speeches · June 9, 1966
Speech
Darryl R. Francis · President
THE SCHOOL OF BANKING OF THE SOUTH Lecture Date: June 10, 1956
Course Agricultural Economics Lecturer: Darryl R. Francis
Course Coordinator: J. W. Fanning Subject: Farm Capital Invest
ment Neeos, Uses
and Returns
I. A Brief Review
A. Agriculture - 1900 to 1950
1. From subsistence to commercial farming
2. Decline in home-produced inputs;
rise in purchased inputs
Examples: horse power to machinery
open-pollinated to hybrid seed
home-produced to commercial fertilizers
B. The Stepped-up Revolution in Agriculture -1950 to Date
1. The tremendous battle to stay even
2. Flood of farm products puts pressure on prices and income
(Chart) Farm, Consumer, and Wholesale Price
Trends, 1950-1965
(Chart) Farm Income Versus National Income,
1950-1965
3. Number of farms declines
(Table) Farms in the United States
(Chart) Number of Farms, ana Average Size of
Farms in the United States, 1925-1966
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
Page 2
Agricultural Credit
Mr. Francis
June 10, 1966
4. Farm output versus industrial production
(Chart) Farm Output and-Industrial Production
5c The great rise in productivity in agriculture
(Chart) Real Product Per Man-Hour in the
Private Economy - United States
6o Readjustments in resources contribute to increases in
realized net income per worker
(Chart) Number oi' Farm Workers ana Income
Per Worker
7. New types of farming developed
Examples? integrated or contract farming
vegetables, broile's
commercial beef feedlots
commercial milk parlors
II. Farm Technology Dictates Changes in Capital
A. Total Production Assets Increase
1. Total production assets in agriculture have gained
significantly in recent years,
2o A large portion of the gain reflects rising land prices
which have more than doubled since 1950, and more
tnan quadrupled since 1940.
3» Non-real estate assets have also made sizable gains,
with greatest increases *n value of farm machinery.
(Chart) Farm Production Assets
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
Page 3
Agricultural Credit
Mr, Francis
June 10, 1966
B Gain in Assets Per Farm
0
lo Production assets per farm have increased very sharply
(rising threefold since 1950) in the competitive struggle
to attain greater efficiency through farm enlargement.
2 Approximately 50 per cent of the gain in assets per farm
0
reflects rising land prices.
3. The other gains are from new investments in both real
estate and other assets.
(Chart) Total Capital Per Farm United States, and
Total Capital Less Real Estate Appreciation
C. Ownership
lc Owner-operator equities In farms decline,
proprietors' equities also down somewhat.
2. Large owner-operator equities increasingly difficult
to build as capital requirements rise.
(Chart) Proprietor and Operator Equities as a
Per Cent of Farm Assets
3. Organization
1. Likely increase in corporate form of organization
E. Management
I. Fewer owner-operators, rising proportion of part
owner-operators and others.
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
Page 4
Agricultural Credit
Mr Francis
0
June 10, 1966
F. Rate of Return on Farm Capital Points to Future
Inves;, ,r.t Trends
1. Capital in agriculture is increasingly competitive with
capital in non-farm uses,
2, The industry is thus not in isolation from other sectors
of the economy (capital, labor, land and product markets).
3c Returns to scale of operations have been great during
the postwar period, and the margin of efficiency on
larger farms is still great
(Chart) Average Return on Farm Capital
Specified Types of Commercial
Farms by Size (1947-1964)
4. The smaller farms barely provide an opportunity for the
operator and family to earn wages at the national average
farm wage rate,
5. Returns to size have been more pronounced in recent
years than in early postwar years»
(Chart) Average Return on Farm Capital
Specified Types of Commercial
Farms by Si ze (Selected periods)
G. Marginal Capital Invested in Real Estate Apparently Yields Greatest
Returns
1. Real estate assets are a greater per cent of total
assets on the larger farms which have higher
returns to capital.
(Chart) Farm Real Estate as Per Cent o.! Total
Farm Capital - Commercial Farms by
Size (1960-1964)
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
Page 5
Agricultural Credit
Mr. Francis
June 10, 1966
2. A smaller proportion of total capital is required for
machinery on the large, more efficient farms.
(Chart) Machinery Value as Per Cent of Total
Farm Capital - Commercial Farms by
Size, 1960-1964
H„ Greater Operating Efficiency of Larger Farms
lc The greater operating efficiency of larger farms
lies primarily in the opportunity for economies in
labor requirements per unit of output.
(Chart) Net Income and Net Income Less Operators'
Wages as Per Cent of Total Cash Receipts -
Commercial Farms by Size
2. Operating efficiency as indicated by labor and machinery
costs is substantially greater on the larger farms than
on the smallerones.
(Chart) Labor and Machinery Costs as Per Cent
of Gross Farm Receipts - Specified Types
of Commercial Farms by Size
3. High-cost labor is a greater proportion of major cost
items on small farms than on larger units.
4 The larger size farms thus provide a better opportunity
0
than smaller farms for reducing marginal costs by
replacing labor with machinery.
(Chart) Total Labor Costs as Per Cent of
Gross Farm Receipts, Commercial
Farm by Size, 1960-1964.
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
Page 6
Agricultural Credit
Mr. Francis
June 10, 1966
I. Mississippi Delta cotton farms illustrate greater efficiency
of larger units
1. The greater efficiency of large crop farms is indicated
by the striking differences in rate of return on capital
between large and small Mississippi Delta cotton farms,,
(Chart) Small and Large Mississippi Delta
Cotton Farms, Average Return on
Capital, 1960-1964
2o The greater efficiencies of the larger-sized units lie in:
(a) Reduced machinery capital requirements
per acre
(b) A major reduction in labor and machinery
expense relative to gross receipts
(c) A decline in labor costs relative to the
total of labor and machinery expense
This proportionate decline in labor costs occurred despite
the smaller per-acre investment in machinery,,
(Chart) Small and Large Mississippi Delta
Cotton Farms, 1960-1964
III. The Modern Farmer - Small Businessman
Ao The Farm Business Versus the Commercial Enterprise
1. Similarities
a„ Capital requirements (ownership)
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
Page 7
Agricultural Credit
Mr. Francis
June 10, 1966
b. Importance of financial backlog increases as
higher costs magnify exposure in agriculture
c. Management perfection
d. Operating statement, expenses as per cent
of gross sales
e„ Specialization in one or a limited number
of commodities
f. Bargaining for supplies and raw materials
2. Differences that stand out
a. Natural factors
(1) More likely to impair farm
operating results
b. Continuity of management
c. The balance sheet ratios
(1) Example: Land and buildings to
total assets and sales
are higher in agriculture
d. Debt as a per cent of total assets
(1) Generally higher in non-farm
business
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
Farm, Consumer (k Wholesale Price Trends
Index 1950=100 Index 195.0=100
130 <?L 130
re*
^
Consumer Prices-All Items
•s4'
>«5»
120 120
110 110
100 100
90 90
Prices Received by Farmers
80 J I J L J L 80
1950 1954 1958 1962
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
Farm Income versus Nati© I Income
Index 1950=100 Index 1950=100
220
200
1950 1954 1958 1962
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
FARMS IN THE UNITED STATES
Average p
1947-49 1966
Number of Farms 5,800,000 3,286,000
Land in Farms 1/
(Million Acres) 1,159" 1,151
Acres per Farm 200 350
1/ - Data for 1949
p -preliminary
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
Number of Farms a nd A v e r a ge Size of Farms
Millions of Farms in t he U n i t ed S t a t es Acres
400
350
300
250
200
150
0
1925 1930 1935 1940 1945 1950 1955 1960 1965 1970
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
Farm Output and Industrial Production
Index 1947-49=100 Index 1947-49=100
220 220
4
£
&
/}
200 200
At
180 180
IF
Industrial Production $
0
.o '
160 160
^
#
140 140
120 120
100 100
1947 1952 1957 1962
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
Real Product Per Man Hour
in the Private Economy-United States
1920-24=1001 1920-24=100
500 500
1
AJ
400 400
$ 1
/ 1
/ 1
i 1
rJ
300 300
Agric ulture >/
A,
200 200
Non Ag
c^ •fr£-
zy^z^z
- ?^
1001b .#*^-*du«!»r _•»' 100
I I I! 1-.,; _.!.. I 1 I ! . ,1. 1. 1 .1 ' I I I! i i l I I I I! i i I.I. ,1 ill, .._L_L_L.LJ
1920 1925 1930 1935 1940 1945 1950 1955 1960 1965
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
Ny_mber__qf Farm Workers
_and Income Per Worker
Millions of Workers Thousands of Dollars
8 4.0
3.5
3.0
2.5
* Income Per Worker l)
2.0
J L J L 0
1950 1954 1958 1962 1966
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
Farm Production Assets
Billions of Dollars Billions of Dollars
200 200
150
100
50
0
1940 1945 1950 1955 1960 1965
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
Total Capital Per Farm United States
and Total Capital Less Real Estate Appreciation
Thousands of Dollars: Thousands of Dollars
70 n70
60 60
50 50
40 40
30 30
20 20
Capital Less Real Estate Appreciation
10 10
0 X J L _ JL J L J I L 0
1947-49 1953 1957 1961 1965
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
Proprietors' and Operators' Equities
as a Per Cent of Farm Assets
Pe_r Cent Per Cent
100
90
80
70
60
Operators' Equity
50
40
30
20
10
0,
1950
1954 1958 1962
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
Return on Capital
Per Cent Per Cent
16 16
Farm Capital
12
8
Common Stocks
Dividend/Price Ratio
Nuu^fe^J
u taisma E^, ^ ^^ ^~*
a o
^ K0 O DanaJ
pa Ea isa Em tsm ma tsj •»"»«o l= .«4'* 0
Aaa Corporate Bonds
0 i i i u_ i i i 0
1940 1945 1950 1955 1960 1965
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
e t un n F I
vercage
of C© I F y 5ize
Specified Types
Per Cent
Per Cent
12
12
ESSaSmajlest
11 E223 3rd Largest 11
10.4
I 1 2nd Largest
10 Largest 10
REAL ESTATE
APPRECIATION
8.8
9 9
Capital $129M
REAL ESTATE
8 APPRECIATION 8
7.4
Capital $75M
7 7
REAL ESTATE
APPRECIATION [RETURN.
j FROM OPERATIONS^
6 3.JL RETURN 7.0 6
Capital $41M FROM OPERATIONS
6.4
5
5
3.8
4 •:•:•:•*•:•:•. RETURN:::::™-: 4
FROM OPERATIONS':
REAL ESTATE iil4.3=^
3
APPRECIATION
3.1
2 Capital $22M
l]
1
0
0
1947-64 1947-64 1947-64 1947-64
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
O —* h O C O j x O i O X J C O N OO — tO CD
*3 n >
•U Q <
^ ? *P
CD Q
2. n
h 11111 • 111 iii • 1111111111111111111111111111111«1111 m m 1111 m 111111 r 111111 M 11 T M 11111111 f i n 11 > 1111 M 111
£2 n >
oo Q <
AV/////AV/////AV//////Xv!v >* "O <Q
........'.. .a* • •
.».ti.»t..t................... r
00 ° <
11111' • • "vrrrrn,,,
5:? 9
fcO'>
NO
Q <
^ Q <
Q >
CO
CO Q i <
no <o
HT-iro CO CO -?
Q ! 3 -,
o Q <
£ n >
^ 7 <P
—' to GJ £w Oi O N CO >0
UID
-?
UID
•3
Q r—!*"" —* _*T </> Q;Q <D t/>
•«. -• !."• !<*
<a ;-*
CQ c?
a> o I
j-15.
Per
N
1 ^
J L- o CD
-o""•* onaJI 33aa
N
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
UO
00 NO"^'
o
n
o
CD
3
rJ*oGJc/>
Q •n
3 - 13
(Q n
CD
(A
(A
Q 70
•a
CD
NO
o
o •ON
o1 :bo
m
to
o
Q
o
o"
3
Q
NO
o 'vj CD Q
o ;o
1 k 2. "o
o
^ Q CD
Q CD
is
NO
o
o
I
ON
o
1 o 0 C o O 4 o ^ o o 0 o 0
f?J ° r: CD
L
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
Machinery Value as a Per Cent of Total
Farm Capital - Commercial Farms by Size,1960-64
Per Cent Per Cent
ECTI.SjnallesJL
V^----\ 3rd Largest
C 3 2nd Largest
14.1 &x£ Lajgestj
1960-64 1960-64 1960-64 1960-64
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
Net Income as a Per Cent of Cash Receipts
Commercial Farms by Size
Per Cent Per Cent
70 70
mm s.
nnnaaalllllleeesssttt
(nsnnno 3r
ddd LLLaaarrrgggeeesssttt
1 1 2lllrccc TTTLLLaaarrrgggeeesssttt
60h[[[[~~~~ H---]]] 60
iiirrrgggeeesssttt
5500..22
50h 444888...333 H50
47.0 47.6
NNNNNNNEEEEEEETTTTTTT IIIIIIINNNNNNNCCCCCCCOOOOOOOMMMMMMMEEEEEEE
NNEETT IINNCCOOMMEE
NNNNNNEEEEEETTTTTT IIIIIINNNNNNCCCCCCOOOOOOMMMMMMEEEEEE !!!!!!! CCCCCCCaaaaaaapppppppiiiiiiitttttttaaaaaaalllllll $$$$$$$55555555555555MMMMMMM NNNEEETTT IIINNNCCCOOOMMMEEE
CCaappiittaall $$116677MM
CCCCCCaaaaaappppppiiiiiittttttaaaaaallllll $$$$$$333333000000MMMMMM CCCaaapppiiitttaaalll $$$999555MMM
40h H40
H NET INCOME LESS!
^OPERATOR WAGES
111
33 88 .. 33 ^^^^
30H 30
NNNNNEEEEETTTTT IIIIINNNNNCCCCCOOOOOMMMMMEEEEE LLLLLEEEEESSSSSSSSSS
OOOOOPPPPPEEEEERRRRRAAAAATTTTTOOOOORRRRR WWWWWAAAAAGGGGGEEEEESSSSS
99999 99999
!!!!! ????? :::::
uuuuuu
20h 20
•• 1111 iiii..——........ ii ii ii................
•• •••••••••••• ••»»•• •••••••••••••••••••••••• ^^«« ••••••••••••••
::::%% NNEETT IINNCCOOMMEE LLEESSSS::::::::::
:: :: :: ::
jjiigg OOPPEERRAATTOORR WWAAGGEESS gg::
•• •• •• •• •• •• •• •• •• ••«« JJ ^^11 **JJ •• •• •• •• •• •• •• •• •• ••<<
10 a • a • » • • • » • • • •• •• aa •• • • a • • a • • a • • a aa 00 •• aa aa aa •• •• aa aa •• 00 •• aa •• aa •• aa •• •• aa •• •• •• aa aa aa •• 00 aa •• •• aa •• aa •• aa aa •• •• aa aa •• aa »» aa •• •• aa •• •• aa aa •• aa aa •• aa aa 00 aa aa •• •• •• •• aa •• aa aa aa ** •• aa aa »» aa aaaa •••• •• aa •• **aa aa aa •• ** »» aa aa aaaa •••• •• «« •• aa aa aa aa •• aa mm aa aa aaaa •••• •• •• aa aa aa aa aa •• «« aa aa aa aa »» •• aa •• •• •• aa aa aa aa aa aaaa aa aa •• »» aa •• aa •• «« aa aa aa aaaa aa •• aa 00 aa •• aa •• aa aa aa aa aaaa •• aa aa »» aa •• aa •• .. aa aa aa «« aa«« •• aa »» aa aa •••• aa aa aaaa aa aa** •• 00 aa aa aa •••• aaaa aa aaaa aa aa •• »» aa aa •• aa •• aa«« aa aa .. aa aa aa •• »» aa aa •• aa •• aaaa aa aa aa «« •• aa mm•• aa aa aa •• aaaa aa •• aa aa ** aa •• aa aa aa rr •• aa«« •• ««aa aa aa aa ••»» aa aa aa •• »»aa •• aa»» aa aa aa ii ••** aa aa aa •• •• •• ««aa aa** aa aa aa •• »»•• aa aa •• aa •••• ««aa aa»» ** aa aa •• »»»» •• aa aa aa ••>> aa ** aa aa aa aa aa •• mm aa aa aa aa aa ••aa >> aa aa aa aa aa aa ••««<< **aa aa aa aa •• «« aa ii aa «« aa aa aa »» aa aa «« aa aa •• aa «« ** aa aa aa aa aa mm ««tt aa aa aa ••** aa aa «« aa aa aa aa aa ««•• mm aa aa aa ••aa aa aa aa aa aa aa aa aa aatt aa aa •• aa aa **aa ** aa aa aa aa ss aa aa aa << << aa tt •• aa aa •• aa aa ii aaaa aa aa aa ** «« aa aa << ii ll ll ii 10
PPOO^^yyXX^^XXXXXXJJ^^ xx xx xx xx XXXXXXJJKKXXXXXXXX ccaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa**aassaaaaaaaaaaaaaaaaaaaaaaaaaa<<
0 ........„„„„„„„„ ________........!!!!!!!!________,,,,,,,,;;;;;;;; • • • a a 0m a aa a aa a 0 a a aa 0 aa a aa 0 aa a a » a aa c a » a aa a a m a aa a aa » aa a a m a aa a aa a aa a aa » aa a aa 0 aa a aa » aa a » aa a * a a a a a » aaa aa » aa a a 0 a aa a a m a aa a aa » aa a a * a >a a a m a aa a a m a aa a aa > as a a 0 a *a a a m a aa a a a » a 0 a a a a a a a a a a < ia a a a a * 4 ........,,,,,,,,........,,,,,,,, 11111111........ ________!!!!!!!! LLLLLLLL________ 0
1960-64 1960-64 1960-64 1960-64
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
Labor & Machinery Costs as a Per Cent off Gross Farm
Receipts-Specified Types of Commercial Farms by Size
Per Cent Per Cent
90
I^^Smallest I
Kvxxxvj 3rd Largest
80
i i 2nd Largest
Largest
70
60
60.79
50
40
30
20
10
0
1960-64, 1960-64 1960-64 1960-64
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
Total Labor Costs as a Per Cent of Gross Farm Receipts
Commercial Farms by Size
Per Cent Per Cent
70
KSSS3I Smallest. .
E Z3 3rd largest •
i i 2nd largest
60
Largest'
50
40
i H I i r i i i n > M
v 34.64
30
20
10
0
1960-64 1960-64 1960-64 1960-64
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
and Large Mississippi Delta Cotton Fa rms
Average Return on Capital 1960-64
Per
Per Cent Cent
LARGE
13 13
Capital
12 J238.3M 12
12.1% Acres
11 1000 11
Per Cent Return
no
10
from Operations
9 Per Cent Return 9
from Real Estate Appreciation
8 8
7 7
6 6
6.5%
SMALL
5 5
4 4.7% 4
3 Capital 3
~$14.9M
2 2
Acres
59
1 1
0 0
HI"
-1 -0.5% -1
-2 -2
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
Small a nd Large Mississippi Delta Cotton Farms
1960-64
Per Cent Per C e nt
Value of Real Estate Labor & Machinery Expense
h as a Per Cent of as a Per Cent of
Total Farm Capital Total Cash Receipts
100 100
tabor Expenses
98.2%
as a Per Cent of
90 90
Total Labor
and Machinery Expense
80 80
jM.5%
Capital
70 70
h74.27o 1238.3M 72.4%
Capital Acres 69.0%
60 ~$14.9M Tooo~ 60
Acres
59 56.5%
50 50
Value of Machinery
as a Per Cent of
40 40
Total Farm Capital
30 30
20 20
10 10
0 0
SMALL LARGE SMALL LARGE SMALL LARGE SMALL LARGE
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
Cite this document
APA
Darryl R. Francis (1966, June 9). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19660610_francis
BibTeX
@misc{wtfs_speech_19660610_francis,
author = {Darryl R. Francis},
title = {Speech},
year = {1966},
month = {Jun},
howpublished = {Speeches, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/speech_19660610_francis},
note = {Retrieved via When the Fed Speaks corpus}
}