at a specified return, having first lien on
income. Grant him the right to withdraw any time.
Under most bonus arrangements involving
direct payment, the hired man or tenant receives
a wage, plus a percentage of the income from an
enterprise or the totalfarm income. Other forms
of bonuses include: (1) a vacation with pay, and a
reasonable amount of time off to take care of
family affairs; (2) an all-expense-paid tripto the
annual farm conference at the state agricultural
college; (3) giving him 1/3 to 1/2 of all state fair
premiums obtained by exhibiting purebred live-
stock; (4) year-end bonus for staying all year; and
(5) overtime pay. Do not offer to pay the employ-
ee's part of social security tax. This is not legal.
Wage-Income Sharing Plans can be divided
into 3 major types:
1. Payment based on physical production -- a
flat rate is paid for each unit of production, or a
rate for each unit produced above an agreed-upon
level. Carefully calculate your costs of production
before specifying a particular rate. The following
examples serve only as guides.
Examples: / 3 to 6% of each month's milk check, J 50o to $1
per 100 pounds of milk sold above, say, 7,000 to 9,000 pounds
per cow depending upon breed, 1 50f to $1 for each pig weaned,
$/ 4 to $6 for every sow that weans more than 7 pigs, i 54 to
10 for each dozen eggs sold over 15 dozen per hen per year,
1 5 to 7% of egg sales, t $1 to $3 for each calf weaned,
1 $1 to $2 for every lamb saved above one lamb per ewe,
1 15t to 25t per bushel of corn produced above an agreed-upon
yield per acre, / 2t to 34 per bushel of grain produced.
2. Sharing profit of the farm--the employee
receives a percentage of total farm income.
3. Equity building plan -- an example of such
a plan is when the employee, in addition to his
wages, is allowed to purchase some kind of live-
stock and raise them on the farm. Some of their
roughage and grain requirements are contributed
by the owner. These plans, although they general-
ly don't increase the productivity of employees,
may keep them on the farm longer. This should
only be used for someone whom you definitely
plan to have take over the business.
ESSENTIALS OF A GOOD PLAN
Keep plans simple so they can be easily un-
derstood. A lack of understanding often leads to
distrust. Your employee is more likely to be sat-
isfied with a plan when he can easily determine
how it's calculated from beginning to end.
PUT PLANS INTO WRITING so there will be no
dispute later on. Plans which cannot be written in
simple language shouldn't be used. Ask your at-
torney to help you draw up an agreement. If the
bonus is tobe based on a percent of net income or
some other measure of income, the exact meaning
of this measure must be made clear. Net income
can be calculated many different ways. Any in-
come or expense that is not to be shared should be
noted to avoid misunderstanding at settlement.
GOOD ACCOUNTING RECORDS must go hand-in-
hand with bonus plans. Without records there
is no basis for determining how well the hired
man has been performing, so there is nothing
upon which to base a bonus payment.
PROMOTE EFFICIENCY -- Plans which base
bonus payments on production or gross income
may encourage inefficiency if certain limitations
are not agreed upon. For instance, to get more
milk, a hired man may overfeed cows or feed
a high-priced ration. This can be overcome by
deducting purchased feed costs from the milk
check before paying a bonus, or by specifying in
advance the total concentrate feed tobe fed to the
herd each month. Problems of overfertilization
and excessive use of insecticides and herbicides
occur when payment is based on crop production.
Normally, on a general farm, greatest over-
all efficiency is obtained by paying a small bonus
on each of several enterprises, or by giving a
share of the totalfarm income. The employee will
take a greater interest in the business as a whole
than if one large bonus is paid on one enterprise.
PAY A BASE WAGE competitive with farms in
your area. This will assure the employee that his
bonus is a reward for increasing farm production
and income. It's not practical to adopt an incentive
plan at the expense of reducing base wages.
BONUS PAYMENTS must be large enough toin-
crease incentive. If not, then it's best to increase
wages by this amount.
PRODUCTION STANDARDS within reach of good
management in your area should be set.
LEAVE CERTAIN DECISIONS to the employee so
he has freedom to improve production and profit
upon which his bonus is based. However, retain
the right to make major management decisions.
AVOID SHIFTING RISK TO EMPLOYEE -- E v e n
though he may do his best, prices or a poor crop
year may hold production or income at below
bonus levels. Therefore, it may be desirable to
set a minimum bonus so payment is not unneces-
sarily limited by circumstances beyond control of
the employee. Since hired help usually is not al-
lowed to make major management decisions, they
should not have to share in that part of the risk.
FREQUENT BONUS PAYMENTS, made in smaller
amounts throughout the year, are usually more ef-
fective than large lump-sum bonuses at the end of
the year. Try to make payment as soon as the
hired man fulfills his requirements.
Net vs. Gross Income Sharing -- Sharingin-
come with your employee can lead to many dis-
agreements and inefficiencies unless both parties
thoroughly understand the plan at the outset and
agree on how income is to be calculated.
There is a tendency for farm owners to spend
excessively on such items as building repairs, in-
surance, depreciation and change in inventory, in
order to lower net income and reduce taxes. If
these items are included in calculating net income
for bonus, they must be given special considera-
tion. A certain allowable depreciation rate, fixed
inventory value of livestock and other items, and a
maximum amount which can be spent on building
repairs, insurance and paying farm debts should
be agreed upon. An alternative might be to calcu-
late net income for bonus by a simpler method.
NO ONE BEST PLAN
The best plan and provisions of that plan
should be designed for your farm. Consideration
must be given to the type of help available --
hired, family or tenant -- your particular farm
and its income. In certain areas high prevailing
wages and low farm prices make bonuses
impractical. In the case of tenant crop and
livestock share leases, many Doane farm mana-
gers feel incentive plans are unnecessary.
They believe the sharing arrangement provides
tenants with adequate incentives.
Before drawing up an incentive plan, deter-
mine what certain plans will cost you. With the ups
and downs in farm prices, it's better not to commit
yourself to a plan too soon before you see how you
are going to come out over a period of years.
In the future, such incentives as providing the
hired man with hospitalization insurance cover-
age and the like will probably become more com-
mon. Often, however, the hired man looks at his
pay check and seldom gives full consideration to
additional privileges. Thus, it may be wise to
present the hired man with a list stating the value
of additional privileges from time to time.
-i? -: ;. 4
The corporation is becoming a more impor-
tant and effective farm business form. Today,
commercial farms are big business with invest-
ment per worker up to $100,000 or more. These
commercial farms are facing management and
production problems similar to those of indus-
tries. Incorporation can be used to cope with
these problems as it has long been used by indus-
trial factories and other city firms.
Incorporation is not a magic formula. How-
ever, there are definite benefits to this business
form for many farm situations.
A corporation is a legal entity authorized by
state law. Once organized, it is treated as an
individual in its dealings with others. Incorpora-
tion may bring together land, equipment and cash
reserves of several people.
More and more capital is required every day
to maintain a competitive operating unit. The
pooling of resources of members of a family,
relatives or even neighbors may be desirable. In
some cases, incorporation would provide a large
enough operation to justify expensive equipment
needed for efficient farming.
A major problem, once a competitive farm
unit is obtained, is inheritance. Without incorpo-
ration, to equitably distribute the farm estate
among heirs, it may be necessary to split up an
efficient farm into small, inefficient units.
The owners of the corporation (called share-
holders) are issued certificates or shares repre-
senting the interest each holds in the total corpo-
rate assets. In most closely held farm corpora-
tions, all shareholders will be officers or other-
wise employed by the corporation and receive
salaries. Later, should additional capital be
needed to build and improve the farm business,
shares in the corporation can be sold to others.
-- Sales may be restricted to members of the
family and relatives, or be open to others inter-
ested in investing in the business, depending on
the by-laws or Articles of Incorporation.
Limited Liability is an important considera-
tion. Unlike the partnership, shareholders in a
corporation are liable for debts of the corpora-
tion and action of other shareholders only to the
extent of the shares which he or she owns. Since
the corporation is a legal "person" in itself, it
is responsible or held liable for the actions of
authorized representatives of the corporation.
The state laws of incorporation specify that
the rights and duties of shareholders, directors
and officers of the corporation be clearly spelled
out. The "chain of command" and management
responsibilities are set out in detail. For this
reason, the corporate business form provides
flexible and decisive management which may be
difficult to obtain in other business forms repre-
senting multiple ownership.
A corporation can have perpetual life. Death
of a stockholder or other causes of share trans-
fer do not directly affect the operation of a cor-
poration. Management continues without inter-
ruption. Ownership is represented by shares of
stock in the whole farm. These shares or certi-
ficates of ownership may be transferred from
one person to another, such as heirs, merelyby
signing them over to the second party.
Gradual Ownership Transfer is greatly facili-
tated in a farm corporation. A farmer mayhave
two sons and a daughter. One boy, in business
in the city, and the girl are not interested in
farming but are deserving of an equitable inheri-
tance. The father and children can set up a family
farm corporation. The father retains controlling
interest in the farm and remaining ownership is
split equally among the children. The secondboy
may desire to stay and work on the farm. His con-
tribution to the farm's success could be rewarded
from time to time by giving to him or permitting
him to buy additional shares from the father.
Careful planning can avert or reduce gift taxes,
and later inheritance tax.
When the father retires he can hold control-
ling interest in the property. The farm boy could
be hired as farm manager. Upon the father's
death, his remaining shares could be equally
split among the children. The boy in town and the
daughter are satisfied as they have an equitable
HOW TO INCORPORATE
Procedures vary from state to state. These guides are
the steps generally required.
Be sure to work with an attorney.
File for a corporate name; make preincorporation
agreement; draft, sign, verify and file the Articles of
Incorporation; pay initial fees.
I Turn assets over to corporation -- issue shares of
stock in return.
0 Shareholders elect directors; directors elect officers,
adopt by-laws (as prescribed by Articles of Incorpora-
tion); begin business in the name of the corporation.
inheritance, represented by income-producing
shares. The second boy is happy because the farm
has remained intact and he has controlling inter-
est and is manager of the "home place."
The corporate family farm income can be
split among several members of the family (as
salaried officers, or by stock distribution). In-
come of the individuals may be taxed at a lower
rate than if all income were received by the
father under an individual proprietorship.
The 1958 Tax Law makes it possible for a
corporation to elect not to be taxed as a corpora-
tion. In essence, all other functions of the cor-
poration remain the same, except payment of
Federal income tax. Most closely held farm cor-
porations can qualify for this tax treatment.
Under this "pseudo-corporation," profit or
loss is passed on to the shareholders at the end of
the year, with it being taxable to the individaul
as if it were a part of his own personal income.
This transaction can be done on paper only, with
the corporation retaining the income. Later dis-
tribution will be tax free.
In the past, many farmers have looked on
the regular corporation as a desirable business
form for their farms, but found corporate taxes
prohibitive. Corporate net income, after all ex-
penses and salaries have been paid out of gross
income, has been subject to double taxation --
first as corporate profits (at a rate of 30% for
net income up to $25,000 per year, and 52% for
net income over $25,000) and second through in-
come tax paid by the shareholder on his dividends.
The "Pseudo-Corporation" noweliminates this
drawback, and opens the door to corporate
farming benefits to many more farmers. When
taxable income received by the individual ex-
ceeds $16,000 (joint return), it may be advanta-
geous for some persons to change back to a pure
corporation. If this is the case, shareholders
simply elect to revert to a pure corporation.
Re-election of the "pseudo-corporation" would
be permitted after 5 years if this again
4 Improved credit status -- Afarm corporation
can often obtain more credit than farms under
individual proprietorships or partnerships. This
is because of its continuity of operation or per-
petual life. Also, the credit of a corporation is
not impaired by the individual liabilities of share-
holders -- the case with partnerships.
4 Liability insurance or workmen's compensa-
tion insurance covers all employees of the cor-
poration. In other farm business forms, only
hired help would be eligible for workmen's com-
pensation insurance -- additional accident insur-
ance and the like would have to be bought to
cover the owners, often at a higher total cost.
W Social security benefits, especially for older
operators nearing retirement age (65), may be
available under corporate farming. Operators
can assure themselves a constant salary (even
though the corporation may show a temporary
loss) in their last few years prior to retirement
-- a major factor governing the amount of social
security benefits earned. Benefits here could far
outweigh the cost of forming the corporation.
V Fringe benefits. Corporation employees are
eligible for certain retirement programs which
defer taxes until retirement. They can alsotake
advantage of "sick pay" benefits. These and other
fringe benefits aren't available to proprietor-
ships or partnerships.
* A corporation may pay certain fees and taxes
which are not required of other types of business
organizations. These include initial filing and
license fees, initial franchise tax and Federal
stamp tax. These costs will vary from one state to
another, but under careful planning will average
around $200 to $300. Legal fees in most cases
will be a minimum of about $150. The advice of
a lawyer is a necessity.
These fees should not be an obstacle in those
cases where incorporation is found tobe a really
desirable form of business. Benefits accrued to
soundly formed farm corporations usually pay
for incorporation costs many times over.
* Formal organization and records are required.
The law is quite specific in requiring proper fil-
ing for incorporation, provisions for duties and
powers of each shareholder, director and officer,
and other details of organization. Annual meet-
ings must be held, officers elected and an annual
report of business must be made and filed with
the Secretary of State.
This red tape may be distasteful to many.
However, it will usually result in greater busi-
ness efficiency. All major policy decisions must
be properly filed for record -- this can leave no
room for later question. The paper work required
of corporate farms varies little from that which
should be followed by most top-notch farm busi-
nesses. Records and a businesslike approach
will be helpful in analyzing your farming opera-
tions as well as improving your credit rating.
Requirements of incorporation will vary from one state to the
next -- in such things as the minimum number of shareholders
(usually three), taxes and other details. <;o over the requirements
of your state with a reputable attorney. Note -- Many states,
such as Kansas, Oklahoma and Texas, lave recently or are now
in the process of modernizing their Statutory Codes. Farm incor-
poration is permitted more widely and i, many more situations
for Your Farm
Many farmers are today weighing the advan-
tages of incorporation. It's a highly individual
thing. There's very little chance that abroad gen-
eral recommendation will fit each farm situation.
We feel, though, there are two recommendations
that can be made that will be helpfulto a major-
ity of farmers who are judging this form of or-
ganization. "The sound reason for incorporation
will almost always be found outside the areas of
income tax saving." Further, "The additional
costs of incorporating and carrying on a corpora-
tion will almost always be unimportant if there is
a sound reason for incorporating."
Advantages which favor incorporation are:
4 continuity of business despite death of a stock-
holder; 4 easier transfer of ownership since
stock rather than physical property is sold, ex-
changed, or given; 4 liability of stockholders is
limited to the value of their stock; 4 many fringe
benefits are available to the stockholder if he's
an employee of the corporation; 4 often it's
easier to get more capital into the business
from non-farming family members; 4 an em-
ployee-stockholder may have a more stable
salary for social security purposes.
Some of these advantages can be more illu-
sionary than actual under certain conditions. The
limited liability feature is not meaningful if the
farmer has everything he owns invested in the
farming corporation. Stability of salary can only
occur if the corporation is financed well enough
to "stand" sharp changes in profits without a
curtailment of salary paid.
At the saine time the advantages of attract-
ing additional capital from non-farming family
members and the advantages of gradual change
in ownership and management through stock sales
or gifts rank high in importance. The need to
maintain a going farm organization from one
generation to the next with a gradual transition
of ownership and management is foremost in the
minds of farmers investigating incorporation.
WHICH TYPE CORPORATION?
The conventional corporation does not fit
into most farm operations too well. Here's why:
Tax rates are fixed. Whether $1,000 or
$25,000 of profit are made the rate is 30%.
Profits above this level ($25,000) are taxed at 52%.
Dividends paid by the corporation are taxed
again as income to the recipient. As a result of
this, a conventional corporation is subject to what
is called "double taxation" which puts it to a dis-
advantage under most cases.
Capital gains are taxed at a flat 25%. The
rate paid by an individual can be as low as 10%
which is one-half of the lowest income tax brack-
et. This factor alone can exclude a typical dairy-
man or rancher from adopting the conventional
A key point in making use of the conven-
tional corporation in a farming situation is to set
salaries high enough to take almost all of the
profits. Since these corporations are either
closely held or family groups the government
often checks the returns with extra care and
sometimes does not care for last minute adjust-
ment or bonus arrangements.
THE SPECIAL CORPORATION
The special election which allows a cor-
poration to pass its profits through directly to
the stockholder solves many of these problems
but also creates a few of its own. This election
has been called by several names. Prominent
are: the pseudo-corporation, elective corpora-
tion, Subchapter S corporation, tax option cor-
poration. They all mean the same thing.
Federal Taxes are not paid by the corpora-
tion. The profits or losses are passed direct-
ly to the stockholders at the end of the year and
the taxpayer then includes these in his own tax
return. As a result, rates will vary depending on
TAX COMPARISON between the ordinary and
special corporation has been made by USDA.
Assumptions: Farmer and his wife are sole shareholders in the
corporation. All the profits are distributed in one form or another.
Net corporate income is $30,000. The corporation tax would be
$10,100 on this amount of earnings. The individual tax paid by
the shareholders on the distribution would be $3,466. Combined
taxes (corporation and personal) would be $13,566. If income is
distributed to shareholders tax would be $7,574.
Tax savings can be even greater, proportionally, on lower
earnings. Assumption: A corporation net of $7,500. Man and wife
sole shareholders. Total corporation and dividend taxes would be
$2,800. If profits were passed through directly to the share-
holders, taxes would drop to $1,141. a saving of 59%.
Inthese cases no additional income or exemptions were assumed
and the taxpayers took the standard deduction.
CONCLUSION. At lower income levels the special
corporation election is much superior to the con-
ventional corporation taxwise. Theoretically, the
ordinary corporation would be preferred, tax-
wise, when income exceeds $16,000 (married
taxpayer) if he exercised full control to allocate
the correct portion of this income to salary,
bonus and dividends. However, this can rarely
be done. As a result it appears that farm corpora-
tion net profits can exceed $25,000 or even $30,000
before doing business as an elective corporation
is costly as far as taxes are concerned.
Capital Gains are taxed at less than the 25%
rate if the special election is taken, whenever
taxable income is below approximately $36,000.
Above that level you'd pay the maximum rate
on gains whether a conventional corporation
or special elective corporation is used.
TWO Tests must be met before the special tax-
ing election can be made. The stock test is:
1.) No more than 10 stockholders, all agreeing
to the special election. 2.) Stockholders mustbe
either individuals or estates. 3.) The company
must be a domestic corporation and it cannotbe
a member of an affiliated group of corporations.
4.) No non-resident stockholders are allowed.
5.) Only one class of stock can be used.
The income test is: 1.) No more than 20%
of gross annual receipts can be made up of
rents, royalties, dividends, interest, annuities,
sales or exchanges of securities. 2.) No more than
80% of gross annual receipts may consist of in-
come from sources outside the U.S.
These aren't serious for farm corpora-
tions except the rent limitation. While IRS hasn't
ruled specifically on this point it appears that
tY an owner of farm real estate, renting it to
others to operate, would receive "rent" and as a
result couldn't use this special corporation set-
up. The point that distinguishes "rent" is ser-
vices performed. For example, a motel opera-
tor does not receive rent, while an owner of an
office building renting to business firms andfur-
nishing conventional services does receive rent.
CONCLUSION. Landowners should move cau-
tiously unless they also operate their land.
Minor Stockholders in an elective corpora-
tion can force action greater than their voting
power under certain circumstances. All stock-
holders make the special taxing election by
filing Form 2553 which includes their signed
statement. They must also all agree to revoke this
special taxing provision if they want to revert to
a conventional corporation. However, if one
stockholder disposes of his stock to someone out-
side the corporation and the stockholder won't
agree to the special election, it is then terminated
even though remaining stockholders want to con-
tinue the pseudo-corporation.
This limitation can be solved by having a
special provision in the Articles of Incorporation
which provides that the shareholder offers his
stock for sale to the corporation or its share-
holders before he offers it to outsiders. How this
is done will depend on state laws. Generally the
restriction must not cause an unreasonable re-
straint on the right to transfer ownership.
Social Security -- Profits allocated directly
to the stockholders at the end of the year are not
self-employment earnings; salary paid by the
0^' In community. property states a man and
his wife are considered two stockholders. As a
result you can unintentionally have more than
the maximum number of stockholders.
WC Businesses which now have losses forfeit
the right to carry these back if they elect the
special taxing procedure.
S If you or IRS revoke the special election
you must wait five years to elect special tax
g"P Reporting, keeping track of income re-
maining in the corporation on which taxes have
already been paid, capital gains, state corporation
returns and stock transfers will be much more
complicated than most farmers are used to.
There is no doubt that a lawyer will be needed.
You must be incorporated before the special
election can be made. This election must be made
during the period commencing one monthbefore
and ending one month after the beginning of your
fiscal year. If this is a calendar year you have
until February 1, 1960 (January 31 is Sunday).
Incorporation is not particularly difficult or
time consuming. As a general rule you can figure
that total assets of the corporation should equal
or exceed $100,000 before incorporation is prac-
tical. In most states incorporation will cost $200
to $300 and attorney's fees will add a minimum of
$150 to this. It will be more where unusual or
complicated arrangements are required.
Each state has different rules and regula-
tions. In a few states, farm land may not be
owned by a corporation. Some states such as
California have a 5-% income tax on corpora-
tions. Others have a franchise tax. You must be
familiar with these state provisions before you
can be sure that incorporation is desirable.
Normal procedure for incorporation will in-
clude: v a preincorporation agreement, v an
application for a corporate name, 4 filing
Articles of Incorporation. This will vary. There is
no tax on transferring property from individual
ownership to the new corporation if after in-
corporation 80% of the stock is held by the pre-
vious owners of the assets.
The "office work" required in running
today's farm is becoming more and more impor-
tant. In fact, if you do a good job in this area you
may be able to make more per hour of labor
here than in any other phase of your business.
A farming operation without good records is
much like a tractor without a driver. Therefore,
a sound understanding and working knowledge of
this "office work" is vital to the success of
your farming operation. The farmer whounder-
rates the value of records is often overrating
himself and his operations.
GOOD RECORDS HAVE MANY USES
First and of primary importance -- good
records form the basis around which to plan a
more efficient operation and to keep yourself
on the "track" toward accomplishing long-run
goals. Records are probably your best and surest
way of determining what enterprises are most
profitable on your farm and pointing out why
others are not as profitable.
1. Aid in filing and managing income taxes.
Good records often permit you to man-
age your income tax problems in such a
way to save much more money in taxes
than you would otherwise. Besides, they
provide you with proof should you ever
be questioned by the Internal
2. Provide a basis for credit. A sound
management plan for your farming
operation, along with a good set of
records, can go a long way in establish-
ing you as a good credit risk. With
today's high capital requirements in
farming, credit becomes the means by
which capital can be acquired to oper-
ate a profitable farm. Many banks re-
quire a statement of your net worth at
the time you apply for a loan.
3. Establish a basis for profit-sharing
4. Provide evidence of crop history
in relation to various governmental
Most records and accounts kept onthefarm
can be classified as follows:
a. Income and expense records.
b. Inventory records. Primary purpose is
to show your financial position at one
c. Crop and livestock records -- include
land use, crop yields, livestock produc-
tion, pasture records and feed fed.
Other records include those of hired labor
for social security purposes, gasoline used on
the farm for gas tax refunds, power and ma-
chinery use and products used in the household.
MANAGE YOUR INCOME TAX
Income tax management is more than just an
end-of-the-year job. You should manage your
farm through the year, keeping income taxes in
mind. There are a number of ways in which
taxes can be reduced through management. For
example, it's possible to reduce income taxes
by timing the sale of your farm products and
government loan taking, selecting a method of
depreciation best suited to your situation, making
use of sales contracts in some instances and pre-
paying expenses in years of high income. Select
the method of filing income taxes whichbest fits
your operation. The cash method is usually best
suited to smaller farms and those with incomes
about the same year after year. Larger farms
and those with highly variable income will usually
profit by using the accrual method.
SPEND INSURANCE DOLLARS WISELY
The importance of insurance is growing with
the ever increasing investment required in capi-
tal assets on the farm. Insurance becomes a
means by which to protect these large invest-
ments. A major catastrophe may easily cause
you to lose your farm or wipe out your savings
unless you're adequately insured. On the other
hand, carrying large amounts of insurance can
be extremely costly.
It's impractical to try to insure all possible
risks. Therefore, you must carefully study your
situation and determine which risks are most
serious. Once you decide what risks to insure,
shop around to get as much protection as possi-
ble with each dollar you can afford to spend.
Premiums will vary, depending upon the cover-
age and clauses included in a given policy. The
more coverage you get, the more your
insurance will cost.
SOCIAL SECURITY REQUIREMENTS
According to present laws, all employers
are required to withhold social security
taxes and report wages for any employee
who earns $150 or works more than 20 days
during the year. Before doing this, however,
you are required to establish an identification
number as an employer by filing a form for
this purpose. As soon as you owe $100 in
social security taxes, you must deposit this
amount by the 15th of the next month according
to law. Your remittance must be submitted
with Form 450.
You, as an employer, must pay tax if you
net more than $400 a year. Consider the benefits
you'll get in later life from social security
when planning your life insurance needs.
FARM RECORDS AND ACCOUNTS
The only good reasons for keeping farm rec-
ords are to help make greater profits from oper-
ating the farm business and tofurnish the neces-
sary information to make out income tax returns.
Accurately kept records can provide information
about the farm to:
Guide changes in enterprises --from one
to another, bigger or smaller.
Guide changes in farm practices -- new
techniques, equipment, seeds.
Save income taxes.
Help obtain needed credit.
Keep the simplest, briefest accounts that
will do the job you intend for them. It's true, the
more detail contained in a record the more help
it can be. But if you don't intend to analyze and
use them, detailed records are no more helpful
than simple records -- and they take much more
time to prepare.
A beginning inventory, or listing of all farm
property owned (assets) and owed (liabilities),is
the starting point for setting up any system of
records. It may be taken any time during the
year. However, January 1 or near that date is
probably best because it is the beginning of the
calendar year. (Farm work may also be less
pressing.) The difference between what is owned
and owed as shown by the inventory is the oper-
ator's net worth.
Beginning and succeeding annual inventories
give helpful information for planning the year-
ahead operation. By comparing net worth from
inventories taken at the beginning and at the close
of a given year, a farmer's financial gain or loss
for the year is shown.
Many farmers think that they don't need to
take inventory if they report taxes on the cash
basis. Inventories aren't needed for tax pur-
poses on the cash basis but they are needed
for proper analysis of the farm operation.
First Listing of property is most difficult.
Two persons should work together. Let the
operator describe and value the property as you
go around the farm -- the other person can
write the information in a notebook.
Go into every building and'check all lots
and fields so nothing will be overlooked. Take
time to measure hay, grain, feed and fertilizer on
hand to be sure correct amounts are listed. List
items as you come to them -- regroup them
later. List property separately, describing each
item enough so it can be depreciated and handled
separately in the future.
The important point in setting values is
to make them reflect what the operator thinks
the property is worth. Once the original value
is set, it is a good idea to take depreciation on
property that "wears out" according to some ac-
ceptable schedule (see pages 71-74). Inven-
tory values of these items can then be adjusted
from year to year according to the depreciation
schedule adopted. Changes in the inventory due
to purchases or sales during the year will need
to be made.
Four methods of determining inventory
value for tax purposes are:
1. Cost, less depreciation and obsolescence.
Actual production cost for farm products.
2. The lower of cost or market value.
3. Value to the farm based either on ser-
vice or replacement costs.
4. Unit-livestock-price. (For livestock on-
ly.) Each animal within a class is valued at
a standard unit price.
Farm land should be carried at an original,
longtime value so land price changes will not
affect net worth from year to year.
Original Sale and Purchase Receipts to-
gether with inventories are the minimum records
needed for tax-saving purposes. They must be
kept whether or not more detailed records are
made. (Holding receipts at least five years is
recommended to protect you against later
claims.) Be sure date, number of units bought or
sold and intended use of the material are noted
on receipts with the total price and name of the
person or business dealt with. Doing this helps
identify the transaction besides preserving the
information in case of future need.
Request a receipt for every transaction, then
place it in a box or file for later accounting be-
fore it becomes lost. Where no regular invoice
FARM RECORDS AND ACCOUNTS
is offered, provide your own properly-filled re-
ceipt form to be signed by the person with whom
you are doing business. Most people will sign a
prepared receipt though they might object to
writing one if asked for it.
Make all payments by check in the exact
amount of bills. Charge accounts carried with
businesses where several purchases may be
made each month will cut down the number of
checks you will need to write. Before paying
bills, check receipts for purchases made during
the period against the bill for the total. Do not
include "reminder" bills with receipts when
totaling expenses for the year.
Household and Personal Records--Asep-
arate checking account will help keep house-
hold and personal expenditures separate from the
farm accounts. If this isn't practical, try writing
standard-amount checks large enough to cover
the personal budget for a fixed period. After
cashing a check, pay household or personal ex-
penses out of pocket or purse. When cash is ex-
pended, write another standard-amount check
to cover personal and household expenses for
the next period. There is little chance of mixing
farm and personal expenses if checks paying
farm accounts never include "extra change."
Records or receipts of individual personal ex-
penditures may be kept if desired.
At the end of the accounting period, sort
purchase and sale receipts by enterprise (use
income and expense headings from farm income
tax reporting form 1040 F if tax reporting is the
only use you will make of records). Add income
and expense receipts separately for each enter-
prise to get total cash income and expense for
A complete file of properly noted receipts
can be used to show which enterprises are most
profitable. However, transferring receipt infor-
mation to record books is preferred if more
than tax use will be made of it.
Many Column Journals are single entry
records -- only one write-in is made for each
transaction. These journals are available from
many sources, but a bound notebook ruled to fit
the specific needs will serve. Column (account)
headings should be changed if necessary to fit
the expenses and the particular products sold
from the farm.
ADVANTAGES: They are easy to set upand
use, and all cash received or paid out is sum-
marized when columns are added.
DISADVANTAGES: There are often too few
columns to permit enough breakdown of farm
income and expense. Recorded information is
not complete enough for accrual bookkeeping.
Double Entry Ledger Accounts permit more
effective study of different parts of the farm
business as separate units. Ledger pages have
parallel income and expense columns for
the accounts. Each transaction is assumed to
affect at least two different departments of the
farm business. For example, grain fed to fat-
FEEDER CATTLE (Account Title)
DATE EXPLANATION AMOUNT DATE EXPLANATION AMOUNT
May 10100 bu. corn $1. 50
from feed account 151.01)
FEED (Account Title)
DATE EXPLANATION AMOUNT DATE EXPLANATION AMOUNT
May l 100 bu. corn fed to
I feeder cattle 150.00
One account gets credit, the ctter is charged for the corn so each
stands on its own -- neither is unsdiri, ed.
tening cattle is an expense against the cattle but
a credit to the grain enterprise. An entry made
in one account must be balanced by one or more
entries in other accounts. Hence the name,
double entry bookkeeping.
Double entry records should be used only
by those who understand how they work. If the
accounting principles involved aren't closely
followed, the extra work may give more con-
fusion and less help than simpler records.
(Hiring a part-time accountant or studying ac-
counting by correspondence, night school courses
or on your own is advisable for operators who
start double entry records.) Double entry enter-
prise cost records show best which parts of the
farm business are most profitable and why.
Production, performance and farm practice
records help in analyzing the business. Some of
the most common types kept are:
1. Dairy and egg records.
2. Acreage and yield summaries.
3. Rates of feeding and running inventory
of feed supplies.
4. Numbers of livestock; calving, lambing,
5. Labor distribution records.
6. Kinds of fertilizer applied and rates
As more years of all records are available,
they become reliable guides to operating the farm.
Doane Agricultural Digest
_Jrow to prepare a --
CASH EXPENSE BUDGET
A well-planned expense budget is a necessity
on any commercial farm. An increasing amount
of your costs is in the form of cash outlay for
off-farm purchases. You need to be in control of
The best time to do your planning is at the
end of the year. You then have time to think con-
structively about the year ahead. A well-planned
Show you how much expense you have to
meet and when it will come
Help you eliminate those empty spots
where expenses outrun income.
Help in long-range farm planning
Be invaluable when you need to borrow
money. This information can strengthen
financial statement of net worth.
Budgeting farm expense involves the farm,
the crops you plant and the livestock you raise.
Facts about all these items must be considered
when making up the estimates of both expense
To show how this is done, we have set up an
example on the back of this page. To make a
budget for your own farm, substitute the correct
information in place of the figures in this table
on page 68.
The example budget was set up for a 320-
acre farm with 300 acres tillable. One full-time
man is kept, with some day labor through the
summer months. A 6-year rotation of corn, corn,
soybeans, oats seeded to legumes, hay and mead-
ow is carried on the 50-acre fields.
The livestock consists of 30 milk cows, about
30 head of heifers of all ages and 200 head of
hogs raised annually. Farm income is from sale
of Grade A fluid milk, veal calves, cull cows,
bred heifers and hogs. Surplus crops are sold
for additional cash income.
HOW TO SET UP THE BUDGET
Expenses can be carried under any name
you choose. For simplicity, the classifications
in this budget are the same as those expense
items on the Federal Income Tax return blanks.
Thus your records can be transferred to the tax
return without extra work. For further explana-
tion of what can be included, check the instruc-
tions which came with that blank.
FIGURING CASH EXPENSES
COST OF LABOR includes the hired man's regu-
lar wages, plus any extra help hired during the
year. It would include cash expense you pay for
food, utilities, etc., furnished to a hired man.
FEED PURCHASES include 6 tons protein for the
dairy herd and 2 tons for the hogs. All other feed
is raised on the farm.
SEED COST is for hybrid seed corn, legumes
and grass seed. As newer varieties of oats and
soybeans become available and are used to re-
place farm-raised seed, this cost would increase.
MACHINE HIRE is for all custom work. This ex-
ample includes combining 50 acres oats at $4
per acre and 50 acres soybeans at $5 per acre.
SUPPLY PURCHASES include twine, spray
materials, disinfectant and miscellaneous items.
MACHINERY REPAIRS were figured at 4% on a
$15,000 investment in farm implements. Build-
ing maintenance was figured at about 5% on
their present value of $30,000. Both items can
vary considerably from this amount, but these
are safe allowances.
BREEDING FEES are for artificial insemination
for the dairy herd. This was for 42 head at about
$7 per head. Allowance has been made for the
replacement heifers coming on each year.
FERTILIZER COST is for 200 pounds per acre
application on all corn, oats, hay and pasture
seedings. Second year corn also received 100
pounds per acre of nitrogen. One field in the
rotation will be relimed each year with a 2 ton
per acre application of lime.
MEDICAL AND VETERINARY EXPENSE for the
livestock includes all items needed to maintain
good health. This budget includes vaccination of
all hogs against cholera.
GASOLINE, OTHER FUEL AND OIL -- costs for
the tractors, or other engines. For grain farm-
ing, about 10 gallons per tillable acre is a
reasonable allowance. For livestock farms, add
another 5 gallons fuel per acre.
TAXES on real estate are figured at $3 per acre,
plus personal property tax of $200. The latter
will not apply in all states.
INSURANCE includes coverage on farm build-
ings, machinery and livestock. Car insurance is
included under car expense.
INTEREST EXPENSE varies with the amount of
debt, if any, on the farm and personal property.
This was figured at 5% on a $1,000 note used to
trade one tractor.
UTILITIES cover expense for electricity, tele-
phone and natural or bottled gas, if it is avail-
able and used on the farm. It does not cover
household use -- this is roughly 25% of the total
bill, in case of electricity.
CASH EXPENSE BUDGET
RENT on additional land applies only if cash rent
is paid. It does not include value of crop share
paid in lieu of rent.
CAR EXPENSE has been figured at 5i per mile
for 500 miles average per month. Be sure to use
your own figures in establishing this cost for
your own budget.
OTHER FARM EXPENSE covers such miscel-
laneous items as advertising, postage, account
books, office supplies, publications, even trips
to buy cattle, etc.
Most of your expense estimates can be taken
from last year's income tax return. If the situa-
tion has changed considerably, then you may
need to refigure some of the expenses.
OTHER COSTS OF OPERATION
All items discussed up to this time are cash
expense for the cost of doing business. Other
costs which are a part of the expense of farming
include depreciation on dairy or breeding herd,
machinery and farm buildings, except for your
personal residence. Various losses of buildings
machinery and livestock are also deductible, but
instructions on these items are carried on in-
come tax forms. Before making the deductions,
it is well to check these instructions closely.
The cash expense budget considers only cash
costs. It's important to keep this distinction in
mind. It does not reflect true operating costs.
HOW TO MAKE THE BUDGET
Ordinary unruled paper makes a good work
sheet. A sheet 8-1/2" x 11" can be turned so it
lays with the long edge horizontal, like the form
pictured. If you want blank printed forms, send
check or money order for 3' per sheet to the
Digest. Just ask for Form #34 when ordering.
A budget of expenses is best made up by
months rather than for a period of 3 months or
1 quarter of the year. This is most important
when income is received by the month. Checking
anticipated income against the plan for spending
the money shows at once whether income will
balance expenses, or will fall short of the
Budgeting cash farm income is covered on
page 69. By comparing the two pages you can
see how the farm operation in the example will
come out. The complete financial picture makes
it possible to develop recommendations for a
more profitable return from this operation.
ANNUAL CASH Xp/ BUDGET
ITEM TOTAL Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec.
,7t. E'0 0 200 ,,oZ o ..Za .o 0 30a0 300 300o Oa .20 .200 "e
/Ao4/ /'E /'/E /0S0 aoo __,o
f'EpA,',s e /V A,4/YrEV1gE 8/gS'dro .24 zO J lo. !o S1 o o 5- 6 ,a o -4_
fEq'il 1e;A F 3__ ___ _______ ^p /o-o /-0 30
:E'- 1 e/07E 4 6 o 5o 0 A J__
Y 01r a qeufs-ZvAs r -zk __ .-o ao o /&V 40o .o Xo ,/o / .-a .Z A 30o
AM '4s, FuE1,d'/ fPEAes //Oo 6' 5o 5ro /"-o Ar6 /I /Z Io ?o /0 /&-0 1'o
pgroei9CrE ^dL WAR. hu_/___
Lv oE. e AveC 3 'o 300
l/r,'r;E o80o 7o 70 7 o 0 r' -o 7o 7 7 7 7o 7 7e'
Gt4ab &R'evrS -F,'04' -
y,, je -A g -, V 14 V /- / v <-, [ a r ..Z r
C3e6 Eo ZrE F-SdA ej 34 A' ZS gs .SOf #34 a o
GR,)/n. SroiePqr Afi/Ti-'zr/o -v -
Or%7ER F~eii X(pE4'.E As'O /o /0 /d /0 /0 /0 / d 0 /6 /0 f'
TOTAL /3,o 67 '7-3 6.J <7Jld'S 3e /37 0o 3 500So
CASH INCOME BUDGET
Would it help you to know how much gross
income you would receive next year? Even more
important -- when it is coming? You get the
answers to these questions if you make an esti-
mated budget of cash income. The reasons and
advantages for doing it are the same as for
budgeting cash expense.
Budgeting methods are carried over from
page 68. More assumptions are made to get the
example worked out. Here they are:
Per Acre Yields
Crop yields and sales price are the starting
points because the farm is first operatedtopro-
duce crops. In this particular case, the livestock
follow because the owner figures livestock prod-
ucts will get more income from the crops than if
he sells them as cash grain.
ESTIMATING FEED NEEDS
Feed consumption for various classes of
livestock is found on pages 259 and 260. These
tables were used to figure feed needed for
the livestock in our example. Estimates have
been rounded off for ease in figuring.
Dairy Cows and Heifers
10 ACRES CORN SILAGE
45 ACRES MEADOW FOR PASTURE
1,000 BUSHELS CORN
1, 100 BUSHELS OATS
I10 TONS HAY
6 TONS PROTEIN
5 ACRES MEADOW
3, 400 BUSHELS CORN
1,000 BUSHELS OATS
2 TONS PROTEIN
Crop yields and feed needs have been
figured above. In this case, more crops are
raised on the farm than the livestock will need
or use. This leaves a surplus for sale. The
estimated budget of sales of these crops and the
livestock products is found in the chart below.
This has been made for each month so it can
be compared to the estimated expense budget.
Comparison of estimated expense and in-
come will answer the rest of the questions.
Note combined budget at top of page 70. There
are only 3 months, June, October and November,
in which expenses outrun income. On some
operations this would indicate the need
This farm is operating at a profit, however,
and borrowing won't be necessary.
For 19 S
ITEM TOTAL JAN. FEB. MAR. APR. MAY JUNF JULY AUG. SFPT. OCT. NOV. DEC.
-____ 7__ C_ C -r
TOTAL 0 0 4,0700 3, 4 +"1
CTCT Gn -F 6 7OR 31 343
-^^C -^^^ ~- 7 /^ I..........
CASH INCOME BUDGET
ANNUAL CASH EPE/t/SE L /CoB BUDGET
For 19 -5 .
ITEM TOTAL JAN. FEB. MAR. APR. MAY JUNE JULY ALG. SEPT. OCT. NOV. DEC.
1rs E // -/3 / -Sj, 7. -a, 140 .- 4 19 -- 5 JV ---I t 7 -, --2o -K -oo 3
uotp/.s (+ *)o Diebr (-J 1- + t j- +f .. -L + -- I
HOW TO FIGURE NET INCOME
The realized gross profit of $11,760 looks
good, and is.
However, there are other expenses to be
taken care of before you get down topure profit.
First, let's consider depreciation on the
machinery and buildings. Figure a 10% rate on
the machinery valued at $15,000. That amounts
to $1,500. Depreciation at 5% on the $30,000
worth of buildings comes to an additional $1,500.
Total depreciation now amounts to $3,000. True,
it's not a cash expense, but this should be set
aside to replace machinery and buildings as
they wear out or become obsolete.
Second, interest on the money invested in
the farm and machinery should be paid at the
going rate in your area. Let's allow 4% on the
total investment of $125,000 -- for the sum of
$5,000. Here is the result:
GROSS PROFIT $11, 760.00
RETURN TO LABOR
This amounts to slightly more than $300
per month to pay for your labor and management
for operating the farm. There are other values to
be added in with no price tag attached.
Use of a modern house with a yard and
garden top the list. Usually meat, milk and eggs
are available and help cut cost of groceries.
All these add up to additional income. These
factors often keep people on the farm when
their operation doesn't pay all the expenses
listed in this budget.
ANALYSIS BRINGS GREATER RETURNS
No budget is perfect -- it should be as good
an estimate as you can make. There are bound
to be changes which affect any budget. Recent
drouths in some areas have cut crop production
to nothing. Such happenings will wreck the
Management can dictate how plans will be
carried out, however. Changes can be made
which mean greater returns. Here are a few
things which could have been done differently
in the example farm. They would influence re-
turns from the operation of a farm.
* Increased fertilizer use could boost corn yields
considerably. For example, with an average corn
yield of 45 bushels per acre, cost per bushel is
about 76V. Raising yields to 80 bushels per acre
reduced cost per bushel to 58S.
* Other examples of how crop profits could be
raised are: inoculate legume seeds with proper
bacteria. Inoculated legumes can reduce nitro-
gen used from soil by as much as 65%. Treat-
ing seeds with fungicides -- it costs 9 per acre
to treat barley to control smut and stripe
and yields can be increased as much as 15
to 25%. Weed control -- Iowa State tests show
weeds in soybean rows can reduce yields as
much as 10%.
* Increasing the size of dairy herd in this ex-
ample would be desirable. The labor and feed is
available. Ten more cows couldbehandledwith-
out any problems.
* Other management aids for livestock are: In
cattle feeding, tests show that Choice fat year-
lings can be produced at lowest cost if fed to
gain 1-1/4 to 1-1/2 pounds in winter on rough-
age and supplement, grazed until July 1 on good
pasture and then full fed on pasture. Sixty to 65%
of the total gain can be made from roughage
To up income from hogs, use meat-type
sows and boars. They take from 5 to 8% less
feed than lard types. Breed sows twice when in
heat. On the average, litter size will be increased
by one pig. Put hogs on clean pasture -- if you
don't have a modern confined hog raising plant.
Feed costs can be cut up to 25%.
USEFUL LIFE AND DEPRECIATION RATES
The following tables give estimated useful life for buildings, equipment, and motor vehicles. They
are taken from Bulletin "F", U. S. Treasury Department.
The useful life of a building depends on the suitability of the structure, its quality, change in popu-
lation, the shifting of land values, and maintenance and rehabilitation.
The extent to which the equipment of building mustbe replaced is an important factor in determining
the over-all rate of depreciation. Such a rate contemplates that the cost of new equipment willbe capitalized,
and that the cost of the equipment replaced will be charged to the depreciation reserve.
Apartments ........... 2
Banks ................ 2
Loft buildings ......... 2
Machines shops........ 2
Office buildings......... 2
of Construction COMPOSITE RATE (PERCENT) Type of Construction
Average Cheap Good Average Cheap
22 3 Farm Buildings ....... 2 2 2
2 21 Garages.............. 2 21 3
2- 3 Grain elevators ..... 1 2 2
2 3 Hotels ....... ... 2. 2 3
2 3 Stores ............... 2 2 2
2- 3 Theaters .......... 2'- 3 3
2 3 Warehouse ....... 1 2 2
If the building equipment is set up as a separate account for depreciation purposes, the above com-
posite rates are not applicable and the appropriate rate should be determined by reference to the table of
useful lives indicated below. These are considered reasonable for buildings of standard or sound construction.
TOTAL LIFE (YEARS
Apartments ....... 50
Loft buildings ......67
Factories ......... 50
Hotels ........... 50
Dwellings ......... 60
Office buildings .... 67
Garages ........... 60
Banks ............. 67
Machine shops ......60
Farm buildings .... 60
Theaters .......... 50
Grain elevators .,,, 75
Warehouses .,..... 75
BUILDING EQUIPMENT(AVERAGE USEFUL LIFE YEARS)
Heaters, electric .......... 10
Heaters, gas .............. 15
Broilers and furnaces....... 20
Burner equipment --
Gas ................... 16
Oil ................... 10
Conduits and fittings*
Wiring .................. 20
Fixtures .............. 15
Suction, pressure and sump 13
Faucets & flushing valves .. 15
Bath tubs, lavatories
toilet bowls, etc .......... 25
Brass or copper*
Iron, cold-water ......... 25
Iron, hot-water or steam.. 20
Sewer, cast-iron or
Iron body ............... 20
Asbestos ................ 25
Asphalt and tar (prepared).. 15
Galvanized iron --
Light or cold dipped ...... 15
Heavy or hot dipped ...... 20
Tar & gravel (5-ply) ...... 20
Tarred felt .............. 10
Starters, electric .......... 20
Tanks and vats, water:
Metal ............. ..... 25
Wood ................... 15
Conduits and fitting*
Wiring and fixtures........ 20
Tools, small .............. 5
Transformers ............. 25
(within building) .......... 10
Trucks, lift............... 15
Wells & well pumps ........ 25
*Life of building
MOTOR AND OTHER VEHICLES
Motor vehicles included in this classification are those used by commercial enterprises other than
public utility and construction. Lives considered reasonable are indicated below.
Passenger ......................... 5
Salesman ........................ 3
Horse-drawn vehicles ................. 8
Motorcycles....... ................... 4
Trailers ... .. .. ........ ......... 6
Outside use --
Gas, light ........... ... .......... 4
Medium .........,..... ........... 6
Heavy ........................... 8
Inside use .........................15
INCOME TAX PRINCIPLES
The amount of income tax paid by a
taxpayer depends on --
1. His income subject to tax, and
2. the amount of his taxable income.
The taxpayer can do little about the law
but he can manage his business to regulate tax-
able income so that taxes will be kept at a
minimum. Revenue agents are required by
law to make sure that taxpayers do not pay
less than they should. It is the business of the
taxpayer to see that he does not pay too much.
Making a complete and accurate tax re-
turn at the close of the year is not enough. All
you can do then is put down what has happened.
Tax savings can usually be affected only at the
time of completing the daily transactions. To
avoid unnecessary taxes, constant study and
planning are needed throughout the year.
Accurate, detailed accounts are needed:
1. To make a correct tax return.
2. To protect against overpayment.
The law does not require that overpay-
ment accounts be kept, but in the absence of
records or clear supporting evidence, will not
allow doubtful items. For a simple small-farm
operation, a day-to-day record of cash income,
expenses, and other financial transactions may
prove adequate. The completeness of the rec-
ord is far more important than the form.
Larger businesses, particularly where
purchases, sales, and other operations are
many and varied, should keep a complete set of
double entry books. EDouble entry books are
account books where you list all cash items
(income or expense) in one column or book.
Then in another column or book you show what
it was for. The two columns must always add
up to the same total.- Bills, invoices, receipts,
cancelled checks, and other supporting evidence
should be filed and held with record books for
three to five years. You'll need them if a re-
check is made by the Internal Revenue Dept.
The easiest way of filing an income tax
return is on the "Cash Basis" or "Cash receipts
and disbursements basis". All income actually
received and all expenditures actually paid out
within the year are reported regardless of the
year to which they apply. Thus, if crops are
stored or livestock fed so as to produce ab-
normally large incomes in any one year, such
income will be taxed in the year received. With
surtax rates high and rising, this can result in
paying excess taxes over a period of years.
The cash basis should be used by farm-
ers only when the business is small and/or the
net income about the same each year.
The Accrual Basis of filing income tax
returns, reports income as earned and ex-
penses as incurred, regardless of when re-
ceived or paid. The same records are re-
quired as for the Cash Basis plus, (1) accounts
payable, (2) accounts receivable, (3) complete
inventories of all farm property. A complete
set of double entry books is best but for most
farms these need not be elaborate or compli-
- 1 The Accrual Basis should be used by
farmers whose operations are large or com-
plicated; also where periodic purchases and
marketing may be large. This includes farms
where livestock is a major enterprise and
where crops may be stored for sale beyond
January 1 of the following year.
Taking a complete inventory at the close
of each year is a good business practice. When
filing income tax returns on a cash basis an
inventory of buildings, fences, machinery and
tools is needed to calculate the amount of de-
preciation. On the Accrual Basis, the complete
inventory of farm property must include all
livestock, grain, hay, and other farm products,
The common methods of inventory val-
uation are (1) "Cost", and (2) "Cost or Market
whichever is lower". The latter method is well
adapted to farm use.
A classified schedule should be set up
including all depreciable property by individual
items. This should show (1) the date of ac-
quisition. (2) cost, and (3) rate of depreciation.
This list should be continued year after year
by adding newly acquired items and cropping
items disposed of or scrapped.
Usually the purchase price of a farm
should be divided between --
1. Land and
2. Improvements (a) Dwelling house,
(b) Other farm buildings, (c) F e nce s, and
(d) Other improvements such as drains.
Depreciation cannot be claimed on the
land or the farm dwelling if used by the owner
as his residence. Depreciation can be claimed
on improvements (including the dwelling it no
used by the farm owner as his residence).
(NOTE) -- You must use the same methods of
reporting your income tax year after year un-
less you get permission to change. March 31
is the deadline for making application to the
Tax Commissioner for permission to make a
change in method of reporting.
Since 1954 figuring depreciation has changed
from a relatively simple procedure to a complex
problem involving selection of different methods,
entirely new concepts of useful life, and estab-
lishment of more realistic salvage values.
For many years the useful life of an asset
was considered to be its inherent useful life when
used in a normal manner. However, since 1954
the concept of useful life has changed. The
Internal Revenue Service now says, "There is no
average useful life which is recognized as appli-
cable to all farms. You should determine the
useful life of your depreciable property on the
basis of your particular operating conditions
The amount of use, the repair and service
program you follow, the climate and other con-
ditions must be considered. As a result, 3 years
may be the useful life of a tractor for one farmer
while 10 would be the life for another operator.
The term "salvage value" means the amount
that you could realize if you sold a depreciable
asset after it hadbeen used by you for the normal
period of life. A provision that salvage value
must be considered has always been in the depre-
ciation regulations. For many years, IRS did
not pay much attention to the salvage factor. As
a result, few farmers estimated it when figuring
This is no longer the case. Since the "fast"
depreciation methods were allowed in 1954, IRS
has gradually applied the pressure to estimate
a salvage value on depreciable assets. The
government says, "Your own practice has a
great deal to do with your estimated salvage
value. If it is your policy to dispose of assets
while they are in good working condition, your
salvage value probably will be a substantial
amount. But if you customarily use your assets
for substantially the entire period of the assets'
useful life, your salvage value will probably be no
more than junk value.
REMOVAL COSTS can cut salvage value on some
assets, though. Fencing, built-in machinery,
such as ventilating equipment, gutter cleaners,
and silage unloaders, fit into this category. Esti-
mated removal costs are subtracted from salvage
value which may result in a zero salvage value.
Methods of figuring annual depreciation are
shown below. Check the Depreciation Methods
Summary to see which method may be used for
various assets. The same illustration is used
for all the methods.
DEPRECIABLE ASSET: Tractor, cost $4,400
length of life 10 years, salvage value $400. Pur-
chased at midyear 1959.
Straight-Line Method -- The salvage value is
subtracted from the cost. The years of useful
life are then divided into the remaining value.
$4,400 $400 = $4,000 10 = $400 per year of
depreciation. The ordinary depreciation for this
asset in 1959 would be $200 since it was pur-
chased in the middle of the year.
There are many different methods to
follow when depreciable assets are purchased
during the year. For most farmers the simplest
and most desirable is to divide annual deprecia-
tion by 12 and multiply this figure by the number
of months the asset is on the farm.
DEPRECIATION METHODS SUMMARY
1.) STRAIGHT-LINE METHOD. This is the old stand-by used by
most farmers. Salvage value is subtracted from cost. The re-
maining value is divided by years of useful life. Same amount is
deducted each year during the useful life of the asset.
2.) 150% of the STRAIGHT-LINE METHOD. Annual deduction
equals 150% of the straight-line rate times the remaining unre-
covered cost. Stop depreciation when unrecovered cost reaches
previously established salvage value.
3.) UNIT-OF-PRODUCTION METHOD. A seldom-used deprecia-
tion method in farming. Most often applied to equipment such as
combines or other harvesting machinery. Cost less salvage value
is divided by total units machine will harvest before it is worn
out. Each year's depreciation is annual units handled times
the unit cost.
PROPERTY PURCHASED NEW WITH A LIFE OF 3 YEARS OR
4.) 200% DECLINING BALANCE METHOD. Annual depreciation
deduction is twice the straight-line rate times the unrecovered
cost. Annual depreciation is stopped when remaining undepre-
ciated cost equals previously established salvage value.
5.) SUM-OF-THE-YEARS-DIGITS METHOD. Salvage value is
subtracted from cost; then annual depreciation is computed by
multiplying this value by a fraction, the numerator being the
years of life, 10,9,8,7,6, etc., and the denominator is made up of
the sum of these digits, 10+9+8+7, etc.
6.) ANY OTHER METHOD which doesn't result in any faster
depreciation than the 200% declining balance procedure.
TANGIBLE PERSONAL PROPERTY WITH 6-YEAR LIFE OR
MORE BOUGI'T NEW OR USED.
7.) 20% FIRST-YEAR DEPRECIATION. A 20% deduction can be
taken on the cost, not price, of assets bought any time during
the year. Only $10,000 worth of assets (if filing individually) or
$20,000 (if filing jointly) are eligible each year for this special
write-off. Regular depreciation using any other allowed method
is also taken on the asset but 20% first-year depreciation must
be deducted from the cost of the asset.
Declining Balance Method -- Salvagevalue
is not subtracted from the cost of the asset
before figuring depreciation. This makes the de-
clining balance method best where rapid depre-
ciation is desired during the first years of owner-
ship. But it is more tedious and bothersome to
use than other methods.
Taking the same illustration as before --
a $4,400 tractor, 10-year life, $400 salvage value
purchased in July 1959 -- here's how the depre-
ciation is figured. Since the tractor was bought
new, had a life of more than 3 years and is
tangible property, a rate twice as great as
straight-line can be used. This means 20%,
based on a 10-year life. $4,400 x 20% = $880
for 12 months or $440 for 6 months.
The second-year depreciation would be --
$4,400 $440 = $3,960 x 20% = $792.
The third-year depreciation would be --
$3,960 $792 = $3,168 x 20% = $633.60.
Each year thereafter, 20%of the remaining
balance is that year's depreciation. The annual
depreciation gets smaller and smaller but it never
reaches zero. There are 2 ways to solve this pro-
blem One is to continue with the declining bal-
ance method until you reach your previously set
salvage value. You'll note above that salvage isn't
subtracted from the original cost before starting
to depreciate. You must estimate it and stop
taking depreciation when you reach this point.
The other solution is to change to the
straight-line method after the first few years.
Ordinarily a change in depreciation method
(during the useful life of an asset) is consid-
ered by the government to be a change in account-
ing method and this requires permission from IRS
However, if you use the declining balance method
at twice the straight-line rate you can change to
straight-line depreciation without permission.
Property eligible for twice the straight-line
rate must -- be tangible property, have
been bought new after December 31, 1953, ->have
a useful life of 3 or more years. Property which
does not meet these requirements can be depre-
ciated at a rate up to 1.5 times the straight-line
rate so long as the depreciation is reasonable.
Method of figuring is the same as shown above.
Sum-Of-The-Years-Digits Method gives about
the same rate of depreciation as declining
balance and has the additional advantage of coming
out even over the period of useful life. Unfortun-
ately salvage value must be subtracted fromthe
first cost of the asset before depreciation is
figured. As a result, this method won't actually
give as fast a write-off as the declining balance
method any time the salvage value is significant.
Using the same example as previously
shown, here's how to figure sum-of-the-years-
digits depreciation. All the years are added to
make the denominator of the fraction. In this
case with a 10-year life it would be 1-2+344+5+
6+7+-89+10 equals 55. The numerator of the
fraction is the years of usefulness remaining.
The first year the asset is owned it would be 10,
the second 9, and then 8, 7, 6, 5, etc., down to 1
for the last year. To figure the depreciation the
first year -- $4,400 $400 equals $4,000 x 10
equals 40,000 divided by 55 or $727.27. For
one-half year, depreciation taken would be
$363.63. This compares to $440 the first half
year if declining balance method is used.
The second year the fraction would be 9/55
so depreciation would be $4,000 times 9 equals
$36,000 divided by 55 or $654.54.
Added First-Year Depreciation -- Tangible
personal property bought new or used after
December 31, 1957. with a useful life of 6 or
more years, is eligible for a special write-off
in the first year it is owned. Property must be
purchased, and not from your wife, husband,
parent, child, etc. You may also take regular
depreciation on the asset after the first-year
depreciation has been subtracted.
When figuring first-year depreciation you
must not use retail price if a trade-in is involved.
Only the cash difference is multiplied by the 20%.
If the same example as above is used, and the
asset is purchased outright, here is how the
special depreciation and the first half year of
ordinary depreciation are figured.
$4,400 times 20% equals $880 special depre-
ciation. This sum is then subtracted from the
first cost $4,400 $880 equals $3,520. This is
the figure to use in computing regular depre-
ciation. If you use straight-line it would be --
$3,520 minus $400 (salvage value) times 10%
equals $312 for the year, or $156for half a year.
Total depreciation the first year is $1,036.
When a trade is involved, here is how it is
figured. A $4,400 tractor is bought, and a trade-
in on an old tractor of $500 is allowed. The cash
difference would be $4,400 minus $500 or $3,900.
Special first-year depreciation would be $780.
Tax Treatment of trade-ins. The basis of the
new machine for depreciation is the cash dif-
ference paid on the new machine plus the unre-
covered cost of the trade-in,
You trade a tractor that has no book value
left on the new $4,400 tractor. The dealer allows
you $500. The difference is $3,900 which becomes
your basis for depreciation purposes. If the
traded-in tractor had a book value of $900 but
the dealer allowed only $500, your cash differ-
ence remains $3,900 but your basis for depreci-
ation would be $3,900 plus $900 or $4,800.
CAPITAL GAINS AND LOSSES
Proper tax treatment of capital assets and
assets used in the farm business (Section 1231
Assets) is especially important to farmers. They
probably have a higher proportion of gross re-
ceipts that fall into these classifications than
most other taxpayers. Properly handled, these
transactions can yield material tax savings.
CLASSES OF PROPERTY
STOCK IN TRADE -- This would be farmproducts
normally produced for sale, such as grain,
feeder cattle, etc. These would compare closely'
with a grocer's supply of merchandise. The only
difference is that the farmer usually raises or
produces his stock in trade (though not always),
while the local merchant purchases his stock
for resale. Sale of stock in trade is ordinary
income and is reported in full.
CAPITAL ASSETS -- Almost all property owned
or used for pleasure or investment is a capital
asset. Stocks and bonds are capital assets when
held by farmers and other individuals for in-
vestment. A dwelling owned and occupied by a
farmer and his family and the household furnish-
ings are personal capital assets. A futures con-
tract, when held for speculative purposes, is a
capital asset. If it is purchased for hedging pur-
poses (protection against price fluctuation), it is
not a capital asset. A complete definition ap-
pears on the back of Schedule D.
Gain from the sale of all capital assets is
taxed at various rates, depending on whether
they are short or long term. However, losses
from the sale of personal capital assets cannot
be deducted in any case.
SECTION 1231 ASSETS -- These are assets used
in the farm business such as land, equipment,
dairy or breeding livestock. The length of time
they are owned is important in determining tax
treatment. Land, buildings and machinery must
be owned more than 6 months and livestock
(breeding, dairy and draft) more than twelve
months before they are eligible for long-term
capital gain treatment.
Under certain circumstances, sale of 1231
assets can result in an ordinary business loss
rather than a capital loss.
DETERMINING GAINS AND LOSSES
Figuring the gain or loss when selling a
capital asset is usually simple but can be tedious,
especially on something like farm land. Method
of figuring is the same for both short-term or
GAIN OR LOSS is the selling price minus the ad-
justed basis and any selling expenses. Example:
Selling price, $1,000, minus adjusted basis, $800,
and selling expense, $50, equals $150 (gain).
Basis of property purchased is its cost. If
the property is received as payment for services
rendered, its fair market value at the time re-
ceived represents taxable compensation and be-
comes the basis of the property. If property is
acquired in a taxable trade, its basis is the fair
market value at the date of trade.
If property held for productive use or for
investment is traded for property of a like kind
to be held for the same purpose, gain on the
transaction is included in income only to the ex-
tent of the "boot" (cash or unlike property) re-
ceived. The basis of the newly acquired property
is the same as the adjusted basis of the property
traded, minus the amount of boot received, plus
the amount of gain recognized on the trade.
B traded a tractor for another tractor having a value of
$300. The tractor traded cost $1,860 in 1946 and depreciation to
date was $1,674. Since no boot was received and no gain was
included in income, the basis of the tractor acquired is $186.
Cost of tractor traded $1,860
Depreciation allowed or allowable -1,674
If farmer B had paid an additional $200 for the tractor,
then his basis on the acquired tractor would be $186 plus $200
The basis for property acquired by gift is
determined as follows. Acquired before January
1, 1921 -- fair market value at the time of the
gift. Acquired after December 31, 1920 -- the
basis for determining gain is the cost or other
basis to the donor. For determining loss the basis
is the lower of 1) the donor's basis or, 2) the fair
market value on the date of the gift.
The basis for property transmitted at death
is generally the fair market value of the property
at the time of the decedent's (owner's) death.
The general rule that the basis of property
is its cost does not apply in the case of property
acquired before March 1, 1939, if the sale or ex-
change results in a gain. The basis in such a
case is either the cost or other basis reduced
by depreciation sustained prior to March 1, 1913,
or the fair market value of the property as of that
date, whichever is the greater. However, in
computing a loss, the general rule is applied.
CAPITAL GAINS AND LOSSES
Other special rules can apply in some situa-
tions. It is always sound to seek specialized
assistance when selling property which has been
owned for several years or when there is some
question as to the type of asset sold. This is also
true if the property is involuntarily converted.
Definition -- If property is destroyed, stol-
en, seized, requisitioned or condemned, and other
property or money (including insurance) is re-
ceived as payment, the former property has
been involuntarily converted.
ADJUSTED BASIS. If depreciable property is
sold, such as farm machinery, depreciation
should be subtracted from the basis to get the ad-
justed basis. If you have taken less depreciation
than allowable or none at all, an adjustment must
be made by deducting the full allowable depre-
ciation from the basis of the asset. The basis
must also be adjusted for any amortization, de-
pletion or casualty loss taken.
SHORT OR LONG TERM?
The length of time a capital asset is held
determines whether the gain or loss is short
term or long term. The holding period is figured
by omitting the day property is acquired and
counting the day property is sold.
If the capital asset is held 6 months or less,
the gain or loss resulting from its sale or ex-
change is short term. If it is held more than 6
months (except livestock), the gain or loss is
Livestock eligible for capital asset treat-
ment (breeding, dairy and draft) must be held
more than 12 months before gain or loss is
treated as long term.
REPORTING GAINS AND LOSSES
Capital gains and losses are reported on
separate Schedule D. You'll note from the illus-
tration below that short-term gains and losses
are entered in the top table and long-term gains
or losses in the table beginning with line 5.
(I) CAPITAL ASSETS
Sh-- -T-a- Capital anl n d ------ t. Helad Nt Mo. Th 6 M t
-.Enter our h e ne hort gain (or losshr pr erh up nd ...
-----..---- ---- -----_ -
-- If your net long-term capital gain exceeds
W0T ni short-term loss, only 50%of the excess
is taxable. If you do not have a net short-term
loss, only 50% of the entire net long-term capi-
tal gain is taxable.
-> If your net short-term capital gain exceeds
your net long-term capital loss, all of the excess
-- If the sum of all the capital losses exceeds
the sum of all the capital gains, then the excess
loss is deductible in an amount equal to 1) the
taxable income of the current year figured with-
out including capital gains or losses and without
including deductions for personal exemptions, or
2) $1,000 whichever is the smaller. Any remain-
ing loss may be used as a carryover to the 5 fol-
lowing taxable years.
SECTION 1231 ASSETS
As mentioned earlier, sale of Section 1231
assets is sometimes treated differently. The
gain or loss may be either capital or ordinary.
Here is how you determine this:
Total the gains and losses from sales, ex-
changes and involuntary conversions of depre-
ciable property and real estate used in your
business and held more than 6 months (livestock,
12 months), plus the gains and losses from in-
voluntary conversions of other capital assets
held more than 6 months.
If all the gains exceed the losses, eachgain
and each loss is entered in Schedule Don line 5.
If the gains do not exceed the losses, then
each gain and each loss is an ordinary gain or
loss and is entered as follows:
1. Each gain regardless of the purpose for
which the property was being held and each loss
from property held for use in the farmbusiness
or for investment is entered in the table on Sched-
ule D, Property Other Than Capital Assets.
17. Al.r a 01.. 15 1..11- 16). If a -11. .. U ;. 6. 2 FtI 4o
ta on ln 7, pge 2. F- 1040 . ...... S
(II) PROPERTY OTHER THAN CAPITAL ASSETS
Pa. ., .
.L ar yo sha a in(r los raom arp.a andi.caries. .
3. ,, El , ,aior :"0. ,' ._ .' " "'_____,________ "_
2. Each loss from a capital asset should be
listed at the bottom of Schedule D provided it was
involuntarily converted under circumstances
amounting to a sale or exchange. If these assets
were involuntarily converted because they were
destroyed by fire, stolen, etc., they would be
reported on page 2 of Form 1040.
3. Each recognized loss from capital assets
not held for the production of income or in con-
nection with a transaction enteredintofor profit,
such as casualty losses toyour home or personal
automobile, is deductible only if itemized on
page 2 of Form 1040.
Changes in the Social Security Law now make
the program more expensive but also bring
benefits more in line with rising living costs.
This report will bring you up to date on Social
Security requirements and give you a revised set
of figures on the taxes you pay and the benefits
you will receive after retirement.
PAYING SELF-EMPLOYMENT TAX
Every farmer who earns more than $400 net
income during the year must pay Social Security
self-employment tax. That includes landlords
who, under an arrangement with their tenants,
"materially participate" in the operation of a
Anyone farming under a partnership or a
parent-son agreement is considered self-em-
ployed and must pay the tax, too. Unless they
have a special legal arrangement, husbands and
wives are not partners nor can they work for
each other. Self-employment tax is paid by the
one who operates the farm.
If a father employs his son, only the father
is self-employed. The son, if over 21, is con-
sidered a hired farm worker (see later discus-
sion on hired labor). If a son employs his father,
the son is self-employed. The father's earnings
in that case don't count toward Social Security,
except that they must be included in the $1,200
maximum he can earn after retiring. Also, a
son or daughter with a special 4-Hor FFAproj-
ect netting $400 a year must pay self-employ-
ment tax, regardless of age.
Social Security tax is paid with your Federal
income taxes and is entered on tax form 1040
and Schedule F. For the taxyear 1958 it amounts
to 3-3/8 percent of net farm income. For 1959
it is 3-3/4 percent; 1960 --4-1/2 percent and by
1969 will be up to 6-3/4 percent.
Net Income on which you pay tax is gross in-
come from farming operations, minus farming
expenses deducted for income tax purposes. Soil
Bank payments are income even when you put the
entire farm in the conservation reserve. That
is, unless you cease to take any part in upkeep
and management of the farm.
If in doubt on this or any other borderline social security
problem, check with your district director. Get his address from
any post office.
Profit or loss from the sale of used equip-
ment, dairy or breeding stock and capital gains
or losses cannot be included in computing net
income for Social Security, nor can gain or loss
from the sale of depreciable property such as
machinery and trucks. Capital gains and losses
must be omitted, too, as well as dividends from
stocks and interest.
Maximum Earnings -- For 1958, farmers with
more than $4,200 net income will only have to
pay Social Security tax on that maximum amount.
However, starting with 1959 the maximum is
raised to $4,800. This will increase the amount
of tax farmers with that level of income must
pay, but it will also allow them to use a higher
average annual income for calculating retire-
EXAMPLE -- A farmer retiring now with an
average income of $4,200 can draw maximum
retirement benefits of $116 a month, while
others who start paying tax on an income of
$4,800 will have higher averages and willbe able
to draw benefits of up to $127.
LOW Income Farmers have a special option.
If gross farm income is $1,800 or less you
may count either your actual net income or
2/3 of your gross income.
If your gross income is more than $1,800
but net is less than $1,200, you may count
either actual net income or $1,200.
If net income is less than $400 you are not
required to pay social security tax, but here is
where young farmers and others with lownetin-
come may be missing a "goodbet." Under one of
the options above you can count up to $1,200 as
net income even though, actually, your earnings
may be much lower.
What can be gained? Disability and sur-
vivors' insurance protection. EXAMPLE -- A
young farmer dies leaving a wife and two children.
Had he reported $1,200 a year income for the
past 4 years, his family would be entitled to over
$85 a month in survivors' benefits until the
children reach 18 or the wile remarries.
QUALIFICATIONS FOR RETIREMENT
To draw Social Security retirement pay-
ments you must meet three main requirements:
1. You must be 65 years of age. (Women
workers can draw reduced payments at age 62.
2. You must have proof of age. Abirth certif-
icate or family Bible is best. If neither of these
is available, check with social security office.
3. You must be fully insured -- have farmed
under Social Security for at least half of the time
The table below gives examples of the years
of work under Social Security needed to qualify
for retirement payments.
You need about this many years of
If your 65th birthday is work under social security to get
before July 1 of the year: payments --
1971 or later 10
After Retiring, from ages 65 to 72 you are
allowed to earn up to $1,200 a year and still
receive all the monthly retirement checks. After
age 72 there is no limit on extra earnings.
If you are retired and under 72, you'll lose
or have to pay back one monthly check for each
$80 earned over the $1,200 limit. However, if you
only work a part of the year you can draw your
check for any month when you didn't earn over
$100 net income.
EXAMPLE -- If you partially retirebut con-
tinue to raise grain for cash you will probably
be able to draw Social Security payments regard-
less of your annual net income during the winter
and any other months when you did no work that
contributed to production of the grain.
Be sure your form lease clearly specifies your part in pro-
duction of crops or livestock, otherwise your income may be
counted for the whole year and all retirement payments
will be lost.
Increased Payments can sometimes be gained
by working after you reach 65 or by returning to
work after once retiring. If your average income
was low before retiring you can do additional
work and ask that your payments be refigured
from the higher average.
Retirement Payments Survivor's Payments
Average Farmer Widow, Widow Widow
Net Farmer and Child or and and
Income Wife Parent 1 Child 2 Children
All retirement and survivor benefits were
automatically increased by about 7 percent on
January 1, 1959. The amount a retired farmer
receives depends on his average net income since
1954. The table above gives some examples of
the increased benefits.
Figure your average annual net income by
adding together the income from every year when
you have been covered by Social Security (farm
coverage started with 1955). Then divide by the
total number of years.
A "drop-out" provision in the law allows you
to mark off up to 5 of your lowest income years
before figuring the average income. However,
benefits are figured from a starting date of 1951
so farmers must automatically use the drop-out
for 1951 to 1954. The one remaining drop-out
year can be used for any low year since 1954.
HIRED FARM WORKERS
Social Security tax must be paid on income
of any farm employee you pay more than $150 a
year or who works for you for cash wages at least
20 days during year. Non-cash payment such as
lodging, board and farm produce does not count.
Work performed by a parent for his son or
daughter, or by a child under 21 for his parent
also does not count.
As on employer you should have an employer's identifica-
tion number. You can get one by filing form SS-4 available from
the district office of Social Security or Internal Revenue. They
will also send you the necessary forms and instructions for
paying the employer's tax.
An employer pays one-half of the taxfor his
workers and the workers themselves must pay
the other half. For 1958 it is 4-1/2 percent --
2-1/4 percent paid by the employer and 2-1/4
percent deducted from the employee's wages.
For 1959 the tax is raised to 5 percent; 1960 --
6 percent and by 1969 -- 9 percent.
DISABILITY BENEFITS FOR FARMERS
Any worker who is 50 or older, so disabled
that he cannot engage in "substantial gainful
activity" and who has worked under Social
Security for at least 5 of the last 10 years is
eligible to draw disability payments equal to the
retirement payments he would get at age 65.
Since farmers came under the Social Secur-
ity program in 1955, they will be eligible for
these benefits in 1960.
Younger farmers, too, will become eligible
for the disability freeze on earnings in 1960.
They can have the period of low or zero income
while disabled dropped from their record so
their average annual earnings won't be lowered.
Complete Disability is necessary for you to
qualify for either the freeze or payments. The
Social Security Law states that you must have a
disability so severe that it prevents you from
doing any kind of work. It also must be a condi-
tion that has lasted for 6 months or more and is
expected to continue indefinitely.
Very few farmers can afford to protect
themselves against all financial losses. Try to
get the most protection with what you can spend.
Classify risks according to which ones wouldbe
most disastrous if they occurred. Also, appraise
chances of certain risks happening and the cost
of insuring against them.
Risks vary from farm to farm. Generally
farm managers and authorities list liability in-
surance as having first call. Large lawsuits
could cost you your farm. Others, in order of
importance, are (1) property insurance against
fire and wind, (2) term life insurance to protect
your investment and (3) crop insurance.
People are more likely to sue now than in
the past. A good rule is to carry enough liability
insurance to cover your equity.
Public Liability protects you from lawsuits
by members of the public who suffer property or
bodily injury caused by your negligence. It in-
cludes accidents caused by general farm opera-
tions, structural alterations, machinery or
tractors not subject to motor vehicle registra-
tion, and animals. The insurance company sup-
plies lawyers and pays court costs and judgments
up to the maximum provided for in the policy.
For additional fees, policies can be extend-
ed to include medical payments and product
liability. With medical coverage, the injured
party is reimbursed regardless of who's
negligent. Product liability insures against such
things as injury by spray residue.
Employer's Liability shields you from being
liable for on-the-job employee accidents caused
by your negligence. It covers loss of time, med-
ical care, bodily injury, sickness and death.
However, several other types give greater pro-
tection at only slightly higher rates.
Workmen's Compensation,unlike employer's
liability, protects the employee regardless of
who is negligent. In most states it is voluntary.
However, in some states it is requiredbyfarm-
ers who hire over a certain number of employ-
ees -- in others, farm help does not come under
Workmen's Compensation laws. The employer
has complete protection whereas employer's
liability offers only limited protection.
Premiums are based on the employer's pay-
roll or a minimum fee. Where only a few per-
sons are employed, the minimum fee may be
expensive. However, arrangements can be made
where several farmers share the cost.
Farmer's Comprehensive -- Companies write
"package" policies having complete liability
coverage except for motor vehicle accidents.
They include employer's and public liability and
employee accident insurance. With extended
coverage you can also get property damage,
product liability and premises medical payments.
Buildings and Equipment -- Although insur-
ance is most commonly purchased to protect
against fire, coverage can be extended to include
wind, hail, explosion, falling aircraft, riot, etc.
Most farmers extend their policies to include
wind coverage. The cost is relatively low and
wind can cause complete loss as well as fire.
Livestock protection can be classified as:
4 On-farm -- The major hazard to live-
stock is fire and lightning. Wind coverage is
rather expensive and loss by this cause is not
great in most sections. Where rustling is prev-
alent add protection from theft.
4 Off-farm -- For a few cents you can
insure animals sent to market against a broken
leg and injury or death due to crowding, a wreck
or suffocation. It is not practical unless your mar-
ket has insurance adjusters. Breeders selling
purebred animals can insure themfrom the time
they leave the farm until 5 days after delivery.
Cargo Insurance protects merchandise while
enroute to the farm. When purchased along with
a livestock transportation policy it is cheaper.
Arrange purchases so you bring merchandise
home on return trips from the stockyards.
Farming requires a tremendous capital out-
lay for the person just starting. This means
heavy borrowing. Death of the operator would
cause extreme financial loss for the family.
Term life insurance in the amount of the debt
would prevent this. Although no savings can be
accumulated, it offers relatively low cost invest-
ment protection. You can reduce the amount of
insurance as you pay off your debt.
The importance of hail insurance depends
on the incidence of hail in your area. Greatest
need for insurance is in the Great Plains area
where the incidence is highest.
"All risk" Federal Crop Insurance protec-
tion is available in some counties for specific
crops. If interested, check with your county
ASC office to see if you are eligible.
INSURANCE NEEDS CHANGE
It is essential that you bring insurance pol-
icies up-to-date from time to time. Here are
some things to consider when revising them.
Change in financial position -- over the
years you may have accumulated a savings upon
which to draw in the event of a financial crisis.
Thus, your need for insurance may be less.
Insure buildings according to their re-
placement value. Style of barns has changed. A
barn built several years ago valued according to
cost, minus depreciation and obsolescence, may
be worth $10,000. A pole-type building which is
more flexible in use may cost $5,000. An addi-
tional $2,000 may completely equip it. For in-
surance purposes it would be well to reduce your
coverage from $10,000 to $7,000.
On the other hand, the cost of building and
equipping your home may be well above its de-
preciated value. In this case, consider increas-
ing your insurance to the maximum allowed.
Mechanization and automation have in-
creased the value of personal property in rela-
tion to buildings. In an Indiana study it was
learned that almost one-half of total insurable
property was personal. Be sure that your per-
sonal property as well as buildings are covered.
AVERAGE VALUE OF FARM BUILDINGS AND PERSONAL PROPERTY ON
INDIANA OWNER-OPERATED FARMS, 1958.
Average Insurance % Insurance Value of Insurance on % Insurance
Value on Carried on Personal Personal on Personal
Buildings Buildings Buildings Property Property Property
$20,220 $14,490 71.7% $17,790 $10,060 56.5%
Livestock hoi5li g etermrnes 1 imp or-
xance ot livestock insurance. The change from
stanchion to loose housing of dairy cows has cut
risk. In reverse, the shift from pasture to con-
finement hog raising has increased loss chances.
More grain is being stored on farms than
in the past. Make provision for this.
SAVE ON PREMIUMS
Kinds and coverage of policies continually
change. In addition, rates vary according to
kinds of risk. Here are some ways you can
4 Lower your rates by making a small in-
vestment. A small expenditure on improved
roofing or lightning rods may put you in a lower
risk classification. The lower premium rate
may more than pay for your investment.
4 Pay premiums in advance if you can af-
ford it. Oftentimes you can get 5 years of pro-
tection for the price of 4, or 3 for 21 years.
4 Blanket personal property insurance
covers total value of personal property, excluding
household goods, rather than individual items.
Individual inventory items can be changed with-
out loss of protection. In most cases, it is con-
siderably cheaper if the value of your personal
property equals or exceeds the specified mini-
mum coverage usually required.
4 "Package" policies are in the offing as a
new farm insurance development. These would
include general farm liability, blanket coverage
on farm personal property and buildings, and
coverage of the dwelling and contents. In some
instances urban dwellers have saved up to 1/4
to 1/3 the cost of insuring separately.
4 Deductible insurance is being more wide-
ly offered. This allows you to protect yourself
from major catastrophes at a lower rate. Under
most conditions minor risks can be met out of
current farm earnings.
IS YOUR INSURANCE IN FORCE?
Be sure that the policy you have is fully in
force. Otherwise you may not receive full pay-
ment. Here are a few pointers to remember.
Present a "proof of loss" statement to
your insurance company within the period stated.
When you vacate propertybeyonda speci-
fied period, usually 60 days, notify your com-
pany. To get full protection you are usually re-
quired to pay a higher rate duringyour absence.
Be sure that you clear through your com-
pany such things as (1) storage of combustibles,
(2) use of heat lamps and (3) installation of corn
or hay drying equipment.
Don't take additional insurance from an-
other company without notifying the first one.
Inform your company of any mortgages
placed on your property or a change of title.
Don't let premium payments lapse.
Many farmers must use credit to finance the
development and improvement of their farm op-
eration. Credit should be considered a tool for
farming, rather than something you should try
to do without. The old saying, "It takes money
to make money," is still true. Without the use
of credit in modern farming it would take a life-
time to accumulate large amounts of capital.
But use credit wisely, don't overextend your
credit at the possible expense of losing your
farm or other assets. Determine what improve-
ments or expansion should come first and what
things will be best put off until later. In any
event, to justify a loan for any purpose, the
expected returns, whether they be income or
satisfaction, should exceed the cost of the loan.
Otherwise it's better to concentrate on using
funds in some other area of your business. Any
loan you obtain should be based on a sound
program for the short- or long-run improvement
of your business.
PLAN YOUR FINANCIAL PROGRAM
It's easier to borrow when you can show why
you need the money, and how, where and when
you'll use it.
This planning requires:
1. Records which will allow enterprise
analysis, showing those enterprises that
should be expanded and those that per-
haps should be eliminated. These rec-
ords should include complete inventor-
ies of your assets, such as livestock and
equipment, and of your liabilities, such
as your existing debts and mortgages.
2. The long-range and short-run plans
for your farm.
3. Plans for the expected use of the bor-
rowed money should be written out.
These plans should show how and when
you expect to be able to pay off the loan.
You'll want to work out and review
these plans with the person from whom
you're going to borrow the money.
Finally, ideal repayment plans should
be drawn up so the improvements will
pay for themselves by the time the
final payment is made.
4. As important as planning for a loan is
arranging for its repayment, especially
a long-term loan. To permit some
degree of flexibility, a loan should carry
rather liberal prepayment privileges
without having to pay penalties. Such a
privilege in a loan allows a farmer to
make advance payments on the principal
during higher income years. In addition,
such a privilege allows one to refinance.
Refinancing is especially important if
interest rates drop considerably after
you acquire a loan or mortgage.
BORROW ACCORDING TO YOUR NEEDS
The term of your loan should never extend
beyond the useful life of your borrowing. Failure
to repay a loan at the time it has accomplished
its purpose is costly. For example, if you borrow
funds to purchase feeder cattle, the useful life of
such a loan is ended at the time you send the cat-
tle to market. On the other hand, when you borrow
to buy land, you are investing in a factor of pro-
duction which has a much longer income-produc-
ing life than cattle. Normally you should plan on
repaying funds borrowed for the purchase of ma-
chinery and equipment in somewhat less time
than the expected life of the investment. There-
fore, you should pattern all borrowings according
to the use to which you are going to put them.
Consequently, types of farm loans are clas-
sified according to their length of term.
1. Short-term--one month to a year.
(Annual production loans usually for
such things as feed, seed and fertilizer.)
2. Intermediate-term -- one to five years.
(Usually for machinery and breeding or
3. Long-term--five to 40 years (real
CHOOSING A SOURCE OF CREDIT
The next step in financing is to find out
where to go for credit or to borrow money. The
main things to consider in choosing a source are:
(1) Amount of the loan, (2) rate of interest on
loan (cost of borrowing), (3) length of loan period,
(4) repayment schedule and (5) size of payments.
Major sources of credit are commercial
banks, Production Credit Associations (PCA),
Federal Land Bank Associations (formerly
NFLA), insurance companies, Commodity Credit
Corporation (CCC), merchants and dealers
and Farmers Home Administration (FHA).
WHEN BORROWING CAPITAL
1. Build your credit rating -- even if you
have sufficient capital to operate on a
cash basis, it's often wise to borrow.
This will add some to the cost of doing
business but it will be worth it to es-
tablish a credit rating. You must buy
a credit rating just as you buy other
2. Consolidate your debts as much as
possible. Rather than owing your ma-
chinery dealer, the feed mill and fer-
tilizer dealer, it's often more conven-
ient and less costly to borrowfrom one
source and pay cash to each of these
separate individual concerns. Combin-
ing all debts into a few loans is likely
to get you much more considerate treat-
ment than if you have many small
3. Determine your credit needs in advance
in order to prevent delays in putting
your plans into action.
4. In some instances renting particular
items of production can release working
capital for use in more productive areas
of your business. This is particularly
true for items of production which are
used only a few hours during each year.
Sometimes the cost of ownership may
exceed the rental rate. When this is
true you might find it advantageous to
rent and put your capital to more
INTEREST PAYMENT AND LOAN COSTS
Interest rate is the determining factor of
what it will cost you to borrow money. But in-
terest rates don't tell the whole story. The total
interest you pay on a loan will vary greatly,
depending upon how you pay it off. Using some
methods of interest payment, you may pay a
considerably higher amount of interest than the
actual rate stated on the loan. This occurs when
you pay interest at the time you take out the
loan or continually pay interest on the original
amount of the loan even after you make payments
on the principal. Usually it's best to use an amor-
tized loan, especially if it's a long-term loan.
Using this method, you pay interest only on the
unpaid balance of your loan, making total interest
payments less than many other methods you
might choose. Therefore, it's important to keep
methods of interest payment in mind when you
take out a loan. Don't choose a loan on the basis
of interest rate alone. A sound loan is one which
is safe for the lender and profitable for you.
Wise use of credit is necessary to operate
a modern day farm and take advantage of new
Modern systems of livestock and crop pro-
duction often require huge investments for build-
ings, equipment and machinery. Land develop-
ment, such as tiling, leveling and clearing, also
requires large outlays. Sometimes it is hard to
decide which investment will pay the greatest re-
turn when there is not enough capital to go around.
Then, of course, the source of needed funds is
another real problem to most operators.
GUIDES TO INVESTMENT
Labor costs have continued to rise over the
past several years and skilled farm workers are
often hard to obtain at any price. In an effort to
offset higher labor costs and shortage of skilled
help many farmers have purchased specialized
equipment and buildings in recent years. The
question asked repeatedly is, when can this be
There are several methods which you can
use to determine if a certain purchase will pay
out, based on your labor costs and the necessary
investment. Number of years ago, D. Howard
Doane and other Doane staff men worked out a for-
mula for determining the true value of a building
or other "tool" that is used to save labor on a
farm. The Doane formula is as follows:
Dollars that can
be paid for a
Labor the building will save
yearly, expressed in dollars,
divided by the yearly cost of
owning and maintaining the
building expressed as a percent
of capital investment in the
For example, let's say that the labor-
saving features of a new confinement hog system,
an automated beef cattle feeding operation or a
new herringbone milking parlor are such that
they save the full time of one man. Suppose his
monthly salary, including extras, is equal to $300.
You have an annual savings in labor costs of
$3,600. From experience we have found that an-
nual costs of owning and maintaining general
purpose buildings will approximate nearly 15%
of the capital investment.
Taxes, insurance and misc. 2%
Maintenance and repair 2%
Depreciation (20 years) 5%
Total yearly cost 15%
Newer specialized facilities such as auto-
mated cattle feeding or confined hog systems ane
more likely to become outdated sooner than gen-
eral purpose buildings like a machine shed. Thus,
you may want to figure a faster depreciation,
say 10%, rather than the 5% used above, for useful
life in calculating what you can afford to invest.
NOTE: For income tax purposes you would prob-
ably have to use a smaller annual depreciation.
Using the formula, with the shorter func-
tional life. we have:
Value of building = $ 3,600 labor
.20 yearly cost
Value of building = $18,000
Of course, if the new system saved only one-half
of a man's time, you could pay up to $9,000 for
it. Using this formula, you can put in your own
labor cost and vary the annual costs to suit your
Another thing to consider is a possible im-
provement in feed efficiency and less death loss
on your hogs or steers, or higher milk produc-
tion from your dairy cows because of these im-
proved facilities. This is hard to calculate but
should be taken into consideration. It could mean
you could afford to spend more for the new facil-
ities than indicated from the above formula.
A Rental Rate principle can also be used to de-
termine how much you can afford to spend per
animal for housing. The following formula has
been developed by the U.S. Department of Agri-
culture for use on beef cattle housing:
EXAMPLE: Gross return per year from feeding = $130
(Purchase 500-pound feeder at $20,
sell 1,000-pound animal at $23 per cwt.)
8% of $130 = $10.40 or the annual rent.
$10.40 divided by9% = $116.
This is the amount you can safely spend per animal on the buildings, feeding
floors and fencing. For 100 steers this would total $11,600.
First you need to estimate the gross annual
return per animal. For feeding operations, this is
the sales price minus the cost of the feeder
animal. For cow-calf herds, it would be the gross
income from the sale of the calf, plus a portion of
the sale of cull cows.
USDA research shows that 8% of this gross
return can be paid as rent for the building. To
find out how much you can afford to invest in the
building, divide the annual rental by the annual
costs of owning the building. For simple, one-
story, open front beef shelter, USDAuses 9% per
year, instead of the 15 to 20%used in our earlier
illustration. They may be using a lower interest
rate than our 6%.
Certainly money spent on needed farm im-
provement programs can pay very good returns
on the investment. The table below shows figures
on improvements made on 56 farms analyzed in
a special study for the Farm Credit Adminis-
tration. These improvements were about one-
half real estate and one-half non-real estate.
Average improvement expenditures and estimated increase in net
income per farm for 7-year improvement programs for 56 farms.
Im- income ed net Percent
Number prove- i come income Increase Percent annual
Area of ment of im- at end in net increase return
expendi- prove of im- income in net expected
cases tures prove income from
years meant ment improve-
rogram program ments
Ga. .. 13 $34,948 $3,503 $6,231 $2,728 78 8
Ind... 14 17,416 4,453 7,464 3,011 68 17
Ky *.. 18 14,792 2,378 4,789 2,410 101 16
Neb. 11 10,084 2,016 3,977 1,961 97 19
Total 56 19,207 3,087 5,633 2,546 82 13
FARM CREDIT ADMINISTRATION
The nature of these improvements was such
that real estate expenditures generally declined
irregularly during the 7-year period but non-
real estate improvements remained at a high
level. In those areas where a complete change in
the type of farming was taking place, the annual
cost of improvements remained high for from
5 to 7 years.
When making improvements, it is usually
sound to analyze the farming operation to find out
what one item is the "short stave in the profit
barrel." For instance, in many parts of the Mid-
west, when Doane farm managers take over a
property they find that the soil is lacking in such
basic requirements as lime and phosphate.
Money spent on these items shows a very high
return in the form of increased crop yields. Later
it becomes more difficult to show a high return
on land improvements, but such practices as
tiling and building terraces come into the picture
after basic soil nutrients are provided.
Building Improvements should be aimed at
saving labor and providing a more favorable en-
vironment to help increase gains on cattle and
hogs and increased milk and egg output. Feedlot
operators are finding that even such a simple
thing as providing sunshades, concrete feeding
aprons and proper placement of water can show
big returns in the form of increased gains.
Experimental work at a midwestern college
has shown that an annual expense of $1.17 per
pig for furnishing an ideal environment for finish-
ing out hogs can theoretically pay as much as a
200% return on investment. This is all a result
of reduced feed costs due to improved efficiency.
An alert manager can always see oppor-
tunities for a good return for money invested in
improvements in land, buildings or equipment. It
may also be in terms of better breeding stock, if
it's a livestock operation.
SOURCES OF DEVELOPMENT CREDIT
Don't cut your operating capital short in
order to make needed improvements. There are
many different sources of intermediate and long-
term credit that should be explored when you get
ready to invest.
Commercial banks can make intermediate
loans in many cases and Production Credit As-
sociations are set up to handle loans of 3 to 5
The Farmers Home Administration often
has funds to make improvement loans if you
cannot obtain them elsewhere.
If your farm is not heavily mortgaged, it
may be practical to get a real estate loan for a
period of years in order to undertake a major
improvement, such as remodeling buildings or
putting up new ones.
Insurance companies, Federal Land Bank
Associations (formerly National Farm Loan As-
sociations), some commercial banks and many
individuals are prospective sources of such loans.
SOIL AND WATER CONSERVATION LOANS
Many who want to make improvements are
not aware of the insured loans made through the
Farmers Home Administration for "the cash
costs of making improvements directly related to
soil conservation; -water development, conser-
vation and use; forestation, permanent pastures,
drainage of farmland and related measure "
Applications for loans are made directly to
the local office of the Farmers Home Adminis-
tration. Funds come either from private lenders,
such as banks, insurance companies or others
wanting to invest in government-insured paper,
or from direct loan funds of the FHAthat are ap-
propriated annually by Congress. Direct loans are
made only when insured funds are not available.
These loans are available if you meet cer-
tain qualifications and are unable to obtain the
necessary credit on reasonable terms and con-
ditions from private or cooperative sources. The
decision on making the loan is made by the local
FHA committee, regardless of the source of the
funds. Either direct or insured loans are proc-
essed and collected by the FHA. Loans are limited
to $25,000 and the repayment period is not over
20 years. This is a relatively new program and
has not been used as much as it might be.
HOW TO BORROW MONEY
Many farmers must borrow in order to
produce. Borrowing for productive purposes is
a sign of good management and further proof that
farming hasbecome big business. It is less ex-
ptnsive to borrow capital for short periods than
to own it.
Commercialbanks, insurance companies
and individual lenders provide the major share
of the credit used by farmers. Since 1950,
these sources have furnished about 80percentof
the farm mortgage credit and nearly 60 percent
of the production credit.
WHO LOANS TO FARMERS
Federal Land Bank Per Pent A
Farm Credit Is Big Business. The assets
of American agriculture are valued at 172billion
dollars. Creditors are glad to make loans backed
by these resources if the farmer requesting
credit is reliable and has a sound farm program
to make his loan good.
Banks and insurance companies have
done much to improve their farm loanprograms
in the past twenty years, and progress is still
being made. Farm loans are made by 13,000
out of the 14, 000 American banks.
SHORT-TERM PRODUCTION CREDIT
Production loans -- required to finance
the growing and marketing of crops and live-
stock, minor farm improvements, and equip-
ment purchases -- are essential in modern
farming. In this field, banks hold an unrivaled
position. They can offer quick, personal service
to a farmer borrower. The banker is qualified
to give over-all financial assistance. Money
management is his business and not just a side-
line. The local banker takes personal interest
in your credit standing, the financial require-
ments of your family, and your character.
Merchant and dealer credit is another
source fo short-term credit that is equally handy,
but sometimes costly. However, feed dealers
have a special advantage in making broiler loans
because they can offer the technical assistance
that bankers cannot.
Payment Terms should be arranged so they
fall due as soon as possible after farm products
are sold. Crop loans are often made in March
with payment falling due in October or at market
time. Payment dates on livestock loans should
be more flexible because feeding periods and
market prices often vary considerably.
Loans for purchase of dairy cattle or
dairy operating expenses are usually repaid on
a monthly basis out of the milk check over a one
to three year period. In some cases variable
payments may be arranged on a dairy loan so that
a larger sum is due during the flush season and
a smaller share due in the off season. Grade A
facilities are often financed by the price differ-
ential between Grade A and C milk. Cattle and
lamb feeding loans are best paid off when the
livestock are sold. The same goes for broiler
loans but the length of loan is usually shorter.
The important thing in all production credit
borrowing is to have periodic payments fall due
when the money is available on the farm.
Interest Charges will vary depending on the
way they are calculated. Straight interest is a
lower cost plan than a discounted loan. If you
borrow $1, 000 on a straight interest plan at 5
percent you have $1, 000 to use for a year and
pay $50 for the use of this money at the end of
If your loan is discounted at 5 percent
you receive $950 ($1,000 less 5 percent) and
pay the lender $1, 000 at the end of the year.
With straight interest, your loan costs $50 for
the use of $1, 000. On the discounted basis you
pay $50 for the use of $950.
Know whether the interest charge is at
an annual rate or a flat interest charge. Gen-
erally interest charges refer to an annual rate
but sometimes loans are made for a flat per-
centage of the principal. A $1, 000 loan for four
months at 6 percent would cost $60 if a flat rate
were charged, $20 if an annual rate were used.
Don't overlook life insurance and live-
stocK insurance requirements made by some
lenders. These add to your credit costs.
LONG TERM CREDIT
Insurance Companies provide nearly one-
fourth of the long-term credit used by farmers.
They feel such loans are a safe investment for
a portion of the funds paid in by life insurance
policyholders. For those needing long-term
real estate loans, this is a good source of cre-
dit. Interest rates are competitive with the
lowest cost sources.
Generally the insurance companies will
make loans up to 60 percent of the normal ap-
praised value of the farm or up to 50 percent of
HOW TO BORROW MONEY
the sale value. Most loans are made for a 15-20
year period with semi-annual or annual payments.
To obtain an insurance company loan
talk to a local representative of the insurance
company. He can explain the current investment
policies of his company. Loan policy is dictated
by the reserve funds of the company and the
decisions of its directors.
If the local loan representative finds your
request for a loan in keeping with company
policy you will be asked to fill out a loan appli-
cation. Your farm will then. be appraised by
the farm loan representative and the application,
appraisal and supporting information sent to
Insurance companies do not feel their
work is ended when the loan is made. They keep
in touch with the borrower and offer their
assistance if needed.
In cases where repayment cannot be
made because of sickness, death or for any
other reason, the borrower or estate will usually
find the insurance company representative ready
to help in selling the farm. Insurance companies
are not anxious to take over farms. Their busi-
ness is life insurance and loans -- not farm
ownership and management.
CHOOSE THE RIGHT CREDIT
S 1P ACTION LOANS LENGTH OF LOAN PAYMENTS SOURCE OF CREDIT-
C Production 3-9 months end of season Banks-Merchants
S Livestock 1-3 years monthly or Banks-F.H.A.
end of season P.C.A.
j Equipment 16 months monthly Banks-Dealers
1-2 years annual P.C.A.
INTER IATE CREDIT
,j\ Drainage-Land Development 3-5 years monthly or Banks-P.C.A.
SPasture Improvement annual
Building Remodeling 3-5 years monthly or Banks-Merchants
SNew Buildings 5-10 years annual Bank
e semi-annual F.L.B.
Real Estate Loans 10-20 years annual Banks-F.L.B.
semi-annual Insurance Co.
*For discussion of F.H.A. P.C.A. F.L.B., See page 1059
Commercial Banks make 16 percent of the
farm mortgage loans. Funds for these loans
are provided from bank deposits. Since these
fluctuate considerably, the number of long-term
loans banks can make are limited. In addition,
there are limitations imposed uponNational and
State banks by their charters. These affect
number, amount and terms of payment on loans.
If banks puttoo much of their deposits into long-
term mortgages they cannot remain solvent
during periods of heavy withdrawals. When
short-term loans are made repayment can be
used to meet cash withdrawals over a relatively
short period. Banks like to have some of their
funds in conservative first mortgage loans.
Banks appraise the borrower's farm
and his financial condition before extending farm
mortgage credit. Sometimes banks will estimate
income and expenses on the farm for the coming
years. This helps the borrower toknow whether
or not he can afford a mortgage loan and how
much he can pay on his loan annually.
Individual Lenders are another important
source of credit. Nearly every farm community
has several older farmers who will make mort-
gage loans. Such loans are generally very ac-
ceptable when set up on a business-like basis.
Use the same considerations in arranging pay-
ment and terms of these loans as are suggested
for loans from banks or insurance companies.
Payment Terms deserve more attention. Two
points which need special consideration are:
Dates of interest and principal payments.
Seasonal variation in farm income.
Trouble spots oftendevelop in paying off
long-term loans because if is difficult to fore-
see the future farm income situation. Too many
borrowers tend tobe over-optimistic about crop
yields and prices.
In estimating the productive capacity of
a farm, conservative estimates of crop and live -
stock production should be used. Don't plan to
carry more dairy cows or raise more hogs than
the farm can economically handle. Don't over-
look the possibility of lower farm prices and of
acreage allotments in the future.
The Amortized Plan is the most popular
payment plan at the present time. Amortization
actually means killing the debt by degrees. Debt
maybe paid off over the years by equal periodic
payments. Another plan is the level principal
plan whereby principal payments remain the
same but periodic payments are reduced because
interest is paid on a smaller and smaller prin-
cipal. This is one of the best plans to use in
paying off long-term mortgage loans.
The Partial Payment Plan is sometimes
more practical. It allows the borrower to use
a larger share of the principal for a longer
period of time and fits well on farms where ex-
tensive soil and building improvements are being
made. Interest and portion of the principal are
paid annually but the major portion of the debt
falls due at the end of a ten or fifteen year
The Straight End or lump sumpayment loan
used to be common, but is now little used. This
type loan is usually set up on a five year basis.
The borrower pays interest each year and every
five years the loan must be extended, renewed,
refinanced or paid off. Renewal is the big dis-
advantage tothis type loan. If conditions change
or money supplies tighten up renewals or re-
financing are difficult.
Optional Payments should be provided for in
all loans. These permit the borrower to pay
any part of or all of the loan at any time or at
any interestpaying date before the loan matures.
This way extra payments can be made during
high income periods, reducing the principal of
the loan and the interest charges.
In addition, optional payments make it
permissible to refinance without penalties
wherever this is desirable.
COOPERATIVE FARM CREDIT
WHERE TO FIND IT -- HOW TO USE IT
Most loans are made to buy farm land,
refinance existing debts or for production needs.
Loans made to buy farm real estate are nec-
essarily long-term. Those for productionneeds
are intermediate or short-term.
The two sources of farm credit are:
(1) Private, (individuals, banks, insurance
companies and merchants) and (2) Public (Fed-
eral Land Banks, Production Credit A associations,
and Farmers Home Administration etc.)
Farm credit it more difficult to provide
than other business credit. Surplus funds that
could be invested in farm loans are usually lo-
cated in the cities away from the farming areas.
The main problem is to make the city investors '
funds available to the widely scattered farmers.
As early as 1916 Congress was aware
that private sources couldn't supply all the
kinds of credit needed by farmers and passedthe
Federal Farm Loan act. By March of 1917 the
12 Federal Land Banks began operation.
ORGANIZATION OF THE
TWELVE FARM CREDIT DISTRICTS
| FARM CREDIT BOARD |
In 1923 the Federal Intermediate Credit
Banks were established. In 1933 the Bank for
Cooperatives and the Production Credit Cor-
porations were set up. In 1933, these farm
credit agencies were all grouped together under
the supervision of the Credit Administration.
FEDERAL LAND BANKS
The Federal Land Bank system is the
-mjor source of public long-term farm credit.
Loans are made through the National Farm Loan
Associations, local cooperatives organized by
farmers desiring long-term credit. At the end
of 1952, the system had 311,800 loans outstand-
ing for over a billion dollars of unpaid principal.
Of these loans, payments on 95.4 per cent were
Farmers may borrow to buy farm land,
to build farm buildings, to clear, drain or level
land, buy livestock or to refinance existing debts.
The Land Bank makes amortized loans which
can be paid off over a period of years.
Funds Loanedcome from private investors
who buy F.L.B. bonds and from interest re-
ceived on mortgage loans. The Land Bank
system is completely farmer-owned through the
N.F.L.A. and does not rely on government
funds for operation or loans It is best described
as a farmer's cooperative under supervision of
Farm Credit Administration.
To Get A Loan apply through your local nat-
ional farm loan association. An association
representative, usually the secretary-treasure;
investigates the farm and your credit standing.
The application is then forwarded to the Land
Bank with the recommendation of the association.
A Land Bank appraiser inspects your farm and
makes his report to the Land Bank.
On the strength of these two reports the
bank loan committee approves or rejects the
loan. If your loan is closed you become amem-
ber of the loan association, and must become a
stockholder equal to 5 per cent of the loan.
Basic interest rate was 4 per cent through 1952
except in three east coast F.L.B. districts.
PRODUCTION CREDIT ASSOCIATIONS
The Production Credit Corporations
supervise the local P. C. A.'s in making short-
Sterm loans to carry on farm production. This
means loans tobuyfeed, seed, fertilizer, chem-
icals, fuel, building supplies, fencing, mach-
inery, livestock, baby chicks, labor and pro-
fessional services, rent, taxes, and property
During 1952, the 499 PCA's made
279,500 loans for $1.3 billion -- the largest
volume of credit in their history. The credit
corporations, unlike the land banks, do not
operate entirely on private investment funds.
They obtain their loan funds from the Federal
Intermediate Credit bank.
The Production Credit Corporations were
originally set up with a $120million government
investment. Today this has been reducedto $3.2
million. The eventual goal of the PCA's is to
retire all Government capital.
GOVERNMENT FARM CREDIT
PROGRESS IN MEMBER OWNERSHIP
OF PRODUCTION CREDIT ASSOCIATIONS
DECEMBER 31, 1951
.. -. . . .
FEDERAL INTERMEDIATE CREDIT BANKS
The Intermediate Credit Banks were set
up to provide local farm lending agencies with
dependable source of credit. All stock in these
banks is owned by the Federal Government.
Loanable funds are secured from short-term
debentures sold largely to banks. Most loans
are made through the local PCA's but country
banks and livestock loan associations can also
use the bank's services. Funds become available
to lenders when the FICB purchases and discounts
their agricultural notes. These banks make no
direct loans to individuals nor do they accept
BANKS FOR COOPERATIVES
Most cooperatives operated for the
mutual benefit of farmermembers mayborrow
money f r om the Bank for Cooperatives. Loans
can only be made to farmers acting together for
one of the following purposes;(1) processing
or marketing farm products, (2) purchasing
and distributing farm supplies, or (3) furnishing
farm business services.
Stock of these banks is largely gov-
ernment owned. In addition to the capital sup-
plied by government, all cooperatives which
borrow from the Bank for Cooperatives are re-
quired to own capital stock in the bank.
The banks make three types of loans;
(1) Short term commodity loans (not over 12
months) secured by a lien on farm products held
by the cooperatives. (2) Operating loans which
are not always secured -- either short or me-
dium term loans, and (3) Facility loans which
must be secured, cannot exceed 60 per cent of
the appraised value of the cooperative's col-
lateral. These are long-term loans but usually
run for less than 8 years.
GOVERNMENT FARM CREDIT
The Commodity Credit Corporation,
Farmer's Home Administration, and Rural
ElectrificationAdministrationare other sources
of farm credit separate from the F.C.A.
The Commodity Credit Corporation
has little direct contact with tne individual farmer
but is the real power behind all crop support
loans. The CCC stands behind crop loans made
by banks or other lending agencies for crops
stored under the support program.
The price-support program loans and in-
ventories totaled almost $2.5 billion as of Dec-
ember 31, 1952. The bulk of these loans were
made for wheat, tobacco, corn and cotton. Out-
side of these four crops, the largest loans out-
standing were wool,amounting to $43, 348, 032.
Other loans outstanding covered everything
from flaxseed to honey.
The CCC is authorized to have total
borrowings outstanding of 6.7 billion to carry
on its various programs. In event itwere need-
ed the CCC could more than double the amount
of credit it now extends.
The Farmers Home Administration is the
rehabilitation arm of Government farm credit.
At the time the loan is made, the farmer must
have a low income and be unable to obtain other
credit to suit his needs. When the loan is re-
payed the farmer is expected to have a satis-
factory income and be eligible for loans from
other credit agencies.
To qualify for an FHA loan farmers are
required to have sufficient land to support their
family and repay the loan under normal con-
ditions. The loans are largely direct advances
from the Federal Government obtained from
annual appropriations made by Congress. Re-
payment is returned to the Federal Treasury.
During 1952, 235 thousand farm families were
using $545, 627, 510 in loans from the FHA.
The F.H.A. makes four types of loans,
(1) operating, (2) farm ownership, (3) farm
housing and (4) disaster. The operating loans
are secured by chattel mortgages and are made
at a 5 per cent interest rate.
The funds for farm ownership loans are
both Federal and private funds -- banks and in-
surance companies sometimes furnish funds to
F.H.A. for these loans. Interest rate on these
is 4 per cent.
The farm housing loans are for home
improvement -- for items such as new water
systems, central heating, and remodeling, In-
terest rates on farm housing loans are at 4 per
cent. Disaster loans for flood, drouth and other
emergencies are at 3 per cent interest. Funds
for both disaster and farm housing are from
The Rural Electrification Administration
was organized in 1935 to make loans to co-
operatives to provide electricity in rural areas.
Interest rates are distinctly favorable for con-
structing power lines and generating plants.
They are amortized over a period of 35 years at
2 per cent interest. Funds for loans are obtain-
ed from the Reconstruction Finance Corporation
with Congressional approval.
The Functions of --
Four services of major importance are
rendered by commercial banks to individuals or
businesses. These are:
1. Banks provide a safe storage for surplus
funds. Most commercial banks are members of
the Federal Deposit Insurance Corporation. This
agency insures all bank accounts up to $10,000.
2. When surplus funds are deposited in the
form of a savings account, they earn interest and
are therefore a form of investment.
3. Checking accounts provide a convenient
way to pay bills.
4. Banks will loan money to those who re-
quire additional operating cash.
In addition to these major services, banks
offer many other services ranging from rental
of safety deposit boxes to financial counsel.
HOW BANKS OPERATE
Commercial banks provide a large portion
of each community's short-term credit needs.
The sources of these loans are funds deposited in
the bank, capital invested by the owners, and un-
distributed earnings or surplus.
When a bank makes a loan to a customer it
rarely gives him cash or currency. Usually it
simply credits his checking account with the pro-
ceeds of the loan. This transaction results in the
creation of a new deposit. This new deposit
usually doesn't remain in the customer's bank
account because he writes checks on his account
to pay others. But, it continues to exist as a
deposit in a bank or cash until the loan is paid off.
A bank, by making loans, creates deposits
totaling far more than the actual cash it has
available. The extent loans can be expanded de-
pends on the deposits, the capital and the re-
serves a bank must keep. Required reserves
serve two functions. They protect depositors and
influence the availability of bank credit or the
money supply. In general, banks must keep a
cash reserve of from 10 to 25% of total deposits.
THE FEDERAL RESERVE SYSTEM
Coordination of banking activity is important
to promote economic growth and maintain a
stable price level. For this purpose, the Federal
Reserve System was established in 1913.
In addition to bank supervision and examina-
tion, there are several regulating tools which
the Federal Reserve employs to controlbanking
operations and the total amount of money and
credit available to the public.
Discount Rate -- When reserves are inade-
quate, banks often borrow from their district
Federal Reserve Bank. They do this by dis-
counting government securities and other com-
mercial short-term paper which they hold. A
high discount rate would discourage bank bor-
rowing. Banks would tend to create only that
amount of deposits which could adequately be
covered by existing reserves.
Open Market Operations -- Purchase of se-
curities on the open market results in in-
creased holdings of securities by the Federal
Reserve and increased commercial bank re-
serves. This permits banks to expand total
credit and money supply if the public demands
it. Sale of government securities by the Federal
Reserve creates the opposite effect. Banks
may be forced to contract their loans and, hence,
the total supply of money.
Reserve Ratio -- It was stated earlier that
banks must hold reserves against deposits.
The Federal Reserve, by increasing the ratio
of required reserves to deposits, may reduce
the amount by which banks can create addi-
Regulation of Credit Terms -- The Federal
Reserve is authorized to establish margin
requirements on the purchase of securities.
Margin is the difference between the current
market value of a security and the amount which
is loaned against it.
From time to time controls on consumer
and real estate credit have been enforced. In
1941, Regulation W was issued, which set forth
certain minimum down payment and maximum
maturities upon installment credit. From 1950
to 1952 Regulation X was imposed in an attempt
to restrict real estate credit.
USING YOUR BANK
To deposit or withdraw funds from your
bank account requires the use of deposit slips
and checks of various types. Here's a brief
summary of commonly used items.
Personal Check -- is a written, signed order
on a bank to pay to the bearer or the order of a
named person, on demand, a certain sum of
money. Advantages of checking account as com-
pared with payment by cash are --
Danger of loss or theft is reduced.
Credit ratings can be established.
Payment of bills by mail is possible.
Canceled checks are a form of receipt.
Stubs and canceled checks serve as a rec-
ord of expenditures.
Checks should be correctly written to in-
sure maximum protection. Be sure to follow
these simple rules.
Austin, Te.xas./ // 19. No..-L
B2 Pay to
the order of / 50
,., FARM ERSSTATE DANK
1. Write plainly and in ink. 2. Fill out stub first -- so you
don't forget. 3. Date each check. 4. Completely fill each item.
Draw a bold line in any blank space. 5. Do not make checks
payable to cash -- write them to a specific individual. 6. Show
for what the check is given -- for your records and as receipt
evidence. 7. Never sign a blank check -- if lost or stolen any
amount can be filled in and you have to pay. 8. Be sure you
have enough money in your account to cover checks written.
Lost or stolen checks should be reported to
the bank immediately. In turn, the bank will stop
payment on that check. You can report a lost or
stolen check by telephone, but the bank usually
prefers that you sign a stop-payment slip.
CASHIER'S CHECK -- is a check drawn by abank
upon itself. This type of check is accepted as
cash and is used frequently when sending money
by mail. It can be obtained at a bank for a
slight charge by presenting cash or a personal
check in exchange.
CERTIFIED CHECK -- is a personal check on
which a bank has guaranteed payment. When a
check is presented for certification by the writer
or payee, the bank deducts the amount of the
check from the writer's account. It is deposited
in the bank's certified checking account. The
bank is then responsible for-its payment.
BANK MONEY ORDER -- is merely another
means of making payment to another person,
usually located some distance away. It is pur-
chased from a bank by the person desire g to
make payment in exchange for cash or a check in
the amount of the order plus a charge. It is an
order on the issuing bank. Therefore, that bank
is primarily liable for its payment.
Bill of Sale Draft -- is commonly usedbylive-
stock feeders when they go out of state to pur-
chase cattle and borrow bank funds to make pay-
ment. To execute payment the producer must:
(1) arrange with his bank to borrow the amount
needed to cover the cost of the cattle, and (2) re-
quest permission to draw a bill of sale draft upon
his bank. Thus, the bank makes payment for the
cattle which become chattel for the loan.
Deposit Slips should be accurately itemized.
Be sure to make note on your deposit slip
income and those
which do not. This is very important from
an income tax standpoint. Some day you may
be called upon by an Internal Revenue auditor
to produce your books. If not satisfied with
them, he will probably construct an income
figure by using the "bank deposit method."
Income is derived by subtracting canceled
checks for business expense from the total
of deposit slips. The assumption is made
(by Internal Revenue) that all deposits repre-
To illustrate what may happen when deposit
slips are not accurately itemized, consider the
following example. A tenant makes a deposit
which represents part of the landlord's income.
In paying the landlord at a later date the tenant
uses cash rather than a check. As a result, the
tenant's bank deposits indicate an income above
what he actually received.
Endorsement is the signature on a check bythe
holder for the express purpose of transferring
it to another person and receiving payment in
exchange. Blank endorsement of an instrument
of credit is merely the signature of the holder's
name on the check. Unlike other endorsements,
no restrictions or qualifications are stated.
a.) Special Endorsements -- protect against
loss or theft.
b.) Restrictive Endorsements -- limit payment
to certain individuals.
c.) Qualified Endorsements -- limitthe liability
of the signer.
RETRICTIE E REEHT
___ __ __
---------_ ___ ~ ___ __._-----_____________
Like all businessmen, farmers frequently
enter into contracts or agreements with other
people. They need basic knowledge as to what
makes a contract legal and binding and where
they should be used.
A contract should provide some benefit to
each party involved. Otherwise there is no ad-
vantage to be gained by contracting. You agree
to do something or provide a certain amount of
a specified product under a definite financial
arrangement. The contract should be in writing,
but oral agreements can also be binding. The
time of the contract's expiration should be set
or a method agreed upon for canceling it. All
of the terms of the contract should be set
forth as carefully as possible and each person
involved should sign it. Some examples of vari-
ous contracts commonly used by farmers are:
1. Farm leases
2. Sale of land by contract
3. Livestock or poultry feeding contracts
4. Soil Bank contracts
5. Grain sales contract
6. Feeder cattle contract
7. Cattle feeding contract
8. Hired labor agreement.
HOW CONTRACT FARMING STARTED
Several years ago feed companies began t
sell their protein supplement or complete mixe
ration to farmers on credit. From this planthey
eventually developed what is now referred to as
"contract farming." There are many variations
of terms in these livestock and poultry feeding
contracts, but most of them now give the feed
company some control over how the farmer
handles the stock. In the case of poultry, it often
belongs to the feed company and the farmer is
paid so much for each pound of meat produced or
for each dozen eggs.
This situation has come about because farm-
ers needed credit to finance their feeding opera-
tion. Also feed companies were eager to increase
their sales. As they became more involved, the
companies found it necessary to provide a uni-
form supply of a high quality product to meet the
demands of buyers for the large chain stores.
"Vertical integration" is another term ap-
plied to an arrangement whereby more than one
link of the production and marketing chain is tied
together under one management. For example,
one company may own poultry breeding flocks, a
hatchery, a feed mill and a processing plant; con-
tracting with farmers to grow the broilers. The
company would be called the "integrator." In
most cases, the company has signed contracts
with processors to provide a market.
CONTRACTING OR INTEGRATING
There are several conditions or reasons
why you might want to enter into some form of
contract arrangement or become a part of an
integrated operation. Contracting to obtain cred-
it has already been mentioned. Among other
reasons are the following:
1. Expert management, advice and know-
how become available to you under
many contracts. In many situations the
company with which you contract will
make many of the management deci-
sions. Their wide experience and re-
search, in many cases, will provide a
sound background upon which wise deci-
sions can be made. They will help you
to incorporate the latest equipment and
know-how into your business in an
Under such arrangements youlose
part of your independence and freedom
to manage your business as you see
fit. On the other hand, contracting may
help to even out the good and bad in-
come years to give you a more stable
income. You may or may not make
greater profits in any one year than
you would without a contract. It be-
comes a question of freedom to manage
your business as opposed to a possibly
greater income opportunity. It's a deci-
sion that only you can make.
2. Higher quality product may be the re-
sult of using latest scientific know-how
and expert management advice which
often become available to you through
contracts. Thus, you may command a
higher price for your product.
3. Allows you to reduce risks. Although
you may lose part of your freedom,
contracting does permit you to reduce
much of your market risk. You are as-
sured a market for your product. In
turn, the company with which you con-
tract is assured a supply. You are not
faced with uncertain markets and
prices. This close control over the
farm enterprise permits some possible
reduction in costs of marketing, which
could mean more dollars in your pocket.
4. More efficient operation may be pos-
sible with an assurance of amarketfor
product and a source of credit and
management know-how. This may per-
mit you to organize your enterprise at
its most profitable size. Without these
assurances you might set up a given
enterprise somewhat smaller than what
is most profitable.
SEEK ADVICE ON LEGAL PROBLEMS
Consulting a lawyer is often a wise move
for a farmer. No one can keep up on all the legal
angles involved with running a farm business.
Farmers need to concentrate on doing a good job
with crops and livestock, calling on tax experts,
lawyers, engineers and other specialists in fields
where their knowledge is limited.
You should locate a lawyer who has some
knowledge of agriculture and work with him on
all of your legal problems. Contracts should be
drawn up by a lawyer or you should use a form
that has been prepared especially for the situa-
tion. They should not be signed without reading
the so-called "fine print." Your lawyer can ad-
vise you on any matters regarding contracts.
2 veuelopmenth .n --V
"Agriculture is undergoing basic and dynamic change. The fundamental makeup of the farm econ-
omy is being remade. Nowhere is this revolution more evident than in the rapid spread of a new
system of marketing agriculture products to which we have given the name -- Contract Farming."
Contracting and subcontracting are common
at all levels of manufacturing today. The local
parts manufacturer, for example, does not hire
men or buy raw materials until he has a firm
contract with General Motors, Ford, Chrysler
or some other manufacturer. It takes a lot of
subcontractors like these just to keep one
big assembly line moving.
Agriculture is now in the process of a meta-
morphasis which parallels that of the Industrial
Revolution. Farming, as we have known it, is
organized after the fashion of the craft shops.
Today it is being remade into an integral part
of our industrial economy. Food production, pro-
cessing and distribution are being integrated into
gigantic assembly line operations. That's what
the contract farming idea is all about.
Contracts as such are not new to agriculture.
Sugar beets, cannery crops and many other
specialties have been produced under contract
for years. However, the concept of an integrated
assembly line production and distribution is new.
STARTED WITH THE CO-OPS
Contract farming got its start with the
farmer-owned cooperatives. Farmers have long
recognized that "as long as farm products go
into marketing channels direct from millions of
small producing units, price levels will be deter-
mined almost entirely by people outside of agri-
culture. (J. H. Florea, editorial director, Better
Farming Methods Magazine, April 1957.) The
marketing cooperatives came into being be-
cause the old fashioned "free market" is no
longer adequate to serve the needs of farm-
ers and consumers.
Assembly lines are not possible without a
high degree of standardization and advance pric-
ing. It would be impossible for any one of the
Big 3 auto manufacturers to put a price on their
new cars if the only way they could buy nuts and
bolts, transmission assemblies and headlights
was at public auction on a day-to-day basis.
That's why they enter into contract with local
parts manufacturers for all of these and the many
other parts necessary for mass production be-
fore the assembly lines start to roll. Farmers
need the same sort of standardization and con-
trol, and through their cooperatives they are
attempting to get it.
One outstanding example of this development
may be drawn from the success of the Cooperative
Citrus Growers of California and Arizona. This
cooperative has been successful in obtaining al-
most complete control of orange production in the
State of California. The individual farmer is not
always happy with the decisions of the cooperative
as they relate to him personally because the co-op
tells him when, where and what he can or can-
not sell. The individual farmer is no longer his
own boss even though it is his co-op that tells him
what to do. Of course he doesn't have to belong to
the association -- unless he wants to sell oranges!
The Grange League Federation (GLF) of New
York, Pennsylvania and New Jersey is one of the
largest and best organized of all the cooperatives.
The members are largely poultry and dairy
farmers who must buy a lot of feed. They have
employed a staff of grain marketing specialists
whose job is to buy corn and other feed grains
at the lowest possible price, everything con-
sidered. These farmers have also built feed
mills to process the grain and prepare mixed
feeds for their livestock and poultry.
Farmers' efforts to bolster the old free mar-
ket system have not stopped with the cooperatives,
however. Farmers and their allied interests
enjoy a strong position politically, and for nearly
a quarter of a century have used the power of
their position to keep in force a system of govern-
ment price support guarantees for farm products.
From an economic point of view, about the
only justification of these price supports is that
they do, in fact, constitute a contract and have
been a tool in the hands of farmers to force
changes in the marketing system. The govern-
ment says, in effect, go ahead -- produce, then
if you can't sell to better advantage, here is a
contract that guarantees you the support price --
provided of course that you give up some of your
freedoms and agree not to plant more than so
many acres or sell more than so many bushels.
Everyone, especially the farmer, recog-
nizes that he has given up some of his tradi-
tional freedoms in order to get the government
price support contracts. But, that was no more
than the California orange producer did in
order to get a better market for his fruit
through his cooperative. It seems that everybody
but the farmer is worried about the loss of the
"free market." When farmers are given the op-
portunity to vote for or against a government
price support program they almost always vote
for it. The same goes for the federal milk mar-
keting orders which set up a system of contracts
for milk producers in a milkshed area.
Only within the last few years has private
business finally begun to recognize the basic
demands of farmers for some sort of minimum
or guaranteed price for their products. Credit
goes to the feed industry for finally breaking the
deadlock between farmers on the one side and
processors on the other.
Briefly what the feed companies did was to
provide feed on a consignment basis to their local
dealers. Next, they encouraged these dealers to
do the same with their farm customers. Soon
this developed to the point where the feedman
not only provided the feed but also the baby
chicks and did it all on a consignment basis. This
meant that the farmer never really owned the
birds or the feed -- it was a straight 100% credit
operation from beginning to end. Under this ar-
rangement, the farmer gets paid so much for
each pound of broiler produced and may get a
bonus if he holds feed costs low. In a sense the
farmer works for a pay check the same as his
neighbor who has a factory job.
This arrangement forced the feedman to
protect himself against price breaks -- so one
by one they worked out contractual arrange-
ments with processing plants to take the finished
birds direct from the farm. The processor
benefits by this program too because in the past
he always ran the risk that he might come up
short and have to go out and bid against everyone
just to meet his own commitments (or contracts).
No one gets rich out of this kind of contract-
ing but all know about what to expect. Everyone
is free to concentrate on cutting costs and in this
way he makes what he does get go farther. This
puts the pressure on doing a good job better all
the time and in the long run everyone benefits.
In the last year or so we have seen emerging
a new and larger contractual arrangement which
some have called "vertical integration." Within
this concept one company owns or contracts for
all the units of production. For example, one
company may own its ownbreedingflocks; oper-
ate its own hatcheries and feed mills; contract
with farmers to feed its feed to their chicks;
process the finished birds in its plant and sell
the dressed broilers under its brand name. That
sounds strangely like the Sunkist Orange story
of the California Fruit Producers Association.
Chicago milk producers are doing it too. They've
just bought another competing bottling plant and
now offer 10-year contracts to distributors.
Contract farming as we see it is not just a
name which applies to a particular piece of paper.
It does not represent merely an agreement be-
tween two parties as to how they will conduct
business, rather contract farming is a broad
new concept of marketing which has come out of
more than 25 years of experimentation on the
part of farmers and those who buy from or
sell to farmers.
WHAT IT ALL MEANS
Our marketing research studies indicate
that the consuming public wants a uniform pro-
duct and that many farmers and businessmen
are ready to accept this new system of market-
ing. At the present time several feed companies
and a number of packers have or soon will have
pilot studies under way on how to apply the prin-
ciples of contract farming to hog production in a
big way. One new venture of this type is already
under way at Arkansas City, Kansas.
Turkeys and eggs are being successfully
produced under contract at the present time.
Some lamb feeding has been on a contract basis
for several years. Even beef cattle are being fed
under contract. The impact of such rapid changes
in the marketing of farm products cannot be fully
comprehended at this time.
No major new farm or farm-related enter-
prise should be started without taking into ac-
count these basic changes in the marketing of
farm products. The time may come, and soon,
when the only markets of importance to thefar-
mer may be classified broadly as a contract with
a farmer-owned cooperative, the government or
a private business.
Some farmers now have the opportunity of
fixing the price of their products before they
invest their money. The old free market, where
the farmer said "Here it is. How much will you
give me?" after he had invested his work and a
good share of his savings, may become outmoded.
In its place a new system of contract farming
patterned after the contracts and subcontracts of
industry is being forged as rapidly as know-how
and financing can be brought together.
Progress Report on
Since the Digest first reported on "Contract
Farming" two years ago, there have been many
developments. Heated words have been exchanged
as to whether vertical integration is "right" or
"wrong." By now most of the furor has died down.
Even the most conservative thinkers are likely
to agree that there will be more contract farm-
ing in the future.
You can talk to people in many parts of the
nation who will tell you that there is no ver-
tical integration in their section...that they don't
believe farmers would be interested in it. How-
ever, wherever you are in the U.S., it is doubtful
if you are more than 150 miles from an area
-- where contract pro-
,, .h VR T...A .. duction of livestock,
E: ... poultry or field crops
K uINIERA.'.oN;: i is being practiced.
.I A Michigan county
RI-, u,. I agent has said,
__ "I think verti-
cal integration is
happening all over the place and that I don't see
all of it." Companies are naturally secretive
about their plans for new programs and
Perhaps contracting has moved ahead faster
in the area of egg production than anywhere else
during the past year. It has been estimated by
some that from 10 to 20% of the nation's laying
hens are kept under contract arrangement.
Regional Shifts in production will take place,
as they did in broiler growing, but probably not
to as great an extent. The Southeast is showing
a marked increase in numbers of laying hens
and may take away some of the Corn Belt's
market. More eggs will be produced in Kansas
and southwestern areas bordering it.
TYPES OF EGG CONTRACTS
One of the first well-known egg deals was
the Kansas "package" program. It guaranteed
a minimum of 37 per dozen for Grade A Large
eggs. Low egg prices forced an end to this
type of contract. So far as we know, there
have been no other egg contracts set up to
guarantee a set price per dozen of eggs. Here are
some types of contracts now in force:
1. Producer receives a certain quality premium
over the quoted price on a nearby market.
Two cents per dozen is a fairly common pre-
mium now. While feed and birds are normally
supplied on credit to the grower, he still has
to pay for these items out of the price received
for his eggs. Financing of housing and equip-
ment may also be arranged as part of the over-
2. The egg producer may receive a flat fee of
so much per dozen eggs produced, which pays
him for his labor and housing. The birds and
feed are supplied by the integrator. This flat fee
at the present time
at the present time Possible Egg Payments
may runfrom 4to 6 Based on Feed Efficiency
per dozen, plus cer- Pounds feed Payments to growers,
tain incentives for per dozen cents per dozen
feed efficiency and Dealer Grower
low death loss. The owns owns
table gives a set of in- ens e
centive payments for
4.00-4.24 8 16
feed efficiency. 4.25-4.49 7 15
3. Some plans mere- 4.50-4.74 6 14
ly involve a market- 4.75-4.99 5 13
5.00 and up 4 12
ing program and no
financing.The produc- N. CAROLINA
er agrees to abide by certain practices to
guarantee quality and to sell his eggs through this
outlet, often a cooperative. Some give a premium
of 1 or more per dozen.
CONTRACT SWINE PRODUCTION
The greatest controversy about contract
farming has centered around its invasion of pork
production. The typical midwestern corn-hog
farmer has not exactly thrown out the welcome
mat for vertical integration. However, several
companies offered contracts a year or so ago
and this stirred the farm cooperatives into action.
It appears that such co-ops will play abig part in
swine integration as it develops.
Variation in Contracts is wide, so far as hog
production and marketing are concerned.
Some are little more than financing plans
for protein supplement, some involve produc-
tion and marketing of feeder pigs, others
One fairly typical swine contract involves
both a packer and a feed company. The farmer
is to acquire a breeding herd to produce meat-
type hogs. He also provides the equipment, build-
ings and labor. The protein supplement is fi-
nanced. A schedule of multiple farrowings is
worked out as part of the complete management
program. The producer then sells his hogs to the
packer, receiving a premium (currently 50C-
750) for No. 1's over the high-low marketaver-
age for the day. The No. 2's and 3's (rail graded)
may be sold for market price.
Various local feed dealers have set up some
programs where they own the hogs and provide
the feed, and the farmer receives a flat fee per
pound of gain. These include very specific
management programs, based on confinement
rearing. The producer may be assisted in
arranging financing for his necessary buildings
and feeding floors.
Feeder Pig contracts are being developed in
several parts of the country. One of the most
recent is offered by afarmer-ownedassociation
in Illinois that hopes to supply 50,000 feeder
pigs per year. Growers of meat-type pigs will
be guaranteed a certain minimum price, not
spelled out in dollars and cents but based on the
market price of butcher hogs at the time.
The Future will no doubt bring increased ac-
tivity in swine integration. Packers are eager
to get a uniform supply of meat-type hogs and
feed companies are anxious to meet their com-
petition and keep up their tonnage. Farmers
are going to be more interested in programs with
a guaranteed price as we move into a period
of less favorable hog prices.
The southern Great Plains, from Kansas
into Texas, will be making a bid for some of the
Corn Belt's hog business -- especially in supply-
ing the West Coast. The Southeast and also the
Middle Atlantic area are showing interest in de-
veloping modern confinement hog systems and
filling some of the needs of eastern packers.
CONTRACT CATTLE FEEDING
Various types of cattle feeding contracts
have been in use for several years. The main
development recently has been the continued ex-
pansion of large commercial feed lots and the
starting of many new ones.
Here are a few types of feeding arrangements:
A flat fee per head per day or per ton of
feed used is often paid to custom feed lot opera-
tors for their services and facilities. They sell
the feed at market value or for an agreed price.
All risk is carried by the owner of the cattle.
The feeder and another party may own the
cattle jointly, work out a division of costs, and
then split the profits or losses after all expenses.
The feeder may be paid so much per pound
of gain put on, with ownership of the cattle being
in the hands of a packer or someone else. Feed
costs are paid by the feeder and his profit comes
from the feeding operation. The owner stands the
risk of changes in market prices.
A guaranteed feeder's margin contract
may be used, in which cattle are put into the feed
lot at an agreed price with the seller contracting
to buy them back at a certain price when they are
finished. Also, any feeder may decide to sell
his cattle ahead of time at a contracted price.
WHY SIGN A CONTRACT
As a farm producer there are several rea-
sons why you may want to sign a contract. One of
the main reasons might be to reduce risk in your
farming operation. To achieve this completely
you need a contract that pays you a flat fee
for doing a certain job. But as risk is reduced
you also lose some of your income opportunities.
Instead you may want to share the risk to
avoid being wiped out by a rapid price drop
but still have a chance to share extra profit
if prices rise.
Lack of capital may be a reason for going
into an integrated program. You may not be able
to borrow enough money to buy the necessary
livestock or poultry, plus the feed, buildings and
equipment, especially when starting to farm.
You may want to profit from use of the new-
est management practices that are incorporated
into a contracting plan. This is especially true
where hog or poultry production is new in an
area and operators are lacking in background.
Some integrated programs may offer such
a market advantage that you as a producer may
want to sign up to obtain a premium.
ESSENTIAL CONTRACT TERMS
Your contract should be in writing and signed by
both parties, with a definite period of time stipulated,
or provisions made for canceling it by either party. The
rights and obligations of both parties should be spelled
out as clearly as possible. Where a guaranteed price is
included, or a premium over market price, the specific
market, weight and grade should be set forth, along with
the exact procedure for calculating the amount due. The
contract should clearly state when the producer is to
receive his money.
Provisions should be made for what is to be done
in the event of death of the farm producer. Are his heirs
to be responsible for carrying out the terms of the con-
tract? What about assignment of contracts from one
producer to another?
THE INTEGRATOR needs to establish certain safe-
guards for himself to protect his investment. Most con-
tracts are developed by the integrator so the main
responsibility falls on him to cover all important items.
After the terms are decided upon, a capable attorney
should put the contract in the proper legal form. Then
the farmer has his own responsibility to examine the con-
tract closely, preferably checking with a lawyer also.
MONEY AND CREDIT
Since mentioning land purchase contracts on
this page three months ago, readers have asked
for further information. As indicated before,
there has been a sizable increase in the number
of buyers using contracts during the past several
years. Best estimates point to land contracts
being used in 20% of all land sales.
Land Contract Forms are available in such
states as Michigan and Minnesota where 35 to 40%
of all land transfers are by contract. In other
states, such as Illinois, most contracts are drawn
up by lawyers to fit the individual situation.
These contracts, sometimes called con-
tracts for deed, contain a legal description
of the property involved, names of the buyer
and seller, purchase price, amount of the "down
payment" and a schedule for regular payments
to be made by the purchaser. Of course, interest
rates are also specified.
The buyer is required to pay all property
taxes and to keep fire and wind insurance on the
buildings. Even though he does not get the deed
at time he takes possession, the buyer has com-
plete possession of the property and the right
to use it in any way he sees fit.
The seller can have a mortgage on the prop-
erty, so long as it is for less than the unpaid
balance. The seller may even be buying the
land on contract himself.
In one contract used in Michigan it is possible
for the buyer to assign or sell his interest in the
contract to another person. He must immediately
notify the seller. However, this notice does not
relieve the buyer of his obligations unless he
gets a written release from the seller.
Of course, the contract calls for delivery of
the deed and abstract of title to the buyer after he
has made all required payments and fulfilled
other obligations within the specified time.
WHY USE A LAND CONTRACT
There are definite advantages for both buy-
ers and sellers under certain situations. For the
buyer, it is mainly a way to buy land without hav-
ing to make a big down payment. In some special
cases a transfer may be made without any pay-
ment by the buyer. The average size payment at
time of purchase is generally about 20% of the
sales price. When a farm is purchased outright
and a mortgage given, you normally have to pay
about 50% of the purchase price and can get a
loan for the rest. There are exceptions, such as
the FHA 100% financing arrangements.
Sellers have certain capital gains tax advantages
when selling by installment land contract. Also
they have a larger number of prospective buyers
when the farm is offered for contract sale, pos-
sibly resulting in a higher sales price than other-
wise. The contract sale allows them to keep their
money invested in the land with a guaranteed re-
turn that is usually equal to the interest being
paid on mortgages.
FOR FARM PURCHASES
STwo or more lenders
AGR EDICULTURAL ARCH ISERCE
As you can see by the graph above, sellers are the big-
gest single source of credit for buying land. In 1955 they
financed only 34% of all credit land transfers, but by 1958
this was up to 43%. Sellers generally extend credit for a
larger part of the purchase price than any other type of
lender -- it averaged 71% of purchase price in the year
ending in March 1958. Land installment contracts were
used in a great many of these transfers.
In order to qualify for special treatment on
capital gains for Federal income tax purposes,
the seller must not receive more than 30% of
the purchase price in the "year of sale." This
is the year in which the buyer takes possession
of the farm; not necessarily the same year the
contract was signed.
The seller then reports a portion of his cap-
ital gain each year, instead of having to report
it all in the year of sale, as would be necessary
in a cash transaction.
PERCENTAGE OF CREOITr PURCHASES FINANCED BY EACH CLASS OF LENDER
U.S. DEPARTMENT OF AGRICULTURE
Example: You have a farm with a "basis" of $40,000 and
you sell it for $50,000. The capital gain is $10,000, which
is 20% of the sales price. Assume the down payment is
$5,000 (10% of the sales price). If this is all you receive
in the year of sale, you would report $1,000 as capital
gain (20% of the amount you received). Supposing the con-
tract calls for an annual payment of $3,000, not including
interest, you would each year report $600 of capital gain
(20% of the annual payment), until the contract was fulfilled.
There have been instances in which sellers
have not paid any capital gain until the payments
they received were equal to the "basis" for their
farm (generally the original cost to them). In
every case we know of, this procedure has been
contested by the Commissioner of Internal Reve-
nue. There are several cases reported in which
the taxpayer won out. However, for most people
it is not advisable to try this procedure.
The installment sales have greatest value
for sellers who are in the lower or middle income
brackets. People approaching age 65 may find ad-
vantage in deferring a portion of the capital gains
until their double exemption can be used.
There are many variations in these contracts
and you should work with your attorney in draft-
ing a form which fits your individual situation.
The term of years over which installments
are extended may vary, depending upon the age
of the buyer and other considerations. Usually
contracts are for not less than 10 years or for
more than 20 years. Normally the seller will
want an arrangement that results in an annual
payment greater than the rent that could be ob-
tained from the farm.
Rights of sellers are pretty well protected
under most state laws. For instance, Minnesota
law permits the seller to repossess his landby a
simple eviction procedure, which can be set in
motion 30 days after a buyer has defaulted on a
payment. No lengthy foreclosure proceedings are
necessary in most states in order to get your
land back. Under Illinois law, default in a land
contract may mean forfeiture of the purchaser's
equity, depending somewhat upon the situation.
In spite of this, buyers have generally made
out all right under contracts, partly because land
has been going up in price rather steadily.
In a Minnesota study of 350 farmers who
bought land on contract, it was found that 33 of
them had missed payments. In only one of these
cases had the seller served notice of intention
to terminate the contract. Several attempts were
made to find people who had lost their farms
through involuntary termination of a land con-
tract, but none were located.
In order to protect the rights of both parties
under Illinois law, Professor Norm Krausz of
the University of Illinois has suggested the
1. A grace period that increases with the
buyer's equity. This would give him a longer
time to make up back payments after his invest-
ment is larger.
2. Limited prepayment privileges that the
buyer could use as credit against default
in later years.
3. A clause allowing the buyer the value
of his improvements less depreciation in case
4. A buy-back clause giving the seller first
option to buy the farm back at the contract price
if something should happen to the buyer.
The University of Minnesota study brings up
another clause which could be worth-while tothe
buyer. It allows him to convert the contract for
deed to a conventional mortgage after he has paid
enough on the contract to build his equity to about
one-half the value of the farm. This figure is sug-
gested because it roughly corresponds to the up-
per limit of most lending agencies where a
mortgage is used. It was found that of the Minne-
sota farmers answering this question, 27% of
them had such a clause in their contract.
Product Payments -- Occasionally you hear of
an arrangement whereby someone buys a farm
and has an agreement to pay for it with a certain
amount of a farm commodity instead of so many
dollars. Payments are on an annual basis but
may be set up to pay so much each month.
The buyer does not actually deliver so many
hundredweight of milk or pork to the seller. He
pays in cash the value of the agreed upon quan-
tity of the farm product that particular year.
This gives the buyer some protection in years
when prices drop. The seller gets his break
in years when they go up.
"Selling Farms on a Product-Payment
Basis" is a new bulletin issued by University of
Wisconsin at Madison. It gives a sample agree-
ment for such a sales arrangement.
W CONTRACTS FOR
Feeding cattle on contract is not new to the
beef industry and so should not be confused with
recent trends toward vertical integration as it
is applied in the broiler, egg or hog business.
This type of contractual growing has increased
but most of the growth in interest in contract
feeding of cattle has been between individual
ranchers and feeders.
Incentive to Contract is basically dif-
ferent for each party, although each hopes to
make money. Ranchers or speculative cattle
owners desire all or a share of the profits that
can be gained by fattening cattle or, if feeder
cattle are very low priced, to increase the value
of the original weight of the cattle. Feeders, on
the other hand, usually lookto contract arrange-
ments as -* a means of reducing risk.
By agreeing to feed for cash or share feed-
ing profits, the feeder is exchanging his chances
of making good returns on high markets for a
reasonable price guarantee for the feed, labor
and equipment he contributes to the operation.
Contracting is also a means for an undercapi-
talized operator to feed in greater volume,
spreading overhead costs and thereby lowering
costs of feeding his own stock.
Regardless of the type of contract, there
are some features that should be standard.
Participating parties should be named.
Date contract begins and length of contract
defined as closely as possible.
Number of cattle involved.
Contract type--i.e.--grazing, wintering, etc.
Veterinarian expenses should be assigned.
Death loss responsibility should be clearly
Method and time of payment to feeder for
Marketing instructions or agreements.
Other features are needed in some contracts
where payment is on weight gain or where
income is shared on the basis of percent
contribution to value of the finished animal.
Weighing conditions and shrink allowances.
e Marketing expense distribution, if shared.
Initial value of animals.
Bonus payments for gains or feed conver-
sion above established standards.
Grazing contracts are mainly pasture rental
agreements. However, in migratory grazing
areas, land owners often lease their grass and
are responsible for any care cattle need.This,
therefore, is also a form of contract feeding.
Most charges are made predominantly on
the basis of a flat fee per head for a grazing
season. Representative charges on this basis in
the Kansas Flint Hills are $12 to$15for calves,
$15 to $18 for yearlings and $18 to $22 per head
for aged steers. Another method is to charge on
the basis of per head per month. The cost in
this case usually will range from $2.50 to $3.50,
depending on the size of the cattle.
Under grazing arrangements the person
leasing out his grass receives the cattle, pro-
vides salt, guarantees adequate water, supplies
a predetermined acreage per head, provides
management (calls in veterinarian, treats
screwworms, etc.) and handles owner's loading
out orders. If protein supplement is to be fed,
that would be at extra cost to the owner. Death
loss remains the risk of the owner except where
death can be attributed to negligence of the
operator. These factors just mentioned are not
usually part of the arrangement when the cattle
owner is close enough to provide these services
Weighing conditions for grazing are im-
portant only under the "gain basis" contract. In
all contracts where weight taking is necessary,
cattle should be weighed "in" and "out" under
similar conditions so that neither party gains an
advantage due to shrink. If cattle are weighed
"in" after a fill, they should be weighed "out"
under full conditions. Or if weighed "in" off
trucks after a long haul they should be hauled,
driven, stood dry overnight or given a pencil
shrink to determine a fair "out" weight.
Wintering Contracts are seldom made on any
sharing arrangement. Fees are normally based
on a charge per pound gained. This charge
varies from about 15W to 20', depending on the
quality of feed being fed.
As with the grazing contracts, death loss
normally remains the risk of the owner. It may
be desirable on wintering contracts to establish
reasonable death loss limits that are solely the
loss of the owner -- say, 3% on calves and 2%
on older cattle. The feeder would then be re-
sponsible for paying the owner the going market
value when the contract began on the "in" weight
for any loss in excess of established limits.