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MA-ISRARY AT URBANA-CHAMPAIGN

L161—O-1096

Financial Position of

A Representative Group

of

McHenry County Farmers

In the Dairy Region of Northern Illinois

I940-1942

Bulletin 512 : UNIVERSITY OF ILLINOIS AGRICULTURAL EXPERIMENT STATION

CONTENTS

PAGE

Purpose and: Scope of Study... .....1.ccd2csecc. tv Nees 523 Capal: Position-of Operators. etc eee ee 526 Positions of Owners and Operators Contrasted............... 526 Operators With Different Debt Ratios.................2006, 532 Operators With Businesses of Different Size................. 537 Operators: With: Continuous: Records... 2). 6655 8 ead stn eae 541 Cash Income and Expense Patterns .... 2.0.0. 26. 00 sss enon 547 Patterns of Owners and Tenants Contrasted................. 547 Operators With Different Debt Ratios..................000- 553 Operators With Businesses of Different Size................. 555 Operators. With Continuous: Records... 3.0.42 3 6s an chat een 557 Expenditures: for Various: Purposes... <a 255-02 ss hee ee a ee 558 Possibilities of Buying Farms From Earnings................ 559 Some Characteristics of Farms and Operators............. 562 Owner and Tenant Farms and Operators...............000% 562 Farms. With, Different: Debt: Ratios..3 5.6 2.0240) eee ee eee 564 Farms of: Different: Size sos oe in apn eae i eee Ome 566 Changes: im Milk: Production: <3... vec ee ee 567 TOll- Farin: BUSINESS 8 oe ed eee ite a ay 568 Kinds of: Creditcand How Used nh oc se 572 Debts; ot All Farmersi.. a cege so rer cera tastes casera ce oa 572 SOUICES: (Of. CLEON c's Rak eo eee a Re a Ee 572 PUIPOSE.( OF /BOIOWINGS xs ecco a eee Oe es ee 576 Changes, an: Total (Debtss. 230s oes a er eh ee ea cee es 576 Factors Influencing Farm Earnings ................00c0000- 580 Methods of Selecting Sample and Collecting Data......... 584 GeneralsSurmmndty 224.3 fae ae car ain nine sca ee 586 Pincings: iit Brit. ecco) tee ns eee nah als Oy cee 590 PSR OF TEDI6S i o7 x. ee Sel oar ae ee ea ee ee 591 Urbana, Illinois June, 1945

Publications in the Bulletin series report the results of investigations made or sponsored by the Experiment Station

| Financial Position of a Representative Group of McHenry County Farmers: 1940-1942

By B. D. ParrisH and L. J. Norton’

ARGE OUTLAYS of capital are essential in modern agriculture. To finance the ownership of farm land, to provide essential improvements, and to acquire the working capital to farm the

land and so stock it as to utilize the crops to the best advantage require huge sums. The value of the capital involved in the ownership of farm land in Illinois and the working capital needed for its. operation was about 3.2 billion dollars in 1940. Of this sum 2.5 billion dollars repre- sented the value of land and buildings, and .7 billion dollars the value of livestock, equipment, grain, etc. In 1943 wartime prices had in- creased the total by more than one-third.

The individuals who own the land or operate it are the ones who must provide the capital needed for the farming enterprise. Altho most economic studies of farming have taken for granted the ability of individuals to finance their farms, it is well known that inability to do so prevents ownership in many cases and cramps operations in other cases.

: PURPOSE AND SCOPE OF STUDY

The original purpose of the present study was to find answers to such questions as these: How much capital is involved in the owner- ship and operation of typical Illinois farms? How is it distributed among the various factors of production? Who furnishes this capital ? How do farmers who are short of capital finance their operations?

The farms studied were located in McHenry county, Illinois, about 70 miles northwest. of Chicago in the milkshed of that city. The period was 1940-1942. As the selected farms were representative of the farms in the county, the findings are believed to apply to the county as a whole and to other similar territory. Some of the findings are general enough to suggest relationships that apply over much wider areas.

Any economic study is necessarily restricted to a given period of

1B. D. Parrisu, formerly Associate in Agricultural Economics; L. J. Norton, Chief in Agricultural Marketing.

523

524 BuLtetin No, 512 [June,

time, some studies to very short times. This fact must be given full weight in any generalizations that are drawn from such studies, for conditions can and do change drastically even in comparatively short periods. The time covered by this study, 1940-1942, was one of rising prices, good crops in the area where the farms are located, and rising incomes. The relationships found between the various factors analyzed in this study will of course apply only to periods when similar condi- tions prevail. If incomes had been shrinking, quite different relation- ships would probably have been found. Studies extending over a long enough period to cover a complete cycle of change from low incomes to high and back to low would of course have more value.

This study, however, has interest aside from that suggested by its original purposes. It shows the financial positions and operations of a typical group of farmers just before the country became involved in war, the response which farmers made to the Food-for-Victory pro- gram launched in the first year of the war, and the effect which the first year of the war had on farmers differently situated with respect to finances and to tenure—some with ample capital and some short of capital, some out of debt and some heavily in debt, some tenants and some owners, some operators of a small farming enterprise and some of a large enterprise. How did these farmers respond to the calls for greater production? How much were operators who were short of capital hindered in their efforts to expand? These questions are of great public importance, as is also another question: How did these different groups make use of the enlarged earnings which higher prices and expanded production brought them? Answers to these and many other questions besides those which the study was originally designed to answer are to be found in the data here presented.

Collection and analysis of data. The basic data for this study were collected by the survey method from 124 farms in 1940, 146 farms in 1941, and 118 farms in 1942.1

The data regarding assets, debts, net worth, and debt ratios, as well as income and expense, include only the operator’s share of the farm business, except in the section dealing with total 1942 farm income. Data regarding size of farm, productivity, land use, and the dairy herd refer to the entire farm unit and not merely to the oper- ator’s share.

"The records were collected by B. D. Parrish in 1940, by Parrish and others in 1941, and by Parrish and R. A. Kelly in 1942. The farms were a

Pris sample. Methods used in selecting the samples are discussed on pages

ee eo. |

1945] FINANCIAL Position oF MCHENRY County FARMERS 525

The data were analyzed statistically by first sorting them on the Basis of such factors as tenure of operator, percentage of capital bor- rowed (debt ratio), and size of business. When sorting was done by the last two factors, the records of owners (including part owners) and tenants were kept separate. Various items for all the farms in a given group were then averaged. The statistical significance of a num- ber of the resulting averages was calculated in order to help the in- vestigators to decide what differences were important, but the results of these calculations are not included in this publication. The stability of the difference is of great importance in indicating valid relationships. Three years of data present opportunities for checking such stability.

General features of area in which study was made. McHenry county, located on the Illinois-Wisconsin border, is the second county west of Lake Michigan. Production of milk for the Chicago market is the major farm enterprise. Hogs and poultry are kept on most farms, and a few farmers either feed cattle or keep rather large flocks of poultry. The land ranges from level to hilly, but much of it is rolling. Corn, small grains, and legume hay are the main crops and are largely fed on the farms where grown. Except for protein sup- plements, only small amounts of feed- stuffs are purchased. In brief, farm- ing in this county is essentially an intensive milk-producing enterprise in which most of the feed is raised on the farms where it is fed.

Many opportunities for nonfarm employment exist in this area, especially in the industries located in the county seat, Woodstock. Proximity to Chicago and its suburbs has caused labor to be drawn off these farms more rapidly than from farms in areas more remote from urban centers. It is not surprising, therefore, that but little surplus labor—either male or female—was found on these farms at the time of the survey, a period when industry was active.

Farming in this county, as in Illinois generally, is organized on a

_. family basis, only a moderate amount of hired labor being utilized, ‘ usually not more than one hired man to a farm. The high labor require-

ments of the dairy enterprise make it possible, and often necessary, to use considerable family labor. The operation of the farms surveyed in 1940 required an average of 22 months of labor, 6 months of it hired labor and 16 months of it family labor, including the labor of the operator.

526 ~ Butretrn No. 512 [June,

CAPITAL POSITION OF OPERATORS

Positions of Owners and Operators Contrasted

The problem of supplying capital varies with the tenure of the operator. The owner-operator must finance the land and improvements and working capital. The tenant needs only to finance his working capital, in whole or in part, and in some cases to finance minor im- provements. The part owner occupies an intermediate position between these two groups.

The farms studied were classified first on the basis of the tenure of their operators; the yearly distribution of those included was as follows:

Owners Partowners Tenants Total 194Q ee, snr 45 14 63 122 IQA Te at Ae 51 16 79 146 SY YEARS RRR aa See 43 18 57 118

Since the proportions in the different tenure and debt classifications were similar in the other years, the 1941 sample, which was the largest, was taken as representative (Table 1). On December 31 of that year 20 percent of these farmers reported no debts. A slightly higher proportion of tenants than of owners reported no debts, a fact that reflects the lower capital requirements of tenants.

The general summary of the capital position of the different tenure groups for each of the three years (Table 2) shows that: (1) the owners and part owners had larger assets because they had more work- ing capital and because they were financing all or part of their real estate; (2) the part owners were the most heavily indebted group; (3) among tenants, the cash-rent group had larger assets than the livestock-share group, as the cash tenants had to furnish all their working capital; (4) the share tenants owning less than half the cows

TABLE 1.—ONE HUNDRED Forty-Srx FARMERS IN MCHENRY County, ILLINOIS, REPORTING DIFFERENT CLASSES OF DEBTS ON DECEMBER 31, 1941

Owners Part owners Tenants All

Number Percent Number Percent Number Percent Number Percent

Farmers, total.......... 51 100 16 100 79 100 146 100 Farmers with— INO GODS. ce to cies sc 10 20 1 6 18 23 29 20 DOH. Ge ape Sa shies 41 80 15 94 61 77 117 80 Long-term debts...... 33 65 15 94 4 5 51 35 Short-term debts...... 31 61 10 62 60 76 101 69

Both long- and short- term debts....... ze 45 10 62 rj 4 35 24

1945) FINANCIAL PosiTIon oF McHEeNry County FARMERS 527

TABLE 2.—CAPITAL POSITION OF 146 OWNERS, PART OWNERS, AND TENANTS, 1940, 1941, AND 1942

(Average of beginning and ending inventories each year)

Livestock-share tenants

Part Cash and : ; Owners owaete crop-share Owning Owning less tenants half of than half cows of cows 1940 Peer OF FANS sl ss Sake 45 14 40 14 9 J ONS te SR pen Pee) arena a $22 892 $23 988 $6 652 $5 054 $3 982 MNITRIUD fai 5 ces 2 hood ctw as o'e biele ars 998 7 896 1 148 1 801 426 NRO" RTE OR a PL tr 17 894 16 092 5 504 3 253 3 556 1941 Number of farms: ............... 51 16 50 21 8 PURE to oie tohie Gay oe Oh ae ee $24 670 $24 635 $7 780 $5 093 $5 137 MIRTIRERRNONE cee he cca <i 618. eck eee pow Cie RS ove 932 355 1 568 1 439 392 NGLIINREC EN coe OM Sea as 18 738 16 280 6 212 3 654 4 745 1942 PRU ET OF -FATING oS 5 a eK oe we 43 8 37 13 7 | SUB GE 8 ee SE Ee Da $25 018 $26 079 $8 339 $6 622 $6 570 SALINE Ce gccte ay ie eK hie wks & 085 6 375 1 302 1 381 438 EE MOORE ee ee Fo 4 wis cer eaicle's, ait’ 19 933 19 704 7 037 5 241 6 132 ASSETS AND DEBTS 1941 $25,000 20,000 OPERATORS’ EQUITY 15,000 _ Redan Atk pee te ad ASSETS OFFSET BY DEBTS

10,000

—

5,000

PART CASH L-SHARE L-SHARE OWNERS TENANTS TENANTS TENANTS (50-50) (-50)

OWNERS

Fig. 1.—Capital and debt positions of operators in 1941. These farmers owned a large share of the capital they used.

528 ~ Butretin No. 512 [June,

TABLE 3.—CAPITAL PosITION OF 146 OWNERS, PART OWNERS, AND TENANTS ON DECEMBER 31, 1941

Livestock-share tenants

Item Owners Part Cash 5 q owners tenants® rhein a sg gs cows of cows Nuriber:- oF farme sion. ch occcic sist 51 16 50 21 8 Assets Land and improvements........ $16 060 $15 479 $ 0 $ 0 $ 0 Machinery and equipment...... 2 170 2 374 1 923 1 923 2 209 WU QTOERS Sais loo ors a era teeoiee Sib as behets 271 259 307 313 304 airy Cattle ssccviow oa shanti ssa 2 827 3 313 2 892 1 861 748 Other: livestock’: .75o sect 550 524 485 237 420 Feed: and tralos coi ceccsi aves 2 026 2 464 1 653 1 046 1 644 INSUTANCE; OCC 25s Sieh a ais stese 265 PR) 185 66 350 Total current assets.......... 8 109 9 169 7 445 5 446 5 675 Total farm agsets. ........:.. 24 169 24 648 7 445 5 446 5 675 Other investments............. 1 266 944 1 299 2 194 J Lotali Assess oes cserrons co setees $25 435 $25 592 $8 744 $5 448 $5 869 Liabilities First land mortgage............ $ 4 189 $5 439 $ Os Anes 0 $3 Second land mortgage.......... 703 1 444 0 0 0 Other long-term debts.......... 128 0 547 0 0 Total long-term debts........ 5 020 6 883 547 0 0 Chattel mortgages.............. 141 530 917 729 0 Conditional sates: 5.cos.cc¢.45 26 101 129 93 264 0 Pereonhl notes. 2.6.0.05 ised woes.’ 392 536 208 235 100 Wnsectired debts: 602.3 .06a.6 veer 5 52 31 106 287 Interest:in ‘AFVears:...o.d:s)s0. c.ac60.8 4 20 10 41 1 Principal:in ‘arrears... 2 5..6.0.066/s< 18 18 0 2 0 Other debts. “cack ee sass 11 0 7 3 0 Total short-term debts........ 672 1 285 1 266 1 380 388 ‘Total Wabilities|-..3 ae see $5 692 $ 8 168 $1 813 $1 380 $ 388 INét Worth. hen oe cence 19 743 17 424 | 6 931 4 068 5 481 Net worth and liabilities.... $25 435 $25 592 $8 744 $5 448 $5 869 Debt ratio, percent Total debts to total assets....... 22 32 21 25 7 Short-term debts to current assets 8 14 17 25 7 Long-term debts to land and improvements............. 31 44 mee Pies Size—acres owned............... 138 122 0 0 0 —acres operated............. 138 182 146 156 192 —number of cows milked...... 20.8 23.0 2254 26.5 32.8

®The data concerning two crop-share tenants were included in those for cash tenants.

were the least indebted group. The light debts of the share group indi- cated how much simpler a tenant’s financial problem is when the landlord assumes part of the financial responsibility for the operation of the farm. These facts are shown graphically in Fig. 1.

These data indicate what is to be expected—that farmers who have adequate capital are likely to be land owners, while those who are short of capital are likely to be tenants. It should be noted, however, that in 1942 these various groups of tenants had assets averaging $6,600 to $8,300. Thus even when the operator does not own the land, his capital requirements in this area are high.

The distribution of the operator’s capital in each of the five tenure groups on December 31, 1941, is shown in Table 3. Noticeable are the large investments of the owners and part owners in land; the smaller investments of the livestock-share tenants in dairy cattle, particularly

1945] FINANCIAL Position oF MCHENry County FARMERS 529

_ by those who owned less than half the cows; the generally lighter in-

_ vestments of the tenants in machinery and equipment, other livestock, and feed and grain; and the general tendency for owners and part

owners to have larger current assets than the tenants. The owners and cash tenants operated the smallest farms; the livestock-share tenants | owning half the cows operated somewhat larger farms; and the part

owners and the livestock-share tenants owning less than half the cows

operated the largest farms.

On December 31, 1941, the equities of these operators in their assets were as follows: livestock-share tenants owning less than half the cows owned 93 percent of their assets; cash tenants owned 79 per- cent of their assets; full owners, 78 percent; “50-50” livestock-share tenants, 75 percent; part owners, 68 percent. The part owners were using borrowed funds more extensively than were the other groups. Presumably these men were formerly tenants who had borrowed in order to buy land.

Progress during the period. Since the farms included in the study were not exactly the same each year, the best index to the prog- ress of each group of operators is the change that took place in their capital position between the beginning and the end of each year (Tables 4 and 5).

The reason the land item changed so little was that no allowance was made for any increases in land value during the year. But for both the combined owner and part-owner groups and for the combined tenant groups, current assets in all principal classes increased in each of the three years. The largest increases were in livestock—both dairy cattle and other livestock—and in feed and grain. Thruout the period both groups increased their assets each year, the increases being larger in 1941 and 1942 than in 1940. It is noteworthy that owners and tenants increased their assets about the same amount.

The tenants were able to increase their assets as rapidly as the owners by following different debt policies. Thruout this period the owners were reducing their debts: by an average of $134 in 1940, $455 in 1941, and $914 in 1942. The tenants were increasing their debts in 1940 and 1941 and just about maintaining them in 1942.

The owners increased their net worth more than did the tenants. But in relation to capital invested, the rate of increase in the tenants’ net worth was more than double that of the owners:

Tenants Owners

RMA a Re fiaiviy 3.8 e's Sale Ree a whe oe ote 12.8 4.6 ks ope tener ee iat 7 a ea rae 31.1 13.0 Dae ee ary Cals ON oe ev ye~ 33.3 A |

530 Butietin No, 512 [June,

TABLE 4.—CHANGES IN CAPITAL POSITION OF OWNERS AND PART OWNERS Eacu YEAR, 1940, 1941, AND 1942

1940 1941 1942 Beginning End Beginning End Beginning End Number of farms.......... 59 67 ; 61 Assets 5 Land and improvements... $15 839 $15 817 $15 961 $15 921 $15 258 $15 155 Machinery and equipment 1 698 1 897 1 943 2 219 2 157 2 234 PORNO cs. ste chiles sia 288 297 268 268 282 322 Daity Cattle ss 6s accu 2 088 2223 2 251 2 943 2 997 3 953 Other livestock.......... 357 379 360 543 527 731 Feed and grain.......... 1.375 1 668 1 656 2 131 2 131 2 331 BRMUTANOC) CLG foro secre as sit 217 233 249 258 299 288 Total current assets.... 6 023 6 697 6 727 8 362 8 393 9 859 Total farm assets...... 21 862 22 514 22 688 24 283 23 651 25 014 Other investments....... 997 933 1 163 1 190 904 1 075 “A Gtal-agset®, v3 c tie ane $22 859 $23 447 $23 851 $25 473 $24 555 $26 089 Liabilities First land mortgage...... $4287 $4 126 $4763 $4 488 $4252 $3 641 Second land mortgage.... 775 694 967 880 924 827 Other long-term debts.... 0 0 106 97 0 0 Total long-term debts... 5 062 4 820 5 836 5 465 5 176 4 468 Chattel mortgages....... 320 315 325 234 223 210 Conditional sales......... 8 75 68 108 89 22 Personal notes........... 326 348 447 426 377 266 Unsecured debts......... 11 10 12 16 17 17 Interest in arrears........ 1 3 2 8 9 6 Principal in arrears....... 22 43 40 14 20 9 Other debts .25 5-55 2S osc 3 5 9 13 10 9 Total short-term debts.. 691 799 903 819 745 539 Total liabilities........ $5 7S3--.$:5:.619 $6739 $ 6 284 $5921 $5 007 Net worth.......... 17 106 17 828 17 112 19 189 18 634 21 082 Net worth and liabilities........ $22 859 $23 447 $23 851 $25 473 $24 555 $26 089 Changes Increase in assets........ $588 $1 622 $1 534 Decrease in liabilities... .. 134 455 914 Increase in net worth Excluding cash........ 722 2 077 2 448 Including cash......... 809 2 361 3 388 Percent increase with CAB eee ees 4.6 13.0 17.1 Debt ratio, percent Total debts to total assets. . 24.0 28.3 24.1 Short-term debts to 3 current assets........ 11.9 13.4 8.9 Long-term debts to land and improvements... 30.5 36.6 33.9

The above percentages allow for apparent changes in cash position, as discussed on pages 552 and 553. The main reduction in debts was in real- estate mortgages.

At the bottom of page 531 are further details concerning net-worth differences between tenants and owners in each of the three years of the study.

Obviously this was a period of capital accumulation, reflecting both higher prices and increases in physical assets. Even tho the owners reduced their debts, increases in assets contributed more to increasing their net worth than did debt reduction. The high rate of returns on net worth indicates that in this period it paid to have the use of larger assets even if it was necessary to borrow in order to get them.

a Oe

Ml ee eS

1945) FINANCIAL Position oF MCHENry County FARMERS 531

TABLE 5.—CHANGES IN CAPITAL POSITION OF TENANTS EACH YEAR, 1940, 1941, AND 1942

1940 1941 1942 Beginning End Beginning End Beginning End Number of farms.......... 63 79 57 Assets ; Land and improvements... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Machinery and equipment 1 562 1 764 1 676 1 952 1 919 2 100 MACON ee og ss ck hic aye wis 358 381 329 308 319 302 RED CERN os ook oie 1 542 1 770 1 836 2 401 2 363 3 086 Other livestock. ......... 263 304 301 413 364 507 Feed and grain.......... 1 094 1 335 1 252 1 491 1 404 1 585 Insurance, etc............ 140 147 154 170 214 223 Total current assets. ... 4 959 5 701 5 548 6 735 6 583 7 803 Total farm assets...... 4 959 5 701 5 548 6 735 6 583 7 803 Other investments....... 577 593 473 842 361 708 Total assets.........7, $5 536 $6 294 $6 021 $7 S77 $6 944 $8 511 Liabilities First land mortgage...... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Second land mortgage. ... 0 0 0 0 0 0 Other long-term debts... . 85 81 65 346 88 173 Total long-term debts... 85 81 65 346 88 173 Chattel mortgages....... 635 814 858 775 660 656 Conditional sales......... 54 53 70 139 157 46 Personal notes........... 286 243 214 223 210 219 Personal debts........... 50 43 - 53 48 81 19 Interest in arrears........ 11 17 10 17 9 17:5 Principal in arrears....... 0 0 0 1 0 0 het Genta... ss 0 6 5 5 10 98 Total short-term debts... 1 036 1 176 1 210 1 208 1 127 1 039 Total liabilities........ $1 121 $1 257 $1 275 $1 554 $1 215 $1 212 PNEL WOT. So scies Se 4 415 5 037 4 746 6 023 5 729 7 299 Net worth and liabilities........ $5 536 $6 294 $6 021 $7 577 $6 944 $8 S11 Changes Increase in assets........ $758 $1 556 $1 567 Decrease in liabilities..... (1368) (2798) a Increase in net worth Excluding cash........ 622 1 277 1 570 Including cash......... 603 1 677 2 169 Percent increase with OME os teen creat shone 12.8 Ky Oye | 33,3 Debt ratio, percent Total debts to total assets. . 20.0 21.2 EEcS Short-term debts to current assets........ 20.6 21.8 17.1

Long-term debts to land ' and improvements... RASC Seraie aes

sIncrease.

Net-WortH DIFFERENCES BETWEEN OWNERS AND TENANTS Percent increase in

Increase in net worth, net worth, including including cash changes in cash

1940 1941 1942 1940 1941 1942

ESRI oa ca PO $ 737 $2 293 $3 107 415 12s 2 i LTO

OLB ios kn cs teen cens 1042 2581 4 068 6.5 15.9 20.6

ReeneECRANCS ei i..cliep cee ee ek 787 1916 2 418 14.3 30.8 34.4 Livestock-share tenants

Owning 50 percent of cows... 184 1097 1 400 Ste 318 eat

Owning less than 50 percent of WOMB Gb vas oe hati He 440 1723 2 285 $2.4 S633. “SHS

532 Buttetin No. 512 [June,

Operators With Different Debt Ratios

One indication of a farmer’s financial position is the ratio of his debts to his assets, that is, the percentage which his debts are of the value of property he owns. In this analysis, figures for owners and part owners were combined, as were those for all classes of tenants. How did the size of debts in relation to assets affect the ability of a farmer to acquire further assets and to make financial progress?

Among the owners (Table 6 and Fig. 2) the total assets tended to be larger where debt ratios exceeded 20 percent than where they were less than 20 percent or where there were no debts. The more heavily indebted owners had more invested in land and improvements, somewhat more in machinery and equipment, and substantially more in dairy cattle. The cash values of their insurance policies also averaged lower. The owners possessing the largest assets also owned and oper- ated the largest farms as measured in acres; particularly was this true for the 19 farmers with debt ratios of 40 percent and over. The 27 with debt ratios of 20 to 39 percent had slightly larger farms and slightly larger dairy herds, more valuable land, and more valuable cows than did those with lower debt ratios.’ This group also had a high rate of milk production per cow.

TABLE 6.—CAPITAL POSITION OF 67 OWNERS AND PART OWNERS WITH DIFFERENT DEBT-TO-PROPERTY RATIOS, DECEMBER 31, 1941

MDEDE ratio’ eicrst sic eeatecaetacatats eave ator oie e evepraters 0 1-19% 20-39% 40% and over Number: of farmsss 0.500 bergen shicressioaes seus 12 9 27 19 Assets Land and improvements.................. $14 694 $12 338 $16 195 $18 005 Machinery and equipment................ 2 045 1 805 2 189 2 568 FLOTGOS 5 ook cic apa ecco isle See ous eae) Lalas Le 222 262 286 274 Dairy cattle..... 2 320 2 342 3172 3 295 Other livestock. . 668 310 479 667 Heed and grains cccs decode aol teeie os 2 023 1 736 1 963 2 624 WISUFANCEFOLC LS os ace cis aise ate ears cioraie Macs nne 375 472 280 53 ‘Lotal current. assets. aiccceectates ces eet 7 653 6 927 8 369 9 481 ‘otal farm assetentc ss ee een eee 22 347 19 265 24 564 27 486 Other investments!) 252547 onions oe 1 917 2 306 701 895 POCAL QSOCCS oc oie carne eon $24 264 $21 571 $25 265 $28 381 Liabilities Hirstiland:-mortgages..j1.;0 ace ason ane racee $ 0 $1 356 $ 4 845 $ 8 297 Sécond land mortgages.) 325.0 dicwueeece 0 0 918 1 799 Other long-term debts.................... 0 0 i) 343 ‘Total long-term debtes.< .:c0v4 cna 0 1 356 5 763 10 439 Total-short-term debte..................3- 1034 329 739 1 616 Total Gebta nae.cis conten it oe ee 103 1 685 6 502 12 055 INGE WOrth sass ease os a neo ee $24 161 $19 886 $18 763 $16 326 Average debt ratio, percent.................. 0 8.0 26.0 42.0 Size—actes owned. : ..5.0.0500 ccs cule Vea 121 117 125 164 ACTER OPETAted «Seco atta cae ae 127 122 134 195 —number of cows milked................ 19.2 21.8 20.9 23.2

«Farms with no debts at the beginning of the year were classified in this group.

. 1945) FINANCIAL PosiTION oF MCHENRY County FARMERS 533

These figures suggest either that owners with high debt ratios had borrowed to acquire larger businesses, or that the larger businesses tended to keep the owners in debt. The survey does not show definitely which of these two explanations is correct. It is clear, however, that enough loan capital was available to permit the owners of the larger

farms to acquire or to hold their added assets.

| Among the tenants (Table 7) the relation between size of farm and debt ratio was the reverse of that among owners. The less heavily indebted tenant operators and those that had no indebtedness possessed more assets and had larger businesses as measured by the number of cows, investments in machinery and equipment, and in feed and grain. However, the more heavily indebted tenants had larger investments in dairy cattle. This was probably due to the fact that a large propor- tion of the farmers in this group operated under leases that provided for the ownership of fewer cattle by the landlord than was provided by the leases in the other groups.

The fact that 17 of the tenant farmers had debt ratios of 40 per- cent or more indicates the ease with which operators in this area could borrow money to acquire farm assets.

The debts of owners (Table 6) were chiefly long-term debts. There were second mortgages only in the groups having an indebtedness of

TABLE 7.—CAPITAL POSITION OF 79 TENANTS WITH DIFFERENT DEBT-TO- PROPERTY RATIOS, DECEMBER 31, 1941

BREE ROM OMe ics g engage cei Oakes eS eece a eed 0 1-19% 20-39% 40% and over WURISIPENNIIG PALIN eS st oy oe oe wee eie te oes aia. a 19 21 22 17 Assets Land and improvements. ................- $ 0 $ 0 $ 0 $ 0 Machinery and equipment................ 2 241 2 023 1 901 1 604 Oar Ak x cu fares tale Santee fete wi Mil sub ar4'S bye 8 328 303 345 246 BE SMAELIO Sasso are a Reid O1d Sia. $94 0S /0 gus 8 pre. Aes fi 2 230 2 579 2 483 MOREE LEV ORCOCI 07), crc vise ees vee o idee Seip so 471 285 498 396 ROLE ANCE TOES os Gai ,5 c.¥sd beens ues d's) eis © Bede s 1 805 1 564 1 428 1 130 PRM EATCE SOUS 6G 6 oa glircisisiind. ered 868k oom eles 364 159 107 47 Ate CUTEST AHOOLET eis aie ok see vee 7 521 6 564 6 858 5 CONOR TA VCRERIOTIER © 05 5 shots sas, «oie ae elena! 1 023 1 501 726 0 OUAMORBEES Ho crcGc wie ur ouet* (nce cs aas $8 544 $8 065 $7 584 $5 906 Liabilities Witet Jasid mortgages... cede ensssecenes $ 0 $ 0 $ 0 $ 0 Bett JANG MOL GAGES... a5. fo vireiee ooo e ca ote 0 0 0 0 Other long-term debts.................... 263 859 195 0 Total long-term debts.................. 263 859 195 0 Total short-term debts...................- 58 548 1 405 3 053 Peat CHOISOMES Oa 53 Leo acoA. Stace fol weio/o/a1d bias 321b 1 407 1 600 3 053 RR OWEN a iat cha) oi 0 task aie piecactiere. 6° a8 $8 223 $6 658 $5 984 $2 853 Average debt ratio, percent.................. 4.0 17.0 21.0 52.0 PRT RS OWHE ooo ie scerrsipie ier biele a's Meld lecs.e 0 0 0 0 —acres operated. ......... ec eee cece cece 159 142 164 150 —number of cows milked................ 27.3 21.4 25.7 23.6

*Also total farm assets since these tenants had no other farm assets. >Farms with no debts at the beginning of the year were classified in this group.

534 BuLtetin No, 512 [June,

INVESTMENTS AND DEBTS

OWNERS AND PART OWNERS

TENANTS

$24,000

18,000

OPERATORS” 4 TOTAL Sree INVESTMENTS oe DEBTS

12,000

6,000 pee =

0 1-19 2039 40+ 0 19 20-39 40+ DEBT RATIO DEBT RATIO

Fig. 2—Total investments and debts of operators having different debt ratios, December 31, 1941. When the farms of no-debt owners were left out of consideration, the total investments of the remaining owners were posi- tively correlated with debt ratio; that is, the more heavily indebted owner- operators had the larger investments. The reverse was true for tenants, the more heavily indebted tenants having the use of less capital.

20 percent and over. These latter groups had the largest short-term debts. Mortgage debts of the most heavily indebted group of owners represented 60 percent of the value of land and improvements.

Progress during the period. From Table 8 two significant obser- vations can be made concerning the average assets and liabilities of owners and part owners in each debt-ratio group for the three years. (It should be remembered that the farms were not identical from year to year.) The situation in 1941 is shown in Fig. 3.

First, altho all groups increased their assets each year during this period, the increases were largest where the debts were highest. The more heavily indebted owners built up their assets and reduced their debts to a greater extent in each of these three years than did the less heavily indebted owners. The amortization principle, which normally involves payment in proportion to the size of the loan, partly accounts

— ee

1945] FINANCIAL Position oF McHenry County FARMERS 535

TABLE 8.—CHANGES IN ASSETS AND LIABILITIES OF OWNERS AND PART OWNERS With DIFFERENT DEBT-TO-PROPERTY Ratios, 1940, 1941, AND 1942

Changes during

End of year the year Increase in net worth & gas Debt ; ear r ratio, ncrease Percent of Pe Assets Liabilities inaseets DSTI Ex. in. s increnee farms cent excluding bilities cluding cluding (with ash cash cash cash) No debts OT aaa 12 0 $24 358 = $ 0 $ 447 §$ 0 $ 447 $ 762 <a le 7 PRO 12 Os 24 264 103 1 108 (103>) 1 005 1 660 7.0 PE? a ea 9 0 29 583 0 1 663 0 1 663 4 370 15.2 Debt ratios of 1 to 19 percent (pn) RE gee il 7 $20 251 $ 1 347 $ 360 $ (61>) $ 299 $ 453 2.4 2) SEP eae - Seiad 4 te 5 1 685 926 230 1 156 1 284 6.7 i ee 15 6 23 056 1 317 1 432 1 028 2 460 2 268 11.1 Debt ratios of 20 to 39 percent RON Ee desk 24 30 $24 030 $7 295 $ 602 $ 323 $ 925 $ 880 5.4 COME. Eu. 27 26 25 265 6 502 1 779 554 2 333 2535 14.4 ot See eee 23 25 222 5 871 1 438 1 025 2 463 3 206 17.7 Debt ratios of 40 percent and over ADO Sas oe 12 49 $24 299 $11 800 $ 910 $ 69 $ 979 $1 038 8.6 ROBT iets 19 42 28 381 12 055 2 051 723 2 774 3019 20.2 BGs cig os aCe 12 40 29 096 11 582 1 768 1 226 2 994 4440 27.7

*Less than one-half of 1 percent. >These are increases.

for the large payments the most heavily indebted farmers made. But some of these men made payments in addition to those required by the terms of their loans. It is clear that in the owner group debt reduc- tion went hand in hand with increase in assets.

Second, the rate of increase in net worth became larger as debt ratios became higher. This was true in each of the three years. Two reasons for this were: (1) the rate earned by the operators of the more heavily indebted farms exceeded the cost of borrowing and thus increased the rate earned on the owner’s net worth; (2) these more heavily indebted farms tended to be larger than the more lightly indebted farms, and in a period of favorable earnings large farms pay better than small farms.

In each group of tenants (Table 9) the assets were increased during each of the three years. The group with the lowest debts and the group with no debts did somewhat better, in general, than the two groups with the highest debts, but the situation was not clear-cut in this respect. Thruout the period these men were all accumulating capital, while changes in their debts varied. Debts tended to increase in the low-debt and no-debt groups and to be reduced in the group with

536 BuLietTin No. 512 [June,

TABLE 9.—CHANGES IN ASSETS AND LIABILITIES OF TENANTS WITH DIFFERENT DEBT-TO-PROPERTY RATIOS, 1940, 1941, AND 1942

Changes during

End of year Increase in net worth

Num- Debt the year Year ber ratio, Increase De- Percent of __per- Liabili- inassets crease Ex- In- increase farms cent Assets ‘ties excluding injia “COGN: COMMee. Diag cash: bilities cash) No debts SONG. gs sraiseuie-s 15 0 $7 401 $ 0 $ 916 $ 33 $ 949 $ 774 11.2 LORD dices 19 4 8 544 321 2 182 (3214) 1 861 2 076 28.5 ORR oder aicat 12 Z 9 518 208 1 658 (2088) 1 450 2 618 30.5 Debt ratios of 1 to 19 percent 1940) c cs55 aia 16 9 $7 040) «=$ 613 $ 833 $ (82%) $ 751 $ 694 11.5 DER ic sia wernce 21 : yd 8 065 1 407 1 996 (8688) 1 128 1 402 23.0 1982 iccekis cs 23 11 8 080 890 1 748 (2908) 1 458 2 015 3152 Debt ratios of 20 to 39 percent LJ 1940 3 ccc n0t50- 020 29 $5 922 $1 705 $ 355 $ (54%) $ 301 $ 546 13.4 gL Gear or 22 21 7 584 1 600 946 274 1 220 1 887 34.9 ROE ee 13 17 9 635 1 656 1 092 550 1 642 2 478 34 Debt ratios of 40 percent and over 1980 oes ao ue 42 65 $4 535 $2 946 $1 134 $(5598) $ 575 $ 369 28.3 MOAT sid ccacders 17 $2 5 906 3 053 1 134 (2188) 916 1 343 56.1 1942 eos ie wierd 9 41 6 656 Zoe: 1 668 239 1 907 1 532 51.6 *These are increases. NET WORTH INCREASE HB DOLLARS E]}] PERCENT $3,000 K——. OWNERS _ AND — PART OWNERS TENANTS

2,000

1,000

0 1-19 2039 40+ (0) 1=19: | 20339 40+ DEBT RATIO DEBT RATIO

Fig. 3—Change in net worth of operators with change in debt ratio, 1941. As measured in dollars, the increase in the net worth of owners, but not of tenants, became larger as the debt ratio increased. In both groups, however, the percentage increase became larger as the debt ratio increased, indicating that in this period it paid to use borrowed capital.

ee a

1945) FINANCIAL PosiTION OF MCHENRY County FARMERS 537

debt ratios of 20 percent to 39 percent. In the high-debt group they tended to increase in the first two years and to decline in 1942. The tenants were, in general, using their credit to build up their assets.

The possibilities that existed for farmers with comparatively small capital of their own to build up assets is illustrated by the increase in net worth among the tenants having debt ratios of 40 percent or more. These men increased their net worth, on the average, by amounts ranging from somewhat more than a quarter to somewhat more than a half in each of these three years. As was true with owners, the tenants having the highest debt ratios had the highest percentage increases in net worth; but unlike the owners having high debts, these high-debt tenants were not operating the larger farms.

Operators With Businesses of Different Size

A good measure of the size of a farm business is the number of productive man work units required in its operation in the course of a year. As would be expected, the size of the business correlated di- rectly with the amount of farm capital invested in each key item— land and improvements, machinery and equipment, dairy cattle, and

TABLE 10.—CAaPITAL POSITION OF 67 OWNERS AND PART OWNERS HAVING FARM BUSINESSES OF DIFFERENT SIZE, DECEMBER 31, 1941

Size of farm in productive man work-units*... Under 400 400-549 550-699 700 and over PEMSIHOT OF TOTNIG ie lot lare oe alse s Ube has eens a. 16 16 20 15 Assets Land and improvements.................. $ 9 800 $13 743 $19 277 $20 300 Machinery and equipment................ 1 124 2 074 2 705 2 893 PERM Se iy sate AY Mts AGIM ative ooleTe aici et 130 308 272 369 PIS UG CAUIO se 5ia dale cht os Gre Kiss © steia.s se atele.ais 1 393 2 859 3 209 4 331 PGE IECPRUOC Ek Societe iiss soe ke Sets wiele os 233 411 717 785 MURR ATONE hatin aleic he « 's.0k gissiere es Bet 806 1 589 2 699 3 365 BRMTTADCC TAR: 5c cccrerg We te pte 8s oie id glee reine See 298 239 280 207 PEICACUPVONE BUMMER Ss 6 oie s ove bse 3 984 7 480 9 882 11 949 SPOtRE FATE OODOED ae aiiile to o's SCF cate 'sie due a 13 784 Phileas 29 159 32 249 SRG TISVORGIIOTIED © oc cicie se calse edie se Baers 1 453 . 479 1 378 1 413 SEE PLO il was ea eels ba eae oes $15 237 $21 702 $30 537 $33 662 Liabilities MCSEMEAO TEND CHOTIEG 8a os lp Sioa a wide 6,008 civ de 'o'ee $ 2 238 $ 4 267 $.6 622 $ 8 641 SR ETI RCE alec, cate OF v ile e's 84 0100 4:0 30's 551 687 578 1 566 PRR ENAOTIEDE incense ook ong’ ciena dh o/p 8 Gin's 6 40 erate $ 2 789 $ 4 954 $ 7 200 $10 207 BPGne SELIOS POTOONG. 6 ico o re ois oh vs Wee yets.e 18 23 24 30 Average size of farm Number of man work units................ 310 489 621 830 Number of acres owned.............000005 69.8 107.6 161.6 194.6 Number of acres operated...........-00005 70.6 117.1 178.3 225.2 Number of cows milked..............00005 11.7 18.6 23.4 30.7

“See definition given below

*A productive man work unit is that amount of productive farm work (as distinguished from necessary but unproductive work) that can be performed at average intensity and efficiency in a 10-hour day.

538 Butvetin No. 512 [June,

feed and grain (Tables 10 and 11). Among the owners, the larger farms had the higher debt ratios, but among the tenants these two factors were not correlated (see also Fig. 4).

Per man work unit, the tenants had about $10 invested in farm operating capital; the owners had between $13 and $14. The lower value for tenants reflects the effect of the tenants’ sharing with the land owners the responsibility for providing capital. The owners of the

ASSETS AND DEBTS

OWNERS AND

PART OWNERS TENANTS

$30,000

OPERATORS TOTAL

— ASSETS ES

% DEBT RATIO

NET ASSETS

20,000 ASSETS OFFSET}

8Y DEBTS

10,000

UNDER 400 550 700 UNDER 400 550 700 400 549 699 + 400 549 699 +

SIZE OF FARM IN PRODUCTIVE MAN WORK UNITS

Fig. 4.—Assets, debts, and debt ratios of men operating farms of different size, December 31, 1941. For owners but not for tenants the debt ratio in- creased with size of farm; it averaged slightly over 20 percent.

15 largest farms had $24 invested in land and improvements per man work unit, whereas the owners of the smallest farms had $32 so in- vested. This difference is due partly to the fact that there were more part owners among the owners of the largest farms.

Examination of the financial progress of these farmers reveals that

1945) FINANCIAL Position oF MCHENry County FARMERS 539

in both the owner and the tenant groups size of business was positively correlated with the extent of the increases in net worth (Tables 12

TABLE 11.—CAPITAL POSITION OF 79 TENANTS WITH FARM BUSINESSES OF DIFFERENT SIZE, DECEMBER 31, 1941

Size of farm in productive man work units.... Under 400 400-549 550-699 700 and over IRIE MIE EMSTUME ors oo sve la ia we'd 40 bb elevw Gye e'u'e's 13 24 21 21 Assets Land and improvements.................. $ 0 $ 0 $ 0 $ 0 Machinery and equipment................ 703 1 604 1 966 3 105 DURE oR ieee Gs eka sistas Rivleie vee 2 8a’ 189 345 308 369 PUMEMMEOMENE T cet ala icc fsa cis e,e chawiers'< Roe eS a eS 1 192 2 120 2 906 2 966 NUR TEN ts 5055 058 ess ding. vied eles oe oO DOE 329 499 366 365 0 SITS SES oe a a oy 717 1 190 $ FAT. 2 088 BUSI UR, is .5 Gots 09001 ww ierns be fe snote ye. e.e mck 48 141 263 186 POtME Current AssetGA........ weine bes ca eee 3 178 5 899 7 526 9 079 We TS OS 2 44 526 1 550 867 REMIND Ph globe a leccis terse si onece wid wcieaee $3 222 $6 425 $9 076 $9 946 Liabilities RAGACOTIO CODES S.c565.6 os oe ta cletee cd resawins $ 0 $ 209 $ 776 $ 288 PRE ROINISO DIED s Ve 356 wi sp ssvered Lae ee bv ple alee 751 888 1 512 1 550 FRCS MEIER, CS ink ic ts hod cas Seuele ets too 8+ $ 751 $1 097 $2 288 $1 838 PBT OU DOTCOMNE oi. ss iid ceiece ces @ ENS 23 17 25 18 Average size of farm Number of man work units................ 306 487 610 927 Number of acres owned...............20.. 0 0 Number of acres operated................. 90.1 133.2 151.6 218.3 Number of cows milked................055 12.0 19.7 24.8 35.9

*Also the total farm assets since these tenants had no other farm assets.

NET WORTH INCREASE MMB DOLLARS E=] PERCENT

$4,000 es bet diag Lk gs TENANTS Ped 3,000 Bee rye 2,000 155 1,000 _l 10

: om 400 550 700 ices “400 “350 ‘700

400 549 699 + 400 549 699 +

SIZE OF FARM IN PRODUCTIVE MAN WORK UNITS

Fig. 5—Amount and percentage of increase in net worth of operators in 1941. The dollar increases were positively correlated with size of farm in each group of operators, tho the increases in the tenant groups were less than in the owner groups. The percentage increases were much greater in the tenant groups than in the owner groups, but in the tenant groups the rate of increase tended to decline with size of farm rather than to in- crease, as in the owner groups.

540 ~ Buiretin No. 512 [June,

TABLE 12,—CHANGES IN ASSETS AND LIABILITIES OF OWNERS AND PART OWNERS OPERATING FARM BUSINESSES OF DIFFERENT SIZE, 1940, 1941, AND 1942

Changes during

End of year Increase in net worth Num. Debt the year Year se ee Increase De- Ex. In Percent o 5 Liabili- in assets crease ; : increase farms cent Assets ties excluding - in lia- center rected (with cash bilities cash) Less than 400 productive man work units

1940 06% dees 17 20 $16 215 $3 177 $: 314 <§ 24 $ 338 $$ 462 3.6 1981 cies 16 18 15 237 2 789 285 261 546 442 3.6 1942. i.5 ac 11 17 15 329 2 583 607 265 872 868 7a

400 to 549 productive man work units 1940) Aice ci 15 21 $21 397 $4 510 $ 640 $ (988% $ 542 $ 684 4.1 1941 0 c5 20% 16 23 21 702 4 954 5 aoa he 591 2 108 2430 14.9 19482 occa dees 13 17 24 170 4 029 1 585 841 2 426 2 919 15.4

550 to 699 productive man work units 1940 5 cee. 18 24 $28 238 $6 702 $ 618 $ 196 $ 814 $ 769 3.6 gy. Ree eee 20 24 30537 7 200 1-733 362 2 095 2 558 11-5 1942 eyes 20 19 27 678 5 168 1 529 1 092 2621 3 136 14.8

700 productive man work units and over

1940 sein. ce 0r8 9 52 $30 937 $9 912 $ 958 $ 605 $1 563 $1 745 8.6 1949 oceis ines 15 30 33 662 10 207 3 009 580 3 589 4 116 19.0 1942S ocsales 17, 22 32 668 7139 2103. 1 181 3 284 5 681 23.8

®This is an increase.

TABLE 13.—CHANGES IN ASSETS AND LIABILITIES OF TENANTS OPERATING FARM BUSINESSES OF DIFFERENT SIZE, 1940, 1941, AND 1942

Changes during

End of year Increase in net worth

Num- Debt the year Year ars hose rs Increase De- @ is Percent farms cent Assets relia Beane Pare cluding cluding "ihe cash bilities C8 cash Gash) Less than 400 productive man work units TOAO MC ees tard 10 29 $2 744 $ 786 $ 535 $(3638) $ 172 $ 124 6.6 VOGT cro aitie eitate 13 1383 3.222 751 SPA (2408) 287 869 37.3 1942 esa cieca 7 5 4 491 234 751 204 955 1 080 28.6 400 to 549 productive man work units 1O4Q ne cteece s 17 19 $5 348 $ 991 o. 545) $ (799) $ 466 $570 13.8 a ee aes 24 17 6 425 1 097 1 055 (468) 1 009 1 382 28.6 19425 (ens 20 18 7250 1 321 1 879 (3318) 1 548 1 756 34.1

550 to 699 productive man work units

NAO iscsi: cede ie 17 24 $7 564 $1 817 $ 582 $(1419) $ 438 $ 642 11.6 sb lie aiarma ere 21 25 9 076 2 288 2 O11 (5388) 1 473 1 825 30.2 No Se 16 16 9 884 1 584 1.5502 (1878) 1,315 2 STE 31.1

700 productive man work units and over

|e Be eariceisinte 19 16 $7 872 $1 244 $1 223 $ (619) $1162 $ 851 14.1 1944S: 2 clans 21 18 9 946 1 838 2 316 (3088) 2 008 2, 3t5 33.4 1082 Scie morercnst pd 10 10 761 £122 1 603 594 2 197 3 075 36.0

®T:hese are increases.

ee eS ee ae ee

1945] FINANCIAL Position OF MCHENRY County FARMERS 541

' and 13). In the period covered, such correlation was to be expected,

for production was profitable and the larger the business the higher was the net income. Among the owners, the percentage increase in net worth also tended to increase with the size of the business, but among the tenants it did not increase so uniformly. Moreover, during this period, with the exception of 1942, the rate of increase tended to rise from year to year. The situation in 1941 is shown in Fig. 5.

All groups of owners reduced their debts in all three years except in 1940, when one group increased their debts. This confirms the observation on this point made on page 529. All groups of tenants increased their debts in all three years except in 1942, when two groups reduced their debts. These increases by tenants reflected their efforts to build up working capital. Thru these three years this policy proved to be wise. The question is: Will these men be able to foresee when the trend of income will be reversed and liquidate their indebt- edness before their incomes begin to decline? As a group their debts were not large; in none of the subgroups did the average debt ratio exceed 20 percent of the assets at the end of 1942.

Operators With Continuous Records

Records were obtained concerning the businesses of 72 operators for 1940, 1941, and 1942. Changes in the financial position of these men are shown in Tables 14 and 15 and in Figs. 6, 7, and 8.

There was a moderate increase in the value of machinery and equip- ment, the increases between December 31, 1939, and December 31, 1942, being $391 for the owners, $733 for the part owners, $534 for the cash tenants, and $557 for the livestock-share tenants. The value of this class of property increased each year, even in 1942, when the output of farm machinery was restricted.

The most marked increase was in the value of dairy cattle. Between the beginning and the end of the period owners showed an increase of $1,783 in this class of livestock; part owners, $2,113; and cash tenants, $1,708. The increase in the value of other livestock was also marked, particularly on the part-owner and cash-tenant farms. Feed and grain inventories also increased substantially.

The increase in the value of the assets on these farms was marked, considering conditions in the period covered. As pointed out before, the debts of owners and part owners were being reduced during this period, while until 1942 those of the tenants were increasing. The aver- age debt ratio of owners declined from 23.1 percent on December 31, 1939, to 14.7 percent on December 31, 1942; the average debt ratio

BuLteTiIn No. 512 [June,

542

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FINANCIAL Position oF MCHENRY County FARMERS 543

1945]

*SOSPIINUI VIP WSO Ie

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HAILVaVdNO)—'S]T ATAV LE

544 BuLteTIN No. 512 [June,

of part owners declined from 39.6 percent to 24.5 percent. This latter group reduced their short-term debts from an average of $1,640 to an average of $989. The average debt ratio of the cash tenants declined from 13.1 percent to 10.0 percent, a decline reflecting a larger increase in assets than in debts; and the average debt-ratio of the livestock-share tenants declined from 23.2 percent to 12.7 percent.

Between the above dates the farms operated by owners increased by an average of 2 acres; those operated by part owners, 20 acres, and by cash tenants, 9 acres; while livestock-share tenants reduced their farms an average of 2 acres. All groups increased the number of cows milked; the greatest change was made by owners, who averaged an increase of 2.7 cows each. The number of months of labor used on these farms changed but little over this three-year period.

The increase in value of livestock and of feed and grain in this

ASSETS AND DEBTS $30,000 1940-1943

OWNERS PART OWNERS

25,000

20,000

15,000

10,000

5,000

ene

1940 1941 1942 1943 1940 1941 1942 1943

fe)

Fig. 6.—Capital and debt positions of owners and part owners on identical farms, 1940-1943. The amounts of capital used by these operators increased, whereas their debts were reduced, particularly in 1943.

1945) FINANCIAL PosiTION oF MCHENry County FARMERS 545

period reflected, in large part, the rise in prices. When individual farm- ers buy and sell livestock frequently, as they do in this area, there is no practical way to inventory it except at current values. Changes in numbers of animal units are of interest, therefore, and are shown in Table 16.

On the whole, except on the larger farms in 1942, the number of dairy cattle on these farms tended to increase. Over the three-year period, the owners of the larger farms increased their herds more than the owners of the smaller farms. The reverse was true for the tenants, those on the small farms increasing their herds more than those on the larger farms.

No marked increase occurred in the numbers of hogs inventoried. The group of owners having the largest farms and the two groups of tenants on the larger farms had fewer hogs at the end of the period

ASSETS AND DEBTS 12,000 saat 1940-1943 ROS Wess 27s Re LIVESTOCK-SHARE __| : TENANTS TENANTS

8,000

6,000

4,000

2000

1940 1941 1942 1943 1940 1941 1942 1943

Fig. 7—Capital and debt positions of tenants on identical farms, 1940-1943. The amounts of capital used by these farmers increased sharply during this period, while debts remained about constant.

546 Butietin No. 512 [June,

TABLE 16.—CHANGES IN ANIMAL UNITs ON 72 IDENTICAL FARMS DURING 1940, 1941, AND 1942

Tenure, and size in terms of Number Animal units on hand on December 31

productive man fe) Over-all work units f farms 1939 1940 1941 1942 change Dairy cattle Owners and part owners Lene than 400 or. hares caaiers © cvs lererslo 7 15.9 i 3 16. +1.5 MASAO Oo oar cs ere lard cioseraiare Bi wresere ae 1i 21.8 23.2 24.9 25 +3.6 SS O690 os oe Sealed sist eseigrs die Sate 11 27.4 A eat b 29.5 30.6 +3.2 ZOO ADE OVER tere chances ctu iarti trouve 7 36.8 39.0 41.4 41. +4.2 Tenants Lees:thar' 400 viseo5 Ga cis cicada eects 6 14.5 14.6 16.3 +5.7 BOOS 49 iassraee Gis cearessse cee ctisleaierale fess 7 18.4 21.4 23:9) 24.0 +5.6 SOOO 5 hi 556 a istardie sar etayaud erase: dS caeeis 1S: 26.4 OH feat 29.2 28.6 +2.2 700 and (OVEF o0ifo ss Sees 10 45.8 49.1 49.8 49.8 +4.0 Hogs Owners and part owners Leea'than’ 400 2255.2 alae. cs'k es Se 7 a Fe .38 .20 .16 +.03 BOD SAD Beeiis ora atlaceloieie ohakare Minrere siete 11 . 36 K-56 1.00 By +.37 550-699 8 cess ttaind eisiwveusatetel eeaisiaiee 11 1.26 .95 1.50 1.40 +.14 J00/ ANG OVET 65% 3.05 cide sna oss 7 1.95 155 1:73 1.22 —.73 Tenants Bess'than. 400% 355.002 4.c hae et 6 .05 .54 -92 1.06 +1.01 BOD SAO oo slove aie Ristalenace svahions: natstee 7 ay x BS 220 .40 +.19 SOOO cote ate chris oie 13 1.74 i ler fe S 1.63 1.26 —.48 WOO and OVEE Ss cchietacalk hier wee 10 2512 ais 2.46 1.96 —.16 Poultry Owners and part owners Ress than’ 400) oo occa kia coloctees 7 £25 122 a Wa LS 0 AN0-S49 on ais aisice Rae Heine 11 1 ies 122 1.4 LZ +.1 SOO-G99's enti pene eye ashe ote oe 11 1.4 a2 tbe} 1.6 +.2 100 ANG OVER Se ois Sos.o5 sic sree 7 2 1.4 a ef 1:5 +.3 Tenants Deus than 400-36). shia cee 6 3 12 p 152 —.1 AD hak late ouateieeere oie Se oie 7 1 15 1.6 1.4 = iit 550-000 er ntae a ae ae eee 13 1.0 9 1.0 8 —.2 (OO:andOVED Soho sioale keene 10 1.4 i Ua 1.3 £3 —.1

than at the beginning. There is no evidence to indicate that hogs were increasing at the expense of dairy cattle in this intensive dairy area in this period. The tendency for the operators of the larger farms to curtail the number of hogs at the end of 1942 probably reflected labor shortages. When labor is scarce, farmers concentrate on the things which they consider most important. *

Likewise, numbers of poultry were increased but little. The owners in the three groups of larger farms increased their flocks, but all the tenant groups reduced theirs. It may be that with better incomes from milk there was less necessity for these tenants to keep poultry in order to realize a little extra income.

Beef cattle and sheep were of negligible importance on these farms.

These comparisons indicate that in expanding production in re- sponse to increased demands, farmers in this area put the major em-

1945] FINANCIAL PosiTIoN or MCHENry County FARMERS 547

NET-WORTH INCREASES ON IDENTICAL FARMS

Gl DOLLARS E23 PERCENT $4500 % 3,000 40 1,500 20

0 38 Be es oo: oH 1940 1941 1942 1940 1941 1942 1940 1941 1942 1940 1941 1942 OWNERS PART OWNERS CASH TENANTS L:-SHARE TENANTS

Fig. 8.—Increases in net worth of all operators on identical farms, 1940- 1942. In 1940 the increases were small, but in 1941 and 1942 they were rather substantial. Altho dollar increases were larger for owners and part owners than for tenants, the percentage increases were larger for the two tenant groups.

phasis on their primary product—milk. Labor difficulties will doubtless accentuate this trend for the rest of the war period.

CASH INCOME AND EXPENSE PATTERNS

In the capital patterns discussed in the foregoing section, increases in assets included whatever increases resulted from the retention of farm-raised property as well as from cash transactions. The following analysis deals with cash income and expense only.

Patterns of Owners and Tenants Contrasted

The receipts and expense patterns of the various tenure groups are shown in Tables 17 to 19 for three years. Cash receipts include all cash taken in, including that for off-the-farm work and amounts bor- rowed during the year and not repaid. Expenses include expenditures for operating, for new farm capital, for cash living, and for interest payments. The net paid on old debts (those owed at the start of the year) is shown separately in these tables and is further pictured in Fig. 9. Gross borrowings and debt repayments are shown in Fig. 10.

[June,

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FINANCIAL Position. oF MCHENRY CouNTy FARMERS

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550

1945] FINANCIAL PosiTION oF MCHENrRy County FARMERS 551

Thruout the period and in each group the largest sources of cash income were the sales of dairy products and livestock, chiefly dairy cattle. For the various tenure groups these items represented from two- thirds to four-fifths of the cash income. Crop sales were not important. “Other income,” which included AAA payments, poultry and egg sales, off-the-farm work, etc., was quite an important item, particularly on the owner and part-owner farms, averaging in the three years 14 per- cent of the total cash income for the owner group, 22 percent for the part-owner group, 12 percent for the cash tenants, and 12 percent for the livestock-share tenants.

GROSS INCOME AND PERCENT OF DEBTS PAID $10,000 MB .DOLLARS [=] PERCENT 7,500 % $000 }-——2 ———_@F 60 2500|— ; 2-8 430

1940 1941 1942 1940 1941 1942 1940 1941 1942 1940 1941 1942 OWNERS PART OWNERS CASH TENANTS L-SHARE TENANTS

Fig. 9—Total income and percentage of old debts repaid in 1940, 1941, and 1942. In each group—owners, part owners, cash tenants and livestock-share tenants—both total income and percentage of old debts repaid increased each year.

From the standpoint of financing the business, the percentage of cash resulting from net borrowing is important. It indicates the extent to which operators depend on current borrowings for working capital. (The unpaid balance of such borrowings does not indicate fully the importance of borrowing in providing operating capital because it does not include repayments made during the year.) For owners the net- borrowing figure was low, ranging from 3.7 to 6.9 percent of current receipts in the various years; for part owners also it was low, ranging from 2.4 to 8.4 percent. For cash tenants it ranged from 9.4 to 17.1

552 Butietin No. 512 [June,

$1,800} GROSS_ BORROWINGS AND REPAYMENTS Mil

1,200

600

1940 1941 1942 1940 1944 1942 1940 1941 1942 1940 1941 1942 OWNERS PART OWNERS CASH TENANTS L-SHARE TENANTS

Fig. 10—Gross borrowings and debt repayments in 1940, 1941, and 1942. All groups increased their debt repayments each year. Except for livestock- share tenants, whose borrowings were quite uniform from year to year, borrowings in 1941 were larger than in 1940 and smaller than in 1942. Owners reduced their debts during these three years. Cash tenants increased theirs in 1940 and 1941 but reduced them slightly in 1942.

percent; and for livestock-share tenants, from 7.1 to 13.7 percent. These borrowings declined in importance during the period.

Current operating cost was the most important item of expense, making up from two-fifths to one-half of the total in the different groups. Next in importance were family living expenses, which in the several groups varied from one-sixth to one-third of the total cash expenses. Next in amount were capital purchases other than livestock, purchases which made up one-eighth to one-fourth of the total cash expense.

The amounts spent for livestock varied from about 3 percent of the 1940 cash expense of livestock-share tenants owning less than 50 percent of the cows to 16 percent of the 1942 cash expense of cash tenants. Payment of interest was the least important item, varying from 4 to 7 percent for owners and part owners, and from .2 to 3.3 per- cent among the various groups of tenants.

Changes in cash position. Receipts increased more than expenses in this period. The 1942 cash receipts and expenses exceeded the 1940 receipts and expenses as shown at the top of page 553.

How were these increased cash balances used? In these calcula- tions any income used in building up physical inventories was included in expenses. The three obvious uses for the remainder were: (1) the payment of old debts, (2) the building up of cash resources, and

1945] FINANCIAL Position oF McHenry County FARMERS 553

; Increase in net Cash receipts, Cash expense, cash receipts, 1942 over 1940 1942 over 1940 1942 over 1940

MUTIORG Sire eo ois hs rere s econ oa Se $2 370 $1 020 $1 350 PIATIPOW ETSY ik. ies 6 sae s\esaiceie oi 4 114 2 076 2 038 COEUR EE a 2 594 1 486 1 108 Livestock-share tenants Owning half of cows.............. 1 538 517 1 021 Owning less than half of cows...... 3 065 2 236 829

(3) the making of outside investments. It was difficult to obtain data from farmers as to changes in their cash positions. Therefore, such changes were not included in the data collected. Likewise, in 1942 it was difficult to obtain data regarding purchases of Government bonds on a sufficiently uniform basis to warrant inclusion of such purchases in the averages.

These farmers, however, appear to have considerably increased their holdings of cash and of bonds, especially in 1942. After net payments on debts owed at the beginning of the year were deducted, the following cash balances were not accounted for. Part of these balances may reflect errors in the basic data, but it is believed that

they chiefly represent changes in cash position: 1940 1941 1942

a yal hie Ra RT SOL aE AT ty ERE ER eR Re Png $ 43 $283. $ S15 i BEE en 0 Calg ane 9 OR, ee PO reg RE aera Pe Pr 228 293 1 243 MOSEL CRANE es) seo Bedicis k an es on oon au adoaro ties wk 110 479 716 IE SVESEOCK=SHATO CEN ATIUS aim icc /dls acoso csid iki bis E10 sek wiser atek —242 264 386 A HAOl COWS a crsccaccrm east eshcG APRS Ee Tere —356 269 260 Owning less than half of cows...............0000 000s — 66 250 621

These data suggest that cash balances increased but little in 1940, increased moderately in 1941, and increased substantially in all groups in 1942. By the end of 1942 holdings of cash or Government bonds were beginning to be rapidly built up. Apparently these farmers were beginning to accumulate cash reserves for investment or for future periods when incomes might not be very favorable.

Operators With Different Debt Ratios

The income and expense patterns did not vary significantly for the groups with different debt-to-property ratios (Tables 20 and 21). In all but two of these eight groups, 1942 increases in cash or in bond purchases were substantial.

Among the owners, the differences between cash receipts and ex- penses tended to be positively correlated with debt ratios (Table 22). As has been pointed out above, the larger farms had the higher debt

554 _ Buttetin No. 512 [June,

TABLE 20.—INCOME, EXPENSES, BORROWINGS, AND DEBT REPAYMENTS OF OWNERS AND PART OWNERS WITH DIFFERENT DEBT RATIOs, 1942

Debl THUGS oh sila cieasens co sexe 0 1-19% 20-39% 40% and over Number Of farms. 6. .5c(.s cies ces oe 9 15 25 12 t. Operator’s cash income berct. berct. berct bere Gran BROS ions et sertae cae $ 478 6.3 $ 200 3.7 $: 196 2.8." $- S49 Sc Livestock eales.. so. 6 i )ssicc. ies 2 357 gace 746 13.9 1 968 27.8 1 706 1 Dairy product sales........... 4149 54.9 3 328 62.1 3 848 54.3 3 910 = ‘0 Other MNiCome isos cals tesace oe. 579 7,6 ~1 up a oe 2 ae vies Current unpaid borrowings..... 0 die F : “Total cont income...........$7 563 100 $5 361 100 $7 082 100 $9 311 100° erator’s cash expenses iy 5 each DUPCHAKES «5. 6s 5 slere $ 314 6.5 $ 462 -10.4 $ 684 «13.895 :652)°230r8 Canital purchases? ..2 5605 55s 6a 932 19.2 858 19.2 509 10.2 1 264 20.2 Current farm operations....... 2°614,- 53.8 2077 46.6 2 515 50.5. 268i euaee Teterest ecu icse es aseaseueeias 0 92 2.1 271 $35 462 7.4 Pemily Hynes. 320s ois. bates 996 20.5 968 21.7 997° -.20.0; “: 1: 200:>-4a4 Total cash expenses......... $4 856 100 $4 457 100 $4 976 100 $6 259 100 Net: cash: inicome ss. 65.6363. 2 707 Sek 904 eae 2 106 ease 3 052 Borrowings and debt repayments Net paid on old debts........ $ 0 ... $1 096 Soe, AOL oes ses SE'GN6 Cash not accounted for..... 2 707 Ace —192 ech 743 Ape 1 446 Percent paid on old debts..... 0 en 46 Ake 19.Si5 Gist 42:5 Gross borrowings............ 0 che OOS Soo (ADT coe 42-2580 Gross repayments............ 0 Sale 1 096 1 432 1 747 Current borrowings unpaid at end: OF Yar se ieee 588 i) 68 338 379

ratios. Net cash incomes and amounts of cash unaccounted for in- creased in all groups from year to year. Among tenants there was no definite tendency for size of cash balance to be correlated with debt ratio, but these balances tended to increase from year to year (Table 23).

TABLE 21.—INCOME, EXPENSES, BORROWINGS, AND DEBT REPAYMENTS OF TENANTS WITH DIFFERENT DEBT Ratios, 1942

Debeitatios ae mises onde nies 0 1-19% 20-39% 40% and over Number of fatms 3054.5 824.5.38:5 12 23 13 : 9 Operator’s cash income perct. berct. perct. berct. Crop ealea ire isi accet atch owe $ 185 3.0 $ 242 41S 179 255) See .6 Lavestock sales: tiscecces scat 1873. 1952); 255. 1975 417 20.0 964 19.7 Dairy product sales............ 3 951 64.7 3215: 54.2 4 127 58.4 2506 51.3 Other income va. F ost. ence Ss 593 9.7 484 8.2 707 10.0 389 8.0 Current unpaid borrowings..... 208 3.4 830 14.0 641 9.1 997 20.4 Total cash income........... $6 110 100 $5 926 100 $7 071 100 $4 886 100 Operator’s cash expenses Livestock purchases........... $ 359 1.31 S672 13:9 $ 723: 14.3. ($:°858 72925 Capital purchases. .....5.5..%.. 931 18.8 1103 +2239 723 14.3 425 10.6 Current farm operations. ...... 2586 52.3 2140 44.3 2379 47.2. 4°585 530.4 Interests. 63. accnes ates cee 0 0 30 6 86 £7 146 3.6 Family Hving .0-4:..0% ccteusw 1 066 - 21.6 885 13:3 IT36. 22:5 1 O11 25.4 Total cash expenses......... $4 942 100 $4 829 100 $5 047 100 $4 025 100 Net cash income............ 1 168 ee 1 097 Syn 2 024 ay 861 2 te Borrowings and debt Eepasment Net paid on old debts. $ 0 cos 9! 540 ... $1 188 oat Bk 286 Cash not accounted for..... 1 168 eee 557 a 836 bata —475 Percent paid on old debts..... 0 as 900! 53.9 eee 41.6 Gross borrowings............ $ 208 woe & 944 sais. bo OOS so) “Sh eoee Gross repayments............ 0 pan 654 Eos 1 540 eis 1 573

Current borrowings anata at OT OP WOOT <a csicans too 4 208 ere 830 Brat 641 siete 997

1945] FrNanciaL Position oF MCHEeNnry County FARMERS 555

TABLE 22.—CasH INCOME AND EXPENSES OF OWNERS AND PART OWNERS HAVING DIFFERENT DEBT Ratios, 1940, 1941, AND 1942

PERU 5 a5 lek tive nes sieut wa ece aweae 0 1-19% 20-39% 40% and over 1940 RIRNNNRNE GR TRRTNG 6 ahha 5 siete <occin wave e's ses Gia li 24 12 Total cash income............. 668 380 $4 915 Total cash expenses. ... 3 390 3 637 4 407 ’ Net cash income...... 278 743 508 Net paid on old debts.... 124 788 449 h not accounted for 154 —45 59 1941 BOUUN PEN GE ABTTOE oiosi ee icc ks clean siete aee sole 12 7 19 CRIRE AUER SENIOR go alr ooe ois mia ON oie a8 Oo ose aio $4 349 $4 270 $5 810 $7 377 OU CORD CXDCTNOES oy 5. oS eisos Gh aces veecsae 3 694 3 898 4 629 5 547 SOU GRE INCOM <0 !e5.. ba ces vided otle vs ue ce 655 372 1 181 1 830 Ween Weld Ot GIG GEDES. cic oat chic eeden 0 244 979 1 585 Meee HOE BCCOUNTEU OF Sic cis cseccs wes 655 128 202 245 1942 Number of farms..... Minion Besa Pad con, <kaltes 9 15 2 12 MEMO ENOOMIC foe's a s)< op isii' soared occ eh $7 563 $5 361 $7 082 $9 311 Total cash expenses ae sae), 4° 850 4 457 4 976 6 259 es PME SOCUIIIG «06k i le)a'eien vide. crs sfv A c's ae ae 2 707 904 2 106 3 052 TVOh IESG OIL OlE GORE 6c oS oie cc cae csidescam sy 0 1 096 1 363 1 606 Cash not accounted for. ............ccce0. 2 707 —192 743 1 446

TABLE 23.—CaAsH INCOME AND EXPENSES OF TENANT FARMERS HAVING. DIFFERENT DEBT Ratios, 1940, 1941, AND 1942

MORTIMER 1 25h ks Asien obo Fo idle ace erelaece st ee 0 1-19% 20-39% 40% and over 1940 SIEIOR TO SALTO 10d 5 ace Riess 2a wile ok Go le Nee 1 1 2 12 WRITES SERUMINE Wa Sin gc eee ea p s Seb aise $4 418 $3 599 3 242 $3 324 FEOUBA-COGH GXDERMEG 55 [i655 rock 3 cae epee 8 Viale ve 4 560 3 429 2 663 3 132 BEE CHM INOCOMIG Ro occa cc ae cle ole Wuje eee .e'ere —142 170 579 192 Net paid‘on old-debte.. osc ik ec tece eden 33 227 334 . 398 Cash: not accounted fofs. 6s es ceases —175 —57 245 —206 1941 DOTNET GOR SOFIE in Baha Fie 0 5 o's a bin'e das 19 21 22 17 SLO GM CAME ICO S S555 5 <'a'x. sis 0. 0:5 civ 0wald'eie sis $5 376 $5 402 $4 995 $5 188 ETE a a oe ae ae 5 161 4 725 3 628 3 750 aR RIOR TIMING oy ord) cre gic so iva Se ag bhai 215 677 1 367 1 438 PRCU TRIG TL MN CLOOES oo aig oki ob a os ba glows 0 403 710 1 O11 Cash not accounted for. 0.0.66. cee eee ee ce 215 274 657 427 1942 MEUMIIOR AM SQUID soo. 5 Face cists. sin ote ors oe Weitisee 12 23 13 TREAT COME AICOVAG «0:5 ais Bods i0' sb « Ok ss wie 6 04'S ve $6 110 $5 926 $7 071 $4 886 NNN CHIR OROPUIMOE Sci taco a 0cv eo cpiciga ¥e,e ss 4 942 4 829 5 047 4 025 RUPEE RIES GEMRMINRE os oooh a ap a's Geiws: cece orweis,2@ 1 168 1 097 2 024 861 INGT RIG GH ld GODT) ee ba oes cede ns winged 0 540 1 188 1 236 <OeR TIC GOCOUNUED TOls coco niscdccvcecete 1 168 557 836 —375

Operators With Businesses of Different Size

How both receipts and expenses increased with an increase in the size of farm business, as measured by productive man work units, is shown in Tables 24 and 25.

The difference between receipts and expenditures, it will be noted, increased more from year to year for the larger farms than for the smaller farms. For the owners of the smallest farms this difference

556 —Buttetin No, 512 [June,

TABLE 24,—CAsH INCOME AND EXPENSES OF OWNERS AND PART OWNERS OPERATING BUSINESSES OF DIFFERENT SIZE, 1940, 1941, AND 1942

Productive man work units................6. Less than 400 400-549 550-699 700 and over

f: saps 17 15 18 9

Wiiber of fare gs Se oie scic scale win larale sities apie Total cash income. <6 so. csicnid sins ns sewing oleae $2 623 $4 415 $4 694 $5 981 Total Cagh CXPerme 3605's sca witiscsie debs es )eia ere ots 2213 3 645 4 387 S327 INetCash IRCOMO. oe ticle iiss: croissants 350 110 307 859 Net: paid ion old debtes <ii0. 0.0 ceiewing sods cease 226 628 352 677 Cash not accounted {08s -i:.00.¢-<0/6 a ets <6 eleins 124 142 —45 182 iy 6 16 20 15

Nunibér of farmsi.5.. 0696s cis oeGacieses oo Total cash income.... ; $5 197 $6 254 $8 166 Total cash expenses.... 3 963 5 119 6 529 Net cash income...... 1 234 1 135 1 637 Net paid on old debts 1 009 672 1 110 Cash not accotinted for sssis atc ose a Sees —104 225 463 527

1942

Number; of farms i505. 455 ils 4 paved aise avatars 11 13 20 17 “Lotal cash InCOMe: orache sae tee cain eee $3 029 $6 228 $7 314 $10 393 Total cash expenses’: <2:5 Soiis scree se cose cievecs 2 601 4 798 5 341 6 638 DYEL CABIN INCOME So) ccs iii sy cteiorets ar eteb aces eri 429 1 430 2 003 S755, Net-paid on old debtac icc e-sonacs sae e nes oe 433 937 1 488 1 358 Cash not accounted {66 3c 5s Pooks ioe —4 493 515 2 397

averaged $350 in 1940 and $429 in 1942; but for the owners of the largest farms it averaged $859 in 1940 and $3,755 in 1942. For the tenants on the smallest farms it averaged—$32 in 1940 and $435 in 1942, and for the tenants on the largest ed $26 in 1940 and $1,821 in 1942.

Thus the operators of the larger farms increased their ability to pay debts or to accumulate cash much more rapidly than the operators of the smaller farms.

TABLE 25.—CaAsH INCOME AND EXPENSES OF TENANTS OPERATING BUSINESSES OF DIFFERENT SIZE, 1940, 1941, AND 1942

Productive man work units.................. Less than 400 400-549 550-699 700 and over 1940 Number: of farms’. S47. sea coe cendewes 10 17 17 19 Total cash incomes .6 neces see eee Sees $2 088 $3 027 $4 056 $4 592 Total:cash’ expenses .*.<. 2 as ja hocierciox scone ales 2 120 2-753 3 491 4 566 Neticash income ahi. sec ees eek —32 274 565 26 Net ‘paid on old débta. 230 ccc sen eaten s oc 16 170 361 337 Cash not accounted for. . 2.6.60... 00000008 —48 104 204 —311 1941 Number) of farmeincs occ esi a slain ee oe eae 13 24 21 21 Total Cash income oic.65 tyes ass or oS as olsen $2 744 $4 635 $5 844 $6 862. otal cash: expenses chews cio eee ee rica 2 014 3 726 4 830 5 895 Neéticash income vi. raes feast ase oe a 730 909 1 014 967 Net paid ‘on old debte s/o c42c6 custo nates 148 536 662 600 Cash notaccounted {Ores cancees dioceses 582 373 352 367 1942 Number of fariis i oes ass Ox oa eens 7 20 16 14 otali¢ash income. 225.5558 hala eo-as Wns $3 041 $5 301 $6 934 $7 661 Total cash CRVENSCH ero aie saiaicle Sle ctee cy svelen iets ounte 2 606 4 510 5 126 5 840 Netcast income itas:,.30sccss ee cae cine 435 791 1 808 1 821 Net: paid'on oldidebte 5.0053 s05¢ ovens aoe 310 583 746 943

1945) FrnancraL Position oF MCHENry County FARMERS

Operators With Continuous Records

557

The income and expense patterns of owners and tenants from whom data were obtained for all three years of the study were very similar to those of all the farmers in each of these groups, as can be seen by comparing Tables 26 and 27 with Tables 17 and 18.

TABLE 26.—INCOME, EXPENSES, BORROWINGS, AND DEBT REPAYMENTS OF IDENTICAL OWNERS AND PART Owners, 1940, 1941, AND 1942

Owners Part owners 1940 1941 1942 1940 1941 1942 MUGIOIARE OE TOSIDE , oe 5's Sica cles sabe 25 25 25 11 il 11 Operator’s cash incomé MUP REI 8b fold 0 ch ay cine wit sidig/ «0 ,ateele $ 125 $ 141 $ 205 $ 152 $.-180. iS 97 MIVOMUOCRIEAIOD sc sios vs teed sey 774 978 1 450 777 1 169 1 919 Dairy product’ dales, 2... cies ess 2 238 3 058 4 191 2 431 3 556 4 190 MARIE THOT o's sic ook nde ap ws 507 922 617 984 3335 2 954 Current unpaid borrowings......... 410 218 172 334 398 81 Total cash income............... $4 054 $5 317 $6 635 $4 678 $6438 $9 241 Operator’s cash expenses ° ivestock purchases............... $ 286 $ 475 $ 584 $ 314 $ 371 $ 649 CEMRRE TRUCHUBOOS <.. yeiptaa ts sigs cece e 596 743 451 769 1 094 1 689 Current farm operation............ 4: 722 1 816 2 394 1 960 2 009 2 665 RIOR GS ec Sao eusts age ane cend: ster sais 201 185 174 350 369 305 POPE 81 WATE 8 0'5 shale oo s.ciwagd'e aie a3 766 948 954 867 1 259 1 016 Total cash expenses............. $3 570 $4167 $4 557 $4 260 $5 102 $6 324 FICE GORI ATONE ois o'e eo. 5: 6.0 0: 0,018 484 1 150 2 078 418 1 336 2 917 Borrowings and debt repayments Net paid on old debts. ............ $ $ 701 $ 848 $ 4414 $ 945 $1 678 Cash not accounted for.......... —120 449 1 230 —23 391 1 239 Percent paid on old debts.......... 11.6 13. 18. 5 10. 20. Gross borrowings................. $ 460 329." “#179 $ 392 660 $ 157 CoP0G8 TEMAV MENS, 5s bio sie sisi Sige Bes 654 812 855 499 1 207 1 754

TABLE 27.—INCOME, EXPENSES, BORROWINGS, AND DEBT REPAYMENTS OF IDENTICAL TENANTS, 1940, 1941, AND 1942

Cash tenants

Livestock-share tenants

1940 1941 1942 1940 1941 1942 PRE DOS OL LATING | RSs: cies c wise e's oie 23 23 23 13 13 13 Operator’s cash income CYOUSOURS (ca pace xioe Dip a weds os $: 222’. $ -1§8". 3 473 % 2. °$ - 56 > $336 RA VOREIE DE: BHUPS Foi ioc agate koe obs owe 690 1 007 1 364 377 494 1 057 Dairy product sales. .3. 6003. bess 2 167 3 035 3 865 1 738 2 336 2 962 CURE TINE Sc cise Nola sskis cise ase 474 787 653 384 627 539 Current unpaid borrowings......... 320 521 685 338 305 399 Total cash income............... $3 873 $5 508 $6 740 $2 879 $3 818 $5 073 Operator’s cash expenses Livestock purchases............... $ 510 $ 669 §$ 537 $ 280 $ 76 $ 184 aOitnl pUsChasee si Sak ses cece 465 1 004 1.275 440 728 881 Current farm operation............ 2 007 2 187 2 685 1 270 1 435 1 762 PSILOPUMRS Re icle row lin ae 5, alears ee p's 39 51 42 56 39 33 AT AL one A ee 751 869 921 813 920 1 185 Total cash expenses............. $3 772 $4 780 $5 360 $2 859 $3 198 $4 045 Net:cash incomes. g46. cvs 5.005 sie 101 728 1 380 20 620 1 028 Borrowings and debt repayments Net paid on old debts............. $ 142 $ 447 $ 721 $ 184 $ 412 $ Sil Cash not accounted for.......... —41 281 659 —164 208 517 Percent paid on old debts.......... 16.9 43. 65. 17:2 oo. 45. Gross borrowings. ..............++ $ 420 $ 756 $ 704 $ 469 $ 344 $ 537 CETOUE: SOA IOTILG hia os one 9o sla siew.e joys Fe 242 682 740 315 451 649

558 Butvetin No. 512 [June,

Expenditures for Various Purposes

Total expenditures increased progressively during the three-year period in both the owner and the tenant groups (Tables 28 and 29). The amounts which owners and part owners devoted to payments on the principal of their debts increased more in proportion to total ex- penditures than did the amounts spent for any other single purpose. The expenditures for dairy cattle and for land and improvements became relatively larger, while those for automobiles, machinery and equipment, and other operating expenses became relatively smaller.

In 1941, 9.4 percent of the total expenditures of tenant operators went for the purchase of land. In 1942, 6.4 percent was so used. A larger proportion went for the purchase of dairy cattle in 1942 than in either of the other years, while the proportions going for machinery

TABLE 28.—EXPENDITURES BY OWNERS AND PART OWNERS FOR VARIOUS Purposes, 1940, 1941, anp 1942

Items 1940 1941 1942 Nemberof farmss.c ..c.cccce sees 59 67 61 Purchases of— perct. berct. perct. Tan = Peas sraiaeraataits bate $ 0 0 $ 0 0 $ 164 2.6 TM PTOVEMENUSS io05 Gaieid cw choi tafe 64 1.6 149 237 250 4.0 Dairy: cattery. shoe's Sineescents 155 3.8 330 6.0 462 7.4 Other livestock 7... cis sess er6 ag 133 3.2 133 2.4 107 iF Machinery and equipment..... 378 9.1 487 8.8 374 6.0 Automoniles 3. sicscice eis ss Pie 215 Se 229 4.2 26 4 OCIS ioc cauaaiieees 299 7.2 361 6.6 479 Tod ROLCUZErSs cvae a tee yarn ts 63 1.5 58 Pt 132 2.1 Other operating expenses......... $1 390 35-6 $1 558 28.3 $1 834 29.5 Interest payments? s 5. Sos ewes 246 6.0 279 Si 225 3.6 Family living. 566 os... c1n8ecaxes 757 18.3 1 040 18.9 1 030 16.6 Paid on debt principal........... 435 10.5 877 15.9 1 144 18.4 Totaliicsc 28355, 325 tances oases $4 135 100.0 $5 501 100.0 $6 227 100.0 TABLE 29.—EXPENDITURES BY TENANTS FOR VARIOUS PURPOSES, 1940, 1941, AND 1942 Items 1940 1941 1942 Number of farms. . ... 55 .55 G02 63 79 57 Purchases of— berct. perct. perct 11 6 LES ee cara aaa feos Mat Seeedin iti Te $ 0 0 $ 454 9.4 $°.352 6.4 Improvements. 3).6.5 5. ee oes 0 0 15 BS 0 0 Dairy cattle Suey Maotalaiarctor eve rerete Biers 269 7.4 344 (be! 549 10.0 Other livestock .\. 2056005 sce 109 3.0 107 S eg 98 1.8 Machinery and equipment..... 421 $ie5 413 8.5 419 7.7 Antomobile: ii. 3 650 dieses oe 109 3.0 220 4.6 103 1.9 re RAE AO eee er 263 72 313 6.5 423 ied Hertilizet 4..42.ccn sce canoe 30 .8 34 yer | 52 1.0 Other operating expenses......... $1 435 39.4 $1 488 30.8 $1 725 31.6 Interest DEY MONS. iss ca deeve a clas 55 1.5 1.2 55 1.0 Mamiily ving 56 oie oslo asso scald eles 707 19.4 868 17.9 1 000 18.3 Paid on debt principal........... 248 6.8 523 10.8 684 12.6 ROGAN a6 6 eicrercal eleicieinie eon eee $3 646 100.0 $4 839 * 100.0 $5 459 100.0

1945] FINANCIAL PosiTIoN oF MCHENRY County FARMERS 559

and equipment and for other operating expenses were considerably lower in 1941 and 1942 than in 1940. The proportion of the total ex- penditures applied to the payment of the principal of debts averaged lowest in 1940 and highest in 1942.

POSSIBILITIES OF BUYING FARMS FROM EARNINGS

The eventual goal of most farm operators is to own and operate a farm relatively free of debt. The following analysis will show the approximate amounts of earnings available to these farm operators for purchasing land and improvements.

In arriving at the earnings available for purchasing farms, all expenses—including interest paid on debts, the actual cash cost of fam- ily living; farm operating costs, and the purchase of items of working capital—were subtracted from the total cash income. The difference was considered to be available to the operator for the purchase of land and improvements. It was assumed that the expenditures for working capital during 1940, 1941, and 1942 were adequate not only to main- tain this capital but to allow for such expansion as would be expected in a progressive business. In the main the increases in the prices of the items included in working capital caused the increased inventory values. Borrowings and repayments of debts were excluded from this calculation.

Earnings Available to Owners and Part Owners

For farms of different size, the investments of owners and part owners in farm working capital, the increases in their net worth, and the amounts of funds available for purchases of land and improve- ments in 1940, 1941, and 1942 are shown in Table 30.

The total investment and the investment in land and improvements varied somewhat in the different years because of variation in the sample of farms studied rather than because of changes in valuations. These differences, however, were not significant.

Earnings available to owners and part owners for land purchases increased with the size of the farm. For the three-year period the averages for farms of different size, from small to large, were: $189, $731, $877, and $1,824. At these rates it would take the operators in these different groups roughly 52.7, 19.3, 21.0, and 10.8 years, respec- tively, to accumulate earnings equal to the value of farms of the

560 BULLETIN No. 512 [June,

TABLE 30.—Equity oF OWNER AND PART-OWNER OPERATORS IN TOTAL FARM INVESTMENT AND IN LAND AND IMPROVEMENTS, INCREASE IN NET WoRTH, AND CASH AVAILABLE FOR SAVINGS OR EXPANSION, 1940, 1941, AND 1942

. Cash Increase in available for net worth savings or

Equity in Equity in Year total land and im- investment provements

expansion Less than 400 productive man work units A AQ ee ie earls ars inna sal eedtieieisiotase eo ee ehel a toe sere $16 215 $10 482 $ 462 $ 148 VOR Sear a aes he biare ernie Cle lmlaig ale te sue ale claieetars 19°-237 9 943 442 157 GED a Penis oie iccate ore shore Siniaiehactiajeverest cieeerain siaveseista 15 329 9 470 868 261 A VOTARC 55. Sis ie nie bie Biwi) wee eid sy esetefera ata ote 15 594 9 965 591 189 400 to 549 productive man work units

$21 397 $14 812 - $ 684 $

21 702 13 698 2.333: 816

24 170 13° 848 2 919 1 333

22 423 14 119 1 979 731

550 to 699 productive man work units AO eau taro tke neni ak ctaheke alata oe iat siekate evn oie $28 238 $19 316 $ 769 $452 NAN ee ers wdtale phate cicsnwaieis aH aletas mee aig elerere pielete ee 30 537 19 259 2 558 872 1a iss bialocar cavers iyareie aus 6 alal Ceara egzicbis SIO sens ea 27 678 16 767 3 136 1 607 PVOTAQE cc oret sila tee a ees We ee See Sere 28 818 18 447 2 154 877 -700 productive man work units and over

BOGO Seas Aare 5S dcala ala loods TAS siete Sie sieve Shee. 8 see $30 937 $20 638 $1 745 $ 787 se 2 Ptr rors ite a ie ts Areata ay ee erat ae 33 662 20 310 4 116 1 107 hOB D ore eiexafaseSee cei ee ReneS he Pee SiS ouatele he etecake eshons 32 668 18 128 5 681 3 579 WAVOTABE 2555 cis o ciate ores ie Siac hans are 32 422 19 692 3 847 1 824

size they were operating (number of years determined by dividing value of land and improvements by average earnings). Expressed an- other way, the owners and part owners of the largest farms could accumulate in cash the value of the farms they operated in one-fifth the time it would take the owners and part owners of the smallest farms to accumulate the value of their farms.

Thus, at least in periods of rising prices, it is much easier for an operator of a large farm to buy a large farm from his farm earnings than it is for the operator of a small farm to buy a small farm from his earnings, and the same can be said for tenants (page 561).

The above figures are of course averages—some men would do better, some not do so well. Also it must be remembered that they represent the periods required by men in the capital position of the men studied. The owners and part owners operating the largest farms had equities which averaged approximately $32,000. At 4-percent interest this amount of money would earn $1,280 annually, which is about two-thirds of the average amount of cash available to these operators yearly for savings and expansion. If this money were invested where it would draw interest, the interest earned would help to shorten the

eee ee —

1945) FINANCIAL Position oF MCHENRy County FARMERS 561

time required to accumulate enough capital for the purchase of an

- equivalent farm; but if the savings had to be used to make down pay-

ments and the rest of the purchase money had to be borrowed, the periods would be lengthened because of the necessity of using part of the surplus cash for interest. Usually land is purchased by men who have some initial capital.

Earnings Available to Tenants

The funds which tenants had available for the purchase of land and improvements (Table 31)—calculated as explained above—in- creased with the size of the farm, averaging during the three-year period $85, $260, $343, and $660 respectively for the four groups. For these tenants to acquire enough capital to buy farms of the same size and with the same land and improvements valuation as those operated by owners and part owners would take 117.2, 54.3, 53.8, and 29.8 years respectively. ; ;

Obviously it would be difficult for most of these tenants, after providing for operating and living costs and needed working capital, to save out of earnings such as were realized in this period the neces-

TABLE 31.—TENANTS’ EQUITY IN TOTAL FARM INVESTMENT AND IN LAND AND IMPROVEMENTS, INCREASE IN NET WorTH, AND CASH AVAILABLE FOR SAVINGS OR EXPANSION, 1940, 1941, AND 1942

sole Cash wees ai in Increase in available for = investinent net worth savings or expansion Less than 400 productive man work units POND ose ted Vendor a, WISP ROR SEO ae AS Te Gee: Sl car eue sb iand va iatarers Stage rerbie $2 744 $ 124 $—411 2 MRE Od i Liar eae Ae Par Wren ia rey eRe ee Grrl WAPE Aer araray ar irae a oee 869 341 SMe ae ee ce rete, & WAS ser erehE Meret id olatiot oe ia war ao sp elat ace nieneeriey oper ar enaicata tate 4 491 1 080 325 PROLOG cra Tr bocte Sek Pate ie ie ete eA Wie Te Sin WO isco Rus ane Reel a anes 3 486 691 85 400 to 549 productive man work units RSMO oleae Ta eh onder oh ect 6 510 STF se Laie! eral Sears (a dat aham aut lot todo Faces $5 348 $ 570 $. 425 i 8 RAL eh apt Dy Ae Pe cok ar es CAE As SMe Pa ae PEC 6 425 1 382 328 DOME tie crkalet bc Mais a ioe Siale asi G Ra asd gleams ET meee we 7 250 1 756 427 PROTO foe's avers ha aie a teeisinece 6 AV clos Glee NIES 6 GMOLELE bieisia’s nee 6 341 1 236 260 550 to 699 productive man work units NRA CASE 14! ares eae < Wun reR Gioie RCS Se are aye AA erersnsia: dpe eee $7 564 $ 642 $ 60 OM Rate Sie tah area Seth ce sa ate ais SIC Lal avec at eeShe FAG Sra sas Sl eialWcatav eet e\eual digi sidiciaiece 9 076 1 825 —186 pT aCe re eka ie bc te Oe tel MOR CE Nearer AEN ate WER Ta Pea Le 9 884 2 377 £455 CLAM CE Se Nec Nee thre Cee ckolate ews label sin Sia eed Aree elle ae DI 8 841 1 615 343 700 productive man work units and over BTR Gaia cee set euaiess eivre eC ANTS OTE ETC wlAelahe Cieidee ola: Re wie oie awe $7 872 $ 851 $—372 RODE ion y Sunietas oie a hes © ora. Die ane Aida ed leien he. ai diaie iw ies Gialete >. e0) « 9 946 2 375 559 DRE Di Nee Se sick An SB etches oes Veale wi eiRa ewe ke aes Getta ce 10 761 3 075 1 794 GEOR NR Se iain Bis kiare tere oO neh eea Sy On php ie gO MN ora are eal ee are 9 526 2 100 660

562

‘Butetin No. 512

[June,

sary money with which to buy the farms they were operating. The tenants operating the largest farms would apparently have the best chances. They could accumulate in cash the value of the farms they were operating in one-fourth the time it would take the tenants of the smallest farms to accumulate the value of their farms.

SOME CHARACTERISTICS OF THESE FARMS AND THEIR OPERATORS

Owner and Tenant Farms and Operators

As measured by productive man work units, acres, or cows (Table 32), the tenants operated larger farms than the owners and part

TABLE 32.—Various ITEMS CONCERNING FARMS, FARM FAMILIES, AND FARM BUSINESSES OF OWNERS, PART OWNERS, AND TENANTS, 1940, 1941, anp 1942

Owners and part owners Tenants 1940 1941 1942 1940 1941 1942 Numberiof fatms\3:462.00.. sc scot oeaaae: 59 67 ‘61 63 79 57 Size of farm business Productive man work units............... 539 562 591 624 607 612 Acrés—owned': 08h esis os ons oes 126 134 128 0 i) 0 TENCE i micecy co Arie ase oie eee 14 14 26 157 154 151 =F OLA Sos Scie A ee ee 140 148 154 157 154 151 Number of dairy cows..2%.5206. 0.5 ice h sce 20.3 21.4 22.2 23.9 24.5 254 Months of: labor—totals.: c.c.c Sons 23.4 2555 24.4 22.6 22.3 233'F me T FOO a fresco, vie cis oh take aaah S27 6.9 5.4 5.9 Set 3.8 Productivity measures Pounds of 3.5-percent milk per cow....... 7 472 7676 7 616 7187 «=-7.. 547 Y bee = 5 2 Bushels:of: corn per acre. 55.5. sz5<0025.- 5 63 52 60 62 Tons of legume hay per acre.............. 220 12.9 YA 1.9 137, 5 Land use A CTES PEE COW: u.5 ds <icin ca rises te tole eee 6.9 6.9 6.9 6.6 6.3 6.0 Percent of total acres in crops............ (i les’ 71.9 68.7 69.5 69.2 70.6 Percent of crop acres “=——IN ‘COMM: ANd Gage .-Ao oe tea Rene a ies 5 ep 34.2 34.9 36.8 36.3 37.9 —in soil-depleting crops............... O2a7 65.3 63.0 69.9 67.4 66.6 —in hay and rotation pasture.......... 42.9 38.9 36.7 36.6 34.4 33.4 Percent of total acres in permanent pasture 18.6 2175 24.5 Dhcd. 23.8 22.6 Limestone applied in last 5 years, tons..... 46 60 Bred 21 31 Dates Phosphate applied in last 5 years, tons..... 3.4 5.9 5 6 Dairy herd Percent of cows home raised.............. 70 65 $1 49 Percent of cows replaced during year...... 8 15 16 15 Value of cows bought per $100 worth of COWS: SOlG to. ig en ee eee $167 $156 $169 $157 Number of cows purchased —from dealerany) vce mare eecoaees 1.4 1.9 215 p ee =A CL AUCHIONG). decries tex, ea eee 4 8 8 an —from farmers 3. ae ee ae By a5 6 6 Number of cows reported diseased SOME TAGE a eer eeety ee ne .6 23k LS 1.4 —purchased inn ins cclca te mae ce ee .8 13 2.3 1.6 Personal characteristics Age of opetatonscstisassicioe neo niece vs 52 53 54 47 47 49 Vearsloniiarm ss icine se ee eras oe 18 20 19 7 7 8 Number in family, total.................. 4 4 4 + 4 4 Number over 14 years old................ 3 3 3 3 3 3

—_—-

1945) FINANCIAL Position oF MCHENrY County FARMERS 563

owners, but they utilized less labor. Both the tenants’ milk production per cow and their crop yields averaged lower. They had more heavily stocked farms, a slightly higher percentage of cropland in corn, silage, and soil-depleting crops, and a slightly smaller percentage in hay and pasture. Also, during the last five years they had applied less lime and- phosphate to their farms than had the owners and part owners.

The tenants raised a smaller percentage of their cows than did the owners and part owners. Both groups purchased cows chiefly from dealers.

The tenants were about five years younger than the owners, their average age in 1941 being about 47 years, owners about 53 years. The owners had been on the farms they were operating about 20

TABLE 33.—VAarRiIoUS ITEMS CONCERNING FARMS, FARM FAMILIES, AND FARM BUSINESSES OF CASH TENANTS AND LIVESTOCK-SHARE TENANTS, 1940, 1941, AND 1942

Cash tenants Livestock-share tenants 1940 1941 1942 1940 1941 1942

PCIIOT Ob LALIT’, 8 farce oso as Nidhe 0,0 ins srcalaene's 40 50 37 23 29 20 Size of farm business Productive man work units............... 552 551 537 751 703 751 PPOR DARE sik. cet ikiacjores wots oe ea ve-e 0 0 0 0 0 0 REM ONOO goo eic oats nie dias. ratte shevajare tele, 146 146 140 178 166 171 SOROS Sarath prdc: oie cio headers be sieeve. 146 146 140 178 166 171 Number of dairy Cows .....6... Gecegc ceca 20.9 22.1 Zest 28.9 28.2 $1.5 Months of labor—total......... Meaehe wee 2A” \3U.F 5 258 73.6, *"33,3° 26.8 SANTOR 3 us ais Winnie a wieete Ley 5:0 3.6 6.0 OE J 4.3 Productivity measures Pounds of 3.5-percent milk per cow....... 7414 7 547° #357 6 868 7547 7 307 Bushels of Corn per acres... os ii e ceweee 50 60 57 54 61 73 Tons of legume hay per acre.............. 1.8 1.5 2.2 1.9 1.9 2:34 Land use AOXER TOT COW 5S Birds hoc OS. ER 8 8 Baie 8 8s 7.0 6.6 6.4 6.2 5.9 5.4 Percent of total acres in crops. ........... 22.2 68.5 68.9 67.7 70.4 (ac2 Percent of crop acres ETT CONS BUG GUAGE oy oo s:cwictsis's eels e'e0 8 3752 38.1 40.0 36.2 33.3 34.5 —in soil depleting crops............... 70.4 70.4 69.0 68.9 62.1 62.2 —in hay and rotation pasture.......... 36.9 33.1 30.3 36.2 36.5 37.8 Percent of total acres in permanent pasture 20.0 24.9 25.5 24.2 21.9 20.0 Limestone applied in last 5 years, tons..... 14 23 rae 36 46 oe Phosphate applied in last 5 years, tons..... iS S ; 7 sa Dairy herd Percent of cows home raised.............. 50 50 Shark 52 47 Percent of cows replaced during year...... 19 17 Pt 14 10 Value of cows bought per $100 worth of SWE HOI c= ken siwane ic eines $172 $162 gece tt BAe $135 Number of cows purchased so PINE COLLET via ho kak acMle 8 cous 0 Seis a ore. 6 2.2 DA 3.0 1.8 SOD BNCCIOND of oles sient BLOCK ee males ees 1.2 ay! £2, By me PP OTD FATINETS 5655s c's 0.5 5 sia'0,9 6 000 one s.0 .6 .6 8 .6 Number of cows reported diseased ROM TAISCR Fe oa brivis gs Riaee Be'6te ese = “3 1.0 ks See ESUIN TIO BOUL vg 5:5 Miprereoe i DUis ib Fis Cinle saare ees 2:1 sp 2.6 PAE Personal characteristics ABE Gl ODETACOR: Lig cect ee 4d a> thera ble Coen a 4 48 47 50 46 46 47 WOOL ONF LATIN a <5 p.F ola ee Bs Cale bake cceis se. 7 7 8 6 6 8 Number in family, total................. 4 4 4 5 4 5 Number over 14 years old................ 3 3 3 3 3 3

564 Butietin No. 512 [June,

years, the tenants about 8 years. The size of the family in each group averaged four.

As measured by all four factors (productive man work units, acres, cows, and months of labor utilized in running the farm), the livestock- share tenants operated larger farms than the cash tenants, altho the difference in months of labor used was small (Table 33). In 1940 the share tenants had lower milk production per cow than the cash tenants; in the other two years this factor did not differ significantly. They had better crop yields, their farms were more heavily stocked and became increasingly more heavily stocked during these years. The cash tenants had a higher percentage of land in corn, silage, and soil-depleting crops and a lower proportion in soil-building crops, hay, and rotated pasture. During the last five years less limestone and phosphate had been applied to their farms. Between these tenant groups there were no significant differences in age of operator, in the number of years he had operated the farm, or in size of family.

Farms With Different Debt Ratios

The number of cows per farm in the owner groups (Table 34) tended to be higher in proportion to debt ratios in 1940 and 1941 than in 1942. Some of the older men dropped out of the sample, and mean- while some of the farmers of the higher income groups paid off their debts. These changes explain why in 1942 the number of cows on the low-debt farms was larger than in the other years. In the first two years the owners with the higher debt ratios had higher milk produc- tion per cow, but this was not true in the 1942 sample. The owner- operated farms with the higher debt ratios had more acres per cow and more total acres (Table 6, page 532). There were no significant differences in percentage of crop acres in soil-depleting crops. As other studies have shown, this factor is not related to debt, at least under the conditions which have prevailed since 1934. The owners with no debts raised a smaller percentage of their cows. Except in : 1 the no-debt farmers were older men.

Among tenants (Table 35), the no-debt farmers milked larger herds and had higher production per cow. Lower production per cow was characteristic of the high-debt tenants. Acres per cow tended to de- crease as debts decreased. Except in 1940, when the percentage of crop acres in soil-depleting crops tended to be positively correlated with debt ratios, this factor did not vary in any systematic fashion with debt. The percentage of dairy cows raised was negatively correlated with debt; that is, high-debt tenants bought more of their cows, indi-

1945] FINANCIAL Position oF McHENry County FARMERS 565

TABLE 34.—SELECTED ITEMS CONCERNING OWNER AND PART-OWNER FARMS CLASSIFIED BY DEBT-TO-PROPERTY RATIOs, 1940, 1941, AND 1942

PEMMRNRRI Et Ls ia Utaiclssla/b-eaueveicia yo nie Sraals © 0 1-19% 20-39% 40% and over payee of dairy cows Baa oie tere! 3 eA Sid beats cielaie'h boars Shela sia she 17.4 0 104 MRIS Stuer y es eta celal are tee ea aela aia oe Se Pee 19.2 21.8 20.9 YK hy 4 UMMA AGHGA hater A Sete like wcreielate be haistaa 6 oei welare yy My J 6 he v7 ppt per cow, pounds of 3.5-percent milk ‘ELE ST pe OL ICTR EI a Pee 6 797 7 147 7 769 7 208 io4t SERS WARM ATES +2405) p oo, ste, cigs tacos fa are 7 048 7 147 7 972 7 844 DRMRMREDE Satbcs re: cP LG. ys lela ees otaiavere Shia weenie mies 7 801 7 418 7 672 7 592 Acres per cow RUB CRG irs FaXG hi fal scenic ors oie he mieieiw a oak fee: 6.3 7.0 7.6 RE RONG tesla g SG 4 ci 8 as Ses w ie cas bee RET ah ie 6.6 La) 6.4 8.4 (UU SSSR ye a a A Ig 6.8 6.3 6.9 Ye! Percent of crop acres in soil-depleting crops PORES Ro 8 sang tosces. WA cld tans once iat 62.8 58.8 9 64.1 LT SL Se 8 ita ert at ae eg ae a 64.8 59.6 67.4 65.1 MOON R OG as 8A. 0d) on rsin oie. 5.6 49356460, scale aid coneer 60.3 61.9 .8 62.8 Percent of dairy herd home raised ee ste ak ESE bis fave ssieT die totale leicse s1ececaie' aie eae 59 60 77 67 PO ate af oW ES alote ates, cis Sbleeiee eineien eee 57 73 68 64 Average age of operators eke ene Onis eee: Civ. waa Soi: sloverere™n ale @ oie tre) anna 62 51 55 49 EMA ea ila, c Rena cane cashew salad he cavers Sate ece oe 61 48 53 53 “i's, CURSE SOR SIE CA Ra tae ors Pa 52 55 54 55

cating a tendency to keep more of their limited capital in milk cows and less in replacement stock.

The younger the operators, the higher, on the average, were the debts, as would be expected, for younger men, starting farming, usually must borrow and then gradually retire their indebtedness.

TABLE 35.—SELECTED ITEMS CONCERNING TENANT FARMS CLASSIFIED BY DEBT-TO-PROPERTY RATIOS, 1940, 1941, AND 1942

r

PODER 5.06 ote ire ow wei ole es ¥ vlioterers ¥ieer 0 1-19% 20-39% 40% and over —— of dairy cows i RA Di ER PR eos tO RS aR ERT 29.1 22d 1 toa OP tie ar eihie seeteadle aie 10d o's ga A Gee erederers oeie%s Pa pees 21.4 y Aly 23.6 Re Sati reyes So Wer ersial bid sche eels, sfaeleou 28.2 22.3 23 ia raul rt cow, pounds of 3.5-percent milk Se e9ss EE ee ee 878 7 254 7 245 6 201 194i Bate Peat Ne lens ave Sroka STs eooTetelne slave's sah fais 7 954 7 996 7 467 7 211 MM se oosoe a deals alot Wh er Fickaiaie,aieiblere.e diel void 'ele.e eve 7 625 7 357 7 602 6 533 Acres per cow a SAS are Maree wea ieee tein bales MOO a ainietere 0 6.4 6.9 7.6 te ES RE teh ree. Cee erie rire heater 5.8 6.7 6.4 6.3 ee ee See iaas Sot a cs ararelGre-¥re Fir as bio reels 5.9 5.9 5.9 6.7 Percent of crop acres in soil-depleting crops PE orn Pa cela tink Stet ods Riba ce eee A 58.3 71.5 67.7 77.3 BOGE oe, Fates oak ees Uipel midline oe Mihi tine Sauk 67.7 71.4 68.2 67.4 Oo. aie a stare are tan ai a aite We teeta Pacer a esate 64.2 68.5 64.3 68.1 ern of dairy herd home raised Do oraiadacse/ sieved ole Rete Tera" Wecate aroha, ol aves, os tayareces Bae 65 58 47 31 194i Be ee ee ee Pe Sete it PLO eC Tae 59 45 49 27 Average age of operators . , 5 ee eee Bs alg Tos Mat hte ered SRG eh 8 350 date 48 49 47 44 ROAR a ra cate ate ohne ile ohaie cia 0. tenth \o.d mate 51 47 46 42

566 Butietin No. 512 [June,

Farms of Different Size

The owners having the smallest farms, as measured by productive man work units, averaged about 12 cows; those having the largest farms, about 30 cows (Table 36). Except in 1940, production per cow averaged higher on those farms where more cows were milked. Ap- parently the operators of the larger farms found it possible to increase production per cow during these years, particularly in 1941. The opera- tors of the smaller farms tended to stock them more heavily, a fact that suggests that size of farm was a factor that hindered further

TABLE 36.—SELECTED ITEMS CONCERNING OWNER AND PART-OWNER FARMS GROUPED BY SIZE OF BusInEss, 1940, 1941, AND 1942

Productive man work units.........0.0ce000% Under 400 400-549 550-699 700 and over Number of dairy cows BOAO eee ceccterate Rio nia Ste BYE Sila See oles see iaTe ES trees 12:2 17. 2 DRE Utes ae es ly AR ee one ape mt Sine Cot OR rh ut 11.7 18.6 23.4 30.7 MND ia iSe 7 nike eres wi elite ay sates a fel bas atte icles 6 os 11.4 17.8 22.9: 1 Production per cow, pounds of 3.5-percent milk 1940 eerste Sic cs aes ste dal rao eel ane Sa arabes 748 7 146 71553 7 421 MOAT Sa tareteeinve waters Ole aie abla e Oe IN eGo ane 7 218 7 590 7 888 7 914 Na 2 icone borciets ete te AIL ee ae ce Dale hone 7 258 7 378 7 597 8 037 Acres per cow ; sre teres ormorare Ora eae aaa tees aes Mota ase Mahan en eUaNTER 7.0 6.4 7.8 6.0 NOAA Seca is sis alates sig hieie aor anh asana Sb cutee a ee 6.0 6.3 7.6 130 NAD id 5 iors orf shined, Ahecar cts ahs G nhs anal onatnce Sak Ue reeks 6.2 655 7.3 TA Percent of crop acres in soil-depleting crops Biaisieiar eee. ai eie oe Mio Bal eial Wiekeverie, Be eG Seas 62.8 59.5 62.3 IA ean sant stolen he nie entree ee ee eae 60.0 69.8 64.7 66.9 OAD, citaterskl cle ie a Oa Goce htc as Mic an ee 5 58.0 63.5 Percent of dairy herd home raised Risutdiciia ops enstarOneseianene Sisters Gai ataseaNerare CaaS 60 66 15 80 hit IBS petty eres rey are ar rey ae ge eR 49 63 71 73 Average age of operators Byes det snisican a ieceges eeturas Pale (97 oka is dottnetors et one Bape Oraralale 58 S52 50 48 LOST Ferenc ee ee hla Re 59 49 54 52 LOAD riersicnsrsta lie aiastiat master sete hake See At oe 59 52 53 55

increases in these herds. The owners of the larger farms tended to put more of their cropland in soil-depleting crops. They also raised more of their cows, a fact that indicates that they were not so limited in the use of their land. Among the operators of the smaller farms were more older men.

The tenants having the smallest farms averaged 12 to 13 cows, compared with 35 to 40 cows for those having the largest farms (Table 37). Production per cow was positively correlated with size of farm, the correlation in this case being high. In 1941 and 1942 the tenants on the larger farms tended to stock them more heavily than the tenants on the smaller farms. The tenants on the smaller farms had a higher percentage of land in soil-depleting crops, the percentage

1945) FINANCIAL PosiTIoON OF MCHENry County. FARMERS 567

TABLE 37.—SELECTED ITEMS CONCERNING TENANT FARMS GROUPED BY S1zE oF Business, 1940, 1941, anp 1942

Productive man work units.................- Under 400 400-549 550-699 700 and over Number of dairy cows MM cle Cah 0S 4 uk yaks rg WP eabvere ere alec wiale bla cae 12.4 18. 2 34.7 PN er S- 'y cass yenstwrata isi Wisi kla elegant Wiervln es 12.0 19.7 24.8 35.9 RMR Te A ait! oon. Sa 4k bisa bce risa oe eae aes 12.6 19.0 25.0 40.2 Production per cow, pounds of 3.5-percent milk ae sree tates ele Sale waite Oale aka arnlelarerPre o4 7 026 7 265 7 489 6 927 MRR Gey oles a Ng cid a Sidley dda aterdia 4 aang are Ae ai 7 038 7 550 7 367 7 988 BCS ee go Nice avels, seRaieare.e aleiaerlee etiam sea 7 049 7 118 7 348 7 790 Acres per cow MRAM Gs 15-5 ein 955 bk oon pH Rio re BO eee ale wed Ate ee ane 3.8 7.7 6.8 6.6 MRE ec Prats gos Shar oleae aire sil ea es 7.5 6.8 6.1 6.1 BN SOG Tre lang cece 's, sie Si Wma ered aslo eR ee ee riety | 6.6 5.9 5.4 Percent of crop acres in soil-depleting crops oy Stee eee oa) ae ets 0 eine Ree wi erecse ewe ord Ne 68.2 as 69.6 69.7 OPE nated Gao Gaskin 8p OS 8 ate 8 eMerw ed ai Oe 77.6 67.9 68.1 64.9 EDD Shs She talk atesre are love Hi -Slaf elie atate Srke ese 78.9 70.5 67 60.3 Percent of dairy herd home raised BUTE die Seder tam deal aarae aT cin elo See ayerehS! ohasaue 36 62 45 53 PERCE Nah ciate cian bie Siklue & a lsiso@ ais oo SarTorte ness 42 48 43 56 Average age of operators Mace RO he sides Whe sented Osa cies mck 48 47 46 48 RON cctv one sisi cie ola ghace id wld ou el oie al oi gig im es8i ote tee ates 49 46 47 46 Bers Cia arvineie cele Resin ioe ice ta ones cows 54 44 53 48

becoming even higher during the period; whereas the tenants on the larger farms wére reducing their acreage in soil-depleting crops. Ten- ants on the larger farms raised a larger percentage of their cows than those on the smaller farms. There was no significant difference in age among these men.

CHANGES IN MILK PRODUCTION

On the 72 farms for which continuous records from 1940 thru 1942 were available, the average milk production per farm increased 17,560 pounds or 10.7 percent in 1941 over 1940 (Table 38), and 3,537 pounds or 1.9 percent in 1942 over 1941. On a percentage basis the part owners made the largest increases in 1941, the cash tenants the smallest. In 1942 the production of the part owners fell below that of the previous year, while the production of the full owners showed the largest increase.

When the farms are grouped by size, the 1941 increases in milk production on owner farms are found to have been directly correlated with size of farm, but in 1942 no correlation was indicated. Among tenants there was no clear relationship between size of business and increases in milk production either in 1941 or 1942. Among owners the more heavily indebted groups made the largest increases in 1941, but not in 1942. Among tenants, debt ratios were not significantly related

568 Buttetin No. 512 [June,

TABLE 38.—PouNDS OF 3.5-PERCENT MILK PRODUCED PER FARM ON 72 MCHENRY County Farms IN 1940, 1941, AND 1942

Number Increase Incr

‘ ncrease

Grouping Piha ee 1941 1942 1941 over 1940 1941 over 1942

Tenure of operators 1b. 1b. 1b. 1b. perct. 1b. perct. OCWOTE 65 5c cro es nse aisteaireie 25 150 072 165 294 176 668 15 222 10.1 11374 6.9 Part OWENS oso sis ei niete ace ste 11 160 031 188 112 182 130 28 O81 17.5 —5 982 —3.2 All Ownere.. 6onGisncs et 36 153 394 172 396 178 443 19 002 12.4 6 047 35 Caabstenantes:. foc. nea 4} 151 569 162 415 164 023 10 846 7.2 1 608 1.0 Livestock-share tenants..... 43° 246,150" 243.086." 243-241) “26: 936-1235 155 i All tenants: .......0..0s%0> 36 175 602 191 628 192 707 16026 9.1 1 079 .6

Alb farmgs ik: < Sticiesoeis sien 72 164 714 182 274 185 811 17 560 10.7 me Ws 1.9

Size of farm (p.m.w.u.) Owners and part owners

Wnder400 752.27 cs seoce fi) 97 381 94279 98 951 —3 102 -—3.2 4676 5.0 400 10: S49. sie slew ly. 6 11 137 374 156 175 158 443 18 801 13.7 2 268 5 OS All under 55057-5.4-70.0% 18 -121 737 131 188 134 676 -9 451 7.8. 3) 488 2% SOO 't0; 69900 Brads eens 11 166 631 193 545 202 320 26 914 16.2 8 775 4.5 700 and) Over? oc. S503. 1452 7 212 862 251 446 259 022 38 584 18.1 7576 3.0 All 550 and over....... 18 185 563 216 776 224 950 31 213 16.8 8174 3.8 Tenants Wnder'400 2.023. fees oe. 6 87 375 94892 95 472 7517 ° 8.6 580 6 400: to $49 )2. oo oe aea 7 138 869 148 221 148 629 9 352 G..7 408 3 All under 550.. ew, 13° © 113,952" 123003" 123°605:- 39-051 "729 602 5 S50'toO992-:.< sis: ~. 43 +164 812° 176 711. 180 579: 11 899: '-7.2..- 3) B68 2273 JOO ABUSOVET!: > cicocaletrs xs. 10 264 579 303 137 303 820 38 558 14.6 683 2 All 550 and over....... 23: 209-204 (230.225: 2327086; -21).021, 10°0 861 8 Debt ratio Owners and part owners Opes ss cegrenic setts teiesteseeree 6 152 258 155 639 154 330 3 381 2:2 —1 300) =.8 1 to) 19) percent x. F saci os S- 123 757: 137 680 162 652 13.923 11:3: 24:972--43c1 All under 20 percent.... 11 139 018 147 673 158 430 ,8 655 6.2 10757 7.3 20 to 39 percent......... 17 155 808 179 282 185 823!'23 474 15.1 6541 3.6 40 percent and over...... 8 167 788 192 715 190 583 24 927 14.9 —2 132 —1.1 All 20 percent andover.. 25 159 907 183 794 187 612 23 887 15.0 3 818 2.1 Tenants ere a ry eR INET His St ATES 9 240 037 264 528 270 277 24491 10.2. 5 749 2.2 1 to-19 ‘percent; «40.26... 11 142 672 154 825 156 239 12153 8.5 1 414 9 All under 20 percent.... 20 184 847 202 477 205 998 17 630 9.5 3521 1.7 20 to 39"percent:2.. . 3... 11 168 835 182 860 182 693 14025 8.3 —167 —-.1 40 percent and over...... 5 152 445 166 998 163 045 14 553 9.5 —3 953 —2.4 All 20 percent andover.. 16 164 342 178 297 176 708 13955 8.5 —1 589 —.9

to changes in milk production, but the operators of the more heavily indebted farms did produce less milk in 1942 than in 1941.

If the two years are taken together, the operators of the larger farms and the more heavily indebted farms are found to have in- creased their milk production more than the other operators.

Since the samples are small, the above results cannot be taken as indicating definitely what large groups of similar farmers actually did during these years. It would appear, however, that farmers reacted differently to pressure to increase their milk production in this period.

TOTAL FARM BUSINESS

In studies of farm financing both the operator and the business are of interest. The analysis up to this point has, however, dealt only with

1945) FINANCIAL Position oF MCHENry County FARMERS 569

the operator’s capital and income. In the case of tenant-operated farms no figures have been included to show the extent of the capital fur- nished by the landlord or his share of the income. In order, therefore, to give a more complete picture of the farms in these studies and furnish a basis for comparing them with those included in other farm- income studies, capital and income data for the entire farm business in 1942 were obtained for 118 farms. Averages for these farms, grouped by tenure of operators, are shown in Table 39.

The farms with the smallest total capital investments were operated by owners and cash tenants; those with the largest were operated by part owners and livestock-share tenants. The rates earned on total investment varied but little among the different tenure groups, aver- aging 13.6 percent for the combined owner and part-owner ‘group and 13.8 for the tenant group. Likewise, for the farm as a whole there was little variation in the calculated labor and management wage, which averaged $3,015 for the farms of the owners and part owners and $3,045 for the farms operated by tenants. However, the groups made up of livestock-share tenants who owned less than 50 percent of the cows showed the highest rate earned on total investment, 19.1 percent, and the highest labor and management wage (farm), $5,473. On this group of farms the landlords took a direct interest in the business. This group also had the highest average production of milk per cow and the highest yield of corn per acre.

The figures showing the operator’s share in the business of these farms give a different picture. The rate earned on his share of the capital was much higher than the rate earned on the total farm business, averaging 33.4 percent for all tenants. The operator’s labor and man- agement wage was lowest for the livestock-share tenants owning 50 percent of the cows, $1,832, and highest for the part owners, $3,296. For owners and part owners together it averaged $3,058; for all tenants, $2,602.

The landlord’s rate of return on his investment. averaged 3.5 per- cent on the farms rented for cash; 4 percent on the part-owner farms; and 11.4 percent on the livestock-share farms. These differences reflect the tendency of the earnings of landlords who rent for cash to lag behind in periods of rising incomes, while earnings of those who rent for shares tend to follow changes in income.

None of the measures of earnings varied with debt ratios in any uniform fashion (Table 40).

Among the owners the rates earned on total farm capital, and particularly the labor and management wage, increased with the size

BuLietin No. 512 [June,

570

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FINANCIAL PosiTIoN oF MCHENRY County FARMERS 571

1945]

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572 Butietin No. 512 [June,

of the farm business (Table 41). On the tenant farms the tendency of rates earned to increase with size of business was even more marked than on the owner farms. Since production was profitable in 1942, the farms producing the most would earn the highest rates. In the owner group the smallest farms, measured by size of business, pro- vided an average labor and management wage (farm) of $812, whereas the largest farms yielded $4,557. Similar figures for the smallest and largest tenant farms were $1,223 and $4,890 respectively.

On the tenant farms both the tenant’s labor and management wage and the rate earned on the landlord’s investment increased with size of farm. More of the smaller than of the larger tenant farms were rented for cash, and so not all the landlords of the smaller farms shared in the increased income.

KINDS OF CREDIT AND HOW USED

Debts of All Farmers

At the end of 1942 the farmers included in this study owed, on the average, one-third as many short-term: as long-term debts (Table 42). The long-term debts of owners and part owners were secured chiefly by first mortgages, only 15.6 percent of the long-term debts of owners and 24.6 percent of those of part owners being second mortgages or other kinds of debts. Short-term debts of owners and of tenants consisted largely of personal notes or chattel mortgages, altho among tenants chattel mortgages were more important than among owners. In 1942 these two forms of debt represented 86 percent of all short-term debts. Conditional sales contracts and personal debts were of minor importance.

Sources of Credit

Owners. At the beginning of the period (December, 1940) the Federal Land Bank, individuals, insurance companies, and the Land Bank Commissioner were the principal holders of the long-term debts of owners (Table 43). During the period the importance of the Federal Land Bank and the Land Bank Commissioner as holders of long-term debts increased in this sample, that of insurance companies increased slightly, while individuals became less important. Commercial banks were not important in this field. The three principal holders of short- term debts of owners and part owners at the beginning of this period were commercial banks, individuals, and the Production Credit Associ-

573

1945]

FryanciaL Position oF McHenry County FARMERS

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1945]

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576 BuLttetin No. 512 [June,

ation. At the end of the period, the importance of individuals as sources of credit had increased, that of commercial banks had declined, and that of the Production Credit Association had increased moderately. Also, the importance of the Farm Security Administration and of cattle dealers had increased, altho both were of minor importance to owners.

Tenants. Among tenants the sources of credit were more varied (Table 44). Cash tenants used somewhat different sources of credit from share tenants. At the end of 1940 one-fourth of the short-term credit used by tenants came from commercial banks and about the same proportion came from the Farm Security Administration. Indi- viduals, cattle dealers, and landlords, all held about 10 percent each, and implement dealers and the Production Credit Association each held about 7 percent of the total. At the end of 1942 the importance of in- dividuals and cattle dealers had increased, the importance of landlords and implement dealers had not changed much, while, in the sample of tenant farms studied, the importance of the banks, the Farm Security Administration, and the Production Credit Association had declined. This situation suggests a trend toward financing by agencies which have some interest other than the extension of credit.

{ ‘

Purpose of Borrowings

The owners’ long-term borrowings were principally for refinancing, altho they borrowed a little for improvements (Table 45). The tenants’ long-term borrowings were to buy farms or other property. Two tenants purchased farms in 1941, and one in 1942.

In 1940 and 1941 the short-term borrowings of owners were for four principal purposes: operating expenses, and the purchase of farm equipment, dairy cattle, automobiles and trucks; in 1942 they borrowed for only two of these purposes: operating expenses and purchase of dairy cattle. The short-term borrowings of tenants were for the same purposes except that they did not include the purchase of trucks and automobiles, a fact that indicates the tendency of tenants to borrow only for purposes quite directly connected with farm production. In 1942 tenants continued to borrow to buy farm equipment and to refinance. All these purposes are legitimate uses of credit.

Changes in Total Debts

In each year the owner and tenant debts secured by each class of long-term mortgages declined (Tables 46 and 47). The greatest de- clines were in loans held by commercial banks and individuals, the

1945] FINANCIAL Position OF MCHENry County FARMERS 577

TABLE 45.—PURPOSES FOR WHICH EACH YEAR’S BORROWINGS WERE USED

Owners and part owners Tenants Purpose of borrowing 1940 1941 1942 1940 1941 1942 Long-term borrowing

EME Sore ean vote sed wad $5 773 $9535 $4 400 $3 000 $25 700 $12 635

Percent of total

Marchese Of land sec. leven oe oe 0 0 0 0 100 80.2 RIENCE oi 5a. arin oid awn 8 Hee 17.6 26.6 4.5 0 0 0 Refinancing. ........ Mare anigeete beg 82.4 73.4 95.5 100 0 0 NOnfSTM Property... <6. cece ees 0 0 0 0 0 19.8 Short-term borrowing

PRMIMMMRE at Soe Sarge alo Siive-re'al’s Sue We w.8) erg seve $15 167 $29 950 $18 928 $28 086 $53 076 $36 338

Percent of total

Purchase of — BRC RARUE c.. e sg Fasc e ie ale¥ es 13.8 24.0 47.2 25.1 36.3 36.8 Other livestock. < ogc. dens sas 0 0 0 | mY 1.2 MMII CS ara a a's dei n Brase ate is if 0 0 3-3 ok 0 Farm equipment.............. 13.9 S5o1 4.8 30.2 21:7 oh Ee § Automobile and truck. ........ 29.0 16.4 1.6 4.7 10.1 4.4 Current operating expenses....... 30.5 20.3 34.4 28.3 15.8 14.4 POM UNE MODUS E Oy. vce aca se so Fe 2.0 35 4.5 3.0 6.2 3.6 PICONET fo oof ae inefevereeidicra Wee 3.2 0 0 2.0 0 0 Interest in arrears...... Bcnene gtAv lane 379 E. | 0 1.4 is oe PCMHCIPO! Wi ALTOATS 655.60. dks ss 2.3 4 0 is] 0 0 BACAR ON F htia,s oivieten ty coe tacks sae 4 0 0 1 0 Loan reamortization............. 0 1.8 2.8 0 0 0 MRPGTOE OMNI £5 sted 5 sue ow ivory oh 0 0 4.7 0 8.1 17.7

least in loans held by insurance companies. The Federal Land Bank and the Land Bank Commissioner occupied an intermediate position in this respect.

The changes in the short-term debts of owners were more varied. Loans by commercial banks to owners declined, particularly in 1942. Loans by the FSA declined in 1940 and 1941, but increased again in 1942. Loans by the PCA increased in 1940 and 1941, but declined in 1942. Loans by individuals were reduced in 1941, but increased in 1940 and 1942,

The owners reduced the net amount of their debts each year— 2.3 percent in 1940, 6.8 percent in 1941, and 15.4 percent in 1942.

Among tenants, debts increased 12.1 percent in 1940; this rise repre- sents an increase in loans from each source except from finance com- panies and merchants. In 1941 the loans’from commercial banks, from the FSA, and from individuals were reduced. In 1942, while the ten- ants were substantially reducing their short-term debts they were at the same time increasing their long-term debts by practically the same amounts. During this year they reduced all their short-term debts except those to cattle and implement dealers.

It is probable that for the rest of the war period the new credits in this area will be used increasingly for purchases of land by tenants who have accumulated enough cash to make a down payment and for purchases of new equipment when it again becomes available.

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FINANCIAL PosiITION OF MCHENRyY County FARMERS

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1945]

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580 Buttetin No, 512 [June,

The ending of the war will have two effects: first, young men will come from the army and industry and take over the operation of many of the farms now operated by older men; second, farm equipment will again become freely available. The result will be an increase in short- term debts created to finance working capital. At the same time, and until a serious break in prices occurs, purchases of land will continue. It is likely that the present owners will continue to liquidate their debts. This will be a period when beginning farmers should be cautious about their borrowings. It will probably pay to wait until price read- justments reduce the costs of starting to farm.

FACTORS INFLUENCING FARM EARNINGS

Records obtained from 113 dairy farms in 1942 were analyzed by using rate earned on investment and labor and management wage as measures of profit and relating them to:

1. Size of farm as measured by productive man work units, 590 being used as the dividing line between large and small farms.

2. Milk production per cow in terms of 3.5-percent milk, 7,500 pounds a year being used as the line between high and low production.

3. Degree of specialization as measured by percentage of gross re- ceipts derived from the sale of dairy products, 65 percent being used as the line between the more specialized and the less specialized farms.

When Earnings Are Measured by Rate Earned

Influence of size of farm. The following averages were calcu- lated showing rate earned on invested capital by various groups of

1 farms: Number of — Rate earned Low production per cow, more specialized farms perct. Marge farms ys ccs seers wont See ee AN gs Ace ae eee 6 8.4 + 2.12 SMALE FAVES chew Reyes tse a, eae we) de es A een 16 9. 2 Se Daerenee oc. sss es cure sai cot nia see ee a ee (—).8 + 2.63 High production per cow, more specialized Sree Faring 362 ook 25 ee ee 17 1552: bvSe SMTA EARSB foc os errs esa one hake d oO eae 15 13.3 + 2.04 A PTPORENEG 62.55) 205 ec atta Bese Sa ae a RS Eo 2.2 + 2.44 _ Low production per cow, less specialized Raree faring x5 005 cc ce Sok eee a oes es ee ae tas 9 1322/2 38 DIAM Tate eo erie vg Pais wg ares ieee ae ee 15 11.3 + 2.04 DillerenGe oss 2) i cee er davies ideas Guan AOE Re Le 1.9+ 2.46 High production per cow, less specialized 5 Large faring os cn cec¢ fee oh eed eee el oe ee ee 15 16.52: 91 SMA Tara: <2 i573 cece eo eRe ee Deck cee 10 20.1 + 2.94 Datkerenee 8.554 sg 2 One as Me Oe (—)3.8 + 3.22

*These and the following comparisons were arrived at by cross tabulation.

1945] FINANCIAL Position oF MCHENry County FARMERS 581

Number af _—— Rate earned

All farms farms perct. Mn hs OS eho a Fk is clude SR Siok Gece tet ee 57 14.19+ .78 SEER ea eed OS EY oe Ie EAR Sa ae ea a RI SN 56 12.79 + 1:13

PLESGLORCE Mirren aa Soi) tak Wak OE NTES,. cee ee, Ce 1.40 + 1.37

Altho the earnings of large farms were, on the average, $1.40 higher per hundred dollars of invested capital than those of the small farms, this difference was not significant. Likewise when the large and small farms are subdivided into various groups on the basis of produc- tion and specialization there is seen to have been no significant differ- ences between them in the rate earned. (Whether the differences between the averages are significant or not depends on whether the standard error of the difference between the two averages—the plus- or-minus (+) figure after each average difference—is more than half the actual difference between the averages. )

Influence of milk production per cow. The rates earned on in- vested capital by farms with high production per cow were found to exceed the rates earned by farms with low production per cow by the following differences (the actual values for any group are shown in the preceding tabular statement) :

Difference in Difference in

More specialized farms rate earned Less specialized farms rate earned EE See ey On 4.1%+2.6% SoA gS So scien aeerele sf 8.8% + 3.6% DRY aod ee VAG 7222 5% Barge sod wae es 3.1% + 1.9%

PAL TONG) 35, ocho oasis, « 4.9% +1.3%

Production per cow was thus a significant factor in influencing the rate earned on invested capital. In each of the four subgroups the differences were relatively significant, but they were especially sig- nificant for the small, less specialized farms and the large, highly specialized farms,

Influence of degree of specialization. The earnings of farms less specialized in dairying (farms on which less than 65 percent of the total receipts came from the sale of dairy products) exceeded those highly specialized in dairying by the following amounts:

Difference in Difference in

Low production per cow rate earned High production per cow rate earned Small farms........ 2.1% + 2.6% Smiallsfaring: 3 cgi 6.8% + 3.6% Large farms........ 4.8%+2.5% Large farms........ .8%+1.9%

All faring ic. vars lon fone 2.4% + 1.38%

The two groups where this factor appeared to be more significant were the large farms with low production and the small farms with

582 Butretin No. 512 [June,

high production. The reason this would be true for the first group is fairly obvious. A large farm having low-producing cows needs diver- sity to build up income. But why the income of small farms with high- producing cows would be more influenced by diversity than small farms with low-producing cows is not so clear. Did these farms carry their efforts to get high milk production beyond the point of increasing unit costs?

The three following factors appeared to add the amounts indicated to the sums earned per one hundred dollars of invested capital: above average production per cow, $4.90; less specialization in milk produc- tion, $2.40; above average size, $1.40. Size, however, did not appear to be associated in any significant way with income in any of the sub- groups.

When Earnings Are Measured by Labor and Management Wage

Influence of size of farm. Size of farm had more effect on the labor and management wage derived from the farm as a whole than on rate earned on investment. In periods of good earnings this is usu- ally true. This measure of income averaged $1,436 higher on the farms that were above average in size than on those below average; it aver- aged $1,365 higher on farms with above-average milk production per cow, and it averaged $532 higher on farms that were less specialized in dairying than on those that were more specialized.

The differences in labor and management wage (farm basis) for large over small farms were as follows:

Difference in labor Number of — and management Low production per cow, more specialized farms bit MAP Oe LAlON oy ee oe ce, eet ed a ae ees 6 $1 782 + 724 SIA SALI grid ccs meee i OE Aa CR a ita 16 1 687 + 326 BU CTO COs 95, tation 4 stent siecle oo ek oa rote ea $ 95 + 794 High production per cow, more specialized ES Ee Parte oe Gs tr oot ees st sae Eee 17 $4.519 + 570 > ea AL FARTS 50450) s6s one Sena me Late ie te en os 15 2 477 + 403 Ditlerence sto c eras case a he Cade oe eee eres OR $2 042 + 698 Low production per cow, less specialized Large (args ce 80k 2 oe ek ee ea ee 19 $3 512 + 468 DIMA Tarme oe eae tonics ca ke saciaha eee 15 1 992 + 314 DM CCRDOE Si Sethe Rog oa eae OE aac oa Me een $1 520 + 564 High production per cow, less specialized Pearge fais ye So dare ere eo roots Bes 15 $4 151 + 414 SULT LSE Eg 57° Pe aR OR rts RO See TREE ee 10 3 827 + 664 ID CRERCE i855 iso va de eh a ak ooo Ae $ 324 + 783 All farms Tee sis ave hep seg oe earn nee 57 $3 798 + 281 DMUBNN SS Fain Pacers Sor oR Moca ek su aehavitsaeeis Ghee 56 2 362 + 222

Pikeence hs nck ate lnae e e $1 436 + 358

1945) FINANCIAL Position oF MCHENry County FARMERS 583

Size was apparently a significant factor in increasing labor in- come only on the less specialized farms with low production per cow and on the highly specialized farms with high production per cow. On the highly specialized farms with low production per cow, size made no significant difference in labor earnings; nor did it make any dif- ference on the less specialized farms with high production per cow.

Influence of milk production per cow. The differences in the operator’s labor and management wage on farms with high production per cow over those with low production were as follows:

Difference in Difference in labor labor and management and management More specialized farms ‘send Less specialized farms wee. BR ote ceux: psig aoa $ 790 + $519 °C BaP ea $1 835 + $735 WR eye ai ie howe ee O21 ROUGE. iS iiedsrnagss 639 + 624

Allsfarmes. on cence oe: $1 365 + $360

High production per cow resulted in larger increases in labor earn- ings on the large, highly specialized dairy farms than on the small, highly specialized farms, and on the small, less specialized farms than on the large, less specialized farms.

Influence of degree of specialization. The operator’s labor and management wage on farms having a low degree of specialization ex- ceeded that on farms with a high degree of specialization by the fol- lowing amounts: |

Difference in Difference in labor labor and management and management Low production per cow ted High production per cow gis Small farms........ $ 305 + $453 Small farms......... $1 350 + $777 Large farms........ 1730+ 862 Large farms........ — 368 + 704 WAN tare ns oh eS eas $552 + $382

The large farms with low production per cow and the small farms with high production per cow showed the greatest increases as a result of low specialization.

Small farms with low production per cow and high specialization had the lowest labor earnings. Large farms with high production per cow and with high specialization in milk sales had the highest labor earnings. Earnings of groups between these extremes were intermediate.

It will be noted that a difference of one favorable factor did not cause a significant difference in labor income. Likewise, when two factors were favorable, the addition of the third factor did not cause a significant change in earnings.

584 ; Butietin No. 512 [June,

TABLE 48.—COMPARATIVE SOURCES OF INCOME ON 54 HIGHLY SPECIALIZED Darry FARMS AND 59 LEss SPECIALIZED DAIRY FARMS, 1942

: Highly specialized Less specialized

Source of income dairy farms (54) dairy farms (59) Cash receipts from sales perct. berct Dairy nroductss,<.c. -vcens sad eee sranectarcve $4 753 74.7 $3 763 51.5 Wait y Cattle ey cis wets el aha Seals hat eros 681 10.7 990 13.6 Beek SAL OS 5 icc.a) cia wiaid o oy siel gist wise Sac we’s ois 0 0 14 2 TA ORG os os ccste Nao is see ie ARUN ORE DNs ales Me prs wis 251 3.9 1 037 14.2 See soe occa Siac ekce Clas. as woes suse te 5) (#) 29 4 POUMNEY hoes. icone sh Ones whee te oeN 45 wt 82 133 OG ses rice e Oe Deals a eS ooges 133 2.1 268 cow | Meed and graith nso: ive wyereleiz.s valsig ste acg eins 169 Zat 485 6.6 PAA OCH DEB Sis ws S cic te ele cals os ciate e sini ota niles 200 Sut 254 3:5 Pabor Off farm sce 63 ioc cod homed esis walsi eae at 35 $5 CONOE oo eh oes sg ive stave alain ies ele hia cceeags toys 125 2.0 347 4.7

TOtal se os sices os FeT ese cob See sau eee sae $6 365 100 $7 304 100

sLess than .05 percent.

The less specialized dairy farms showed considerably lower re- ceipts from the sale of dairy products and considerably higher receipts from the sale of hogs, feed and grain, dairy cattle, and miscellaneous sources of income than did the more specialized dairy farms (Table 48). The less specialized farms had $939 larger total receipts—$990 less from the sale of dairy products but $1,929 more from other sources.

METHODS OF SELECTING SAMPLE AND COLLECTING DATA

The farms and operators included in this study were selected in as unbiased and representative manner as was felt to be practical. Every tenth name was selected from the listing sheets of the farms in the county prepared by the Agricultural Adjustment Agency. The town- ships were selected in alphabetical order. In the first township the names of the operators opposite all numbers ending in one (1, 11, 21, etc.) were taken; in the second township, all names of operators oppo- site numbers ending in two (2, 12, 22, etc.) were taken, and so on.

In 1940 owing to bad weather and lack of time, records in four townships in the western part of the county were incomplete, no records in one township, and records in only parts of the others being obtained. In 1941, however, it was possible to cover the entire county and to get in touch with all the farmers who had cooperated in 1940. The 1941 survey, therefore, provided the most complete coverage of the county.

In 1942 each cooperator of the previous year was contacted. Changes in locations of operators and refusal of some cooperators, particularly

1945] FINANCIAL Position oF MCHENryY County FARMERS 585

those who had small debts, to again cooperate reduced the number in- cluded in the study and made the data somewhat less representative than those for the previous year.

The enumerator filled out a survey form with information which the farmer supplied on the basis of estimates or of records. When an operator’s record concerning receipts from the sale of milk was incomplete, the enumerator obtained information from the dealer who bought the milk. When an operator’s record of his debts was incom- plete, some information was obtained from the lenders.

Four circumstances connected with the selection of farms may have affected the representativeness of this study: (1) Very small farms located close to the several cities and villages in the county were omitted because the operators of these farms were reluctant to cooperate. (2) All farms on the selected list which were operated by hired man- agers and absentee owners were omitted. (3) Because of inclement weather in 1940-41, the west half of Chenung, Dunham, and Marengo townships, as well as all of Riley township (these four constituting the western tier of townships in the county), was not surveyed. (4) The fact that some cooperators moved during the period covered and some refused to give information for the second or third year may have detracted from the representative character of the sample. Nevertheless it is believed that the data presented here represent a typical group of farms and farmers.

Comparisons with U. S. Census data. In order to ascertain how representative the sample was of all farms in McHenry county, some of the data collected in this study were compared with 1940 US. Census data (Table 49). Except for the part-owner group, the percent of farms in each tenure group did not vary greatly in the sample from that shown by the Census.

TABLE 49.—COMPARISON OF ITEMS AS REPORTED IN 1940 U. S. CENSUS OF AGRICULTURE* AND IN THIs Stupy: McHenry County, ILLtiNors, 1940

Owners Part owners Tenants All farms

Item This This This This Census study Census. study Census study Census. study

Percent of operators in

tenure class........... 40.7 KY i | 6.3 12.0 49.3 50.8 Verve wari Acres: pet fart. <0 <<isieceis+ 105.1 138.0 190.9 201.0 150.2 161.0 138.0 158.0 Value of land and buildings

TOE BOTS: aviv eas $i 2412 $2120 Value of machinery and im-

plements per farm...... $1 060 $1 817 $1 736 $2 361 $1 251 $1 764 $1180 $1 856

aSixteenth U. S. Census, 1940.

586 Butietin No. 512 [June,

The average acreage per farm in the sample was somewhat larger than the average in the Census, particularly for owner-operated farms. This larger size is partially explained by the omission from the sample of various small farms around urban centers—farms which were enu- merated in the Census.

While the value of land and buildings per acre for owner farms did not differ greatly between the two groups, the value of machinery and equipment averaged significantly higher in the surveyed sample than in the Census farms. This higher average value of machinery and equipment reflects the larger size of the farm and may possibly also indicate a more accurate reporting of this item.

The percentages of tenants classified by kind of lease did not differ greatly between the Census enumeration and this study. The com-

parative figures were: Census, This study,

perct. perct. Cashlease: only... etait eee he ie tes 63.7 60.3 Cash and ehare lease. «0.6 6022s ncn nes 2.6 Sez Share ‘lease only2.in 2c es seen 28.2 36.5 Total land*under‘lease:.. 5 .5.500.6 os 57.4 59.5

GENERAL SUMMARY

The financial positions and operations of a group of representative farmers in McHenry county, Illinois, was studied in 1940-1942 in- clusive by the survey method. These farms are typical of dairy farms in northern Illinois.

Farms operated by part-time operators and by absentee owners with hired managers were omitted from the study. One hundred twenty-two farmers were included in 1940, 146 in 1941, and 118 in 1942. Seventy- two farmers had kept continuous records on the same farm for all three years. The findings of this study were briefly as follows:

Capital position of operators. At the beginning of 1941 the aver- age assets of operators who owned their farms were $24,670. The assets of part owners were $24,635; of cash and crop-share tenants, $7,780; of livestock-share tenants owning half their cows, $5,093; of livestock-share tenants owning less than half their cows, $5,137.

During the same year owners and part owners owned land and im-

provements worth $15,961 and had current farm assets of $6,727. The

three largest items of working capital were: dairy cattle, $2,251; ma- chinery and equipment, $1,943; and feed and feed and grain, $1,656. The tenants had average working capital of $5,548, largely invested in the three items just mentioned.

1945) FINANCIAL Position oF MCHENRY County FARMERS 587

While about four-fifths of the operators of the farms included in this study were using some borrowed funds during 1940-1942 in con- nection with their farm businesses, the entire group of operators owned a high proportion of their capital outright. On December 31, 1941, livestock-share tenants owning less than half the cows had equities of 93 percent in their farm businesses; cash tenants had equities of 79 percent; full owners, 78 percent; livestock-share tenants owning cows on a 50-50 basis with landlords, 75 percent; part owners, 68 percent.

Financial progress. The period from 1940 to 1942 was one of capital accumulation. In each year the farmers in each tenure class added to the farming assets invested in their businesses. Increases in assets on owner- ‘and tenant-operated farms were about equal, on the average. The tenants expanded their debts in 1940 and 1941 and re- duced them only moderately in 1942, while the owners were reducing their debts thruout the period.

Owners’ increases in net worth, including apparent changes in cash, were larger than tenants’ increases, but on a percentage basis the. tenants increased their net worth much more rapidly. At the prevailing rate of return on capital, it obviously paid these tenants in this period to expand their assets by further borrowing.

In the combined owner and part-owner group, the more heavily indebted farmers tended to operate the larger businesses. The reverse was true among the tenants. The more heavily indebted owners made more rapid financial progress, both in accumulating assets and in pay- ing debts than did the less heavily indebted group. This rapid financial progress by the more heavily indebted owners partly reflects their larger volume of business. The relationship was not so clear-cut for the tenants, but those with debt ratios of 40 percent and over increased their net worth by an average of one-third to one-half in each of the three years.

The larger the farm business, the greater the financial progress made in this period.

Three-year continuous records. When the records kept by 72 farmers for three consecutive years on the same farms were studied, the same general tendencies were found in the capital position of operators and in cash income and expense patterns as were indicated by the complete samples. The principal change in the physical size of the business of these farms between 1940 and 1942 was an increase of 20 acres in the farms operated by part owners and of 9 acres in those operated by cash tenants, and a general increase in the number of dairy cows on all classes of farms. No general increase occurred in the num-

588 Butvetin No. 512 [June,

ber of hogs or poultry, the expansion being in milk, the principal prod- uct of the area, even tho the price of milk had not increased as much as the price of hogs. Most of the increase in the value of assets re- sulted from higher valuations of livestock and of feed and grain.

Cash income and expense patterns. Two-thirds to three-fourths of the income on the farms studied came from the sale of milk and live- stock, chiefly dairy cattle. Crop sales were not important.

Net new borrowings during the year (borrowings less repayments on new loans) indicate the extent to which these operators depended on current borrowings for working capital. Expressed as a percentage of current receipts, net new borrowings during each of these three years averaged for owners 3.7 to 6.9 percent; for part owners, 2.4 to 8.4 percent; for cash tenants, 9.4 to 17.1 percent; for livestock-share tenants, 7.1 to 13.7 percent. Such borrowing declined in importance during the period.

The most important expenses were those for current farm opera- tions and for family living. The purchase of capital items other than livestock made up from one-sixth to one-third of the total expense in the various tenure groups. Livestock purchases varied from 3 percent to 16 percent of total expenses in the different groups. Payment of interest represented from 5 to 7 percent of the expenses of owners and part owners but from less than 1 percent to 3 percent of the expenses of tenants.

There appeared to be an increase in the cash resources of these operators over the period; in 1940, a rather small increase; in 1942, an increase of considerable magnitude, particularly among the owners and part owners.

The income and expenditure patterns were not greatly affected by the ratio of debt to property.

Possibilities of buying farms from earnings. The amount of accumulated cash that could have been used for farm expansion (pur- chase of land and improvements) increased more than proportionally for both owners and tenants as the size of the farm increased. Con- tinued over a series of years, the net earnings of the average operator of a large farm during this three-year period would enable him to pay | for a farm the size he was operating much more quickly than the earn- ings of the operator of a small farm would enable him to pay for one the size he was operating.

Some characteristics of these farms and their operators. The ten- ants operated larger farms than the owners and operated them with somewhat less labor. They obtained lower production per cow and lower

1945] FINANCIAL Position oF MCHENRY County FARMERS 589

crop yields, maintained more heavily stocked farms, bought a larger percentage of their cows, and were on the average five years younger than the owners. Share tenants operated larger and more heavily stocked farms than cash tenants.

On owner farms the percentage of crop acres in soil-depleting crops showed no relation to debt ratio. The high-debt tenants had smaller herds and in general lower-producing cows than the low-debt tenants. They also bought a larger percentage of their cows, thus keeping more of their limited capital in income-producing assets. Among tenants, the younger operators, on the average, had the higher debt ratios.

The owners of small farms operated farms more heavily stocked, purchased more of their cows, and in two out of three years had lower production per cow than the owners of large farms. The larger tenant farms had higher production per cow than the smaller farms, and in 1941 and 1942 were more heavily stocked. The ages of the tenants were not correlated with the size of their farms, but among owners the smaller farms were operated by the older men.

Milk production. On the 72 farms for ‘which records were avail- able for all three years the average production of milk increased about 10.7 percent in 1941 over 1940, and about 1.9 percent in 1942 over 1941. In general, the larger and more heavily indebted farms increased production by larger amounts in response to wartime demands than did the smaller and more lightly indebted farms.

Farm earnings. These farms were profitable in 1942. Those operated by owners and part owners showed earnings of 13.6 percent on total capital; the tenant-operated farms showed 13.8 percent. Labor and management wages averaged about $3,000 per farm. The highest earnings were in the group in which the landlord furnished more than half the cows; in this group the rate earned was 19.1 percent and the farm labor and management wage was $5,473. This was an outstanding group of farms, to which the landlords apparently gave close super- vision. The operator’s labor and management wage on these farms averaged $3,264. .

On the tenant-operated farms the rate earned on ae tenant’s capital averaged 33.4 percent; his labor and management wage averaged $2,602. The rate earned on the landlord’s capital was 11.4 percent on share- rented farms, 3.5 percent on cash-rented farms, and 4 percent on part- owner farms. These percentages illustrate the tendency of returns to - landlords who rent for cash to lag when prices rise.

Kinds of credit and how used. The amount of long-term debts owed by these farmers was about three times as large as the amount

590 Butietin No. 512 [June,

of short-term debts. Short-term debts were secured chiefly by personal notes and chattel mortgages. The principal long-term creditors were the Federal Land Bank, the Land Bank Commissioner, insurance com- panies, and individuals. The principal short-term creditors were com- mercial banks, individuals, the Production Credit Association, and the Farm Security administration. During the period of the study, indi- viduals became less important as sources of short-term loans.

New long-term borrowings of owners were chiefly for refinancing; those of tenants were chiefly for buying land. Short-term borrowings of owners were for current operations, farm equipment, dairy cattle, and automobiles and trucks; those of tenants were for the first three purposes—current operations and the purchase of farm equipment and dairy cattle.

Owners were reducing their debts i in this period, and tenants were increasing theirs until 1942, when they also reduced their short-term debts. However, borrowing to, buy land offset reduction in short-term debts and kept the total debts of tenants about static. It is likely that for the duration of the war new credits in this area will be used increas- ingly for the purchase of land and for machinery and equipment when these items become available in larger quantities.

FINDINGS IN BRIEF

Credit was widely used in 1940-1942 by this group of McHenry county farmers, and apparently it was readily available.

All tenure groups—owners, part owners, and tenants—were increas- ing their assets during this period; and owners were cutting down their debts. By 1942 tenants also were tending to reduce their debts, and all groups were adding to their holdings of cash.

The owners of the larger farms were somewhat more heavily in debt during this period, but they were making more rapid financial progress than the owners of the smaller farms.

The more heavily indebted tenants operated smaller businesses than the less heavily indebted tenants, but they were younger men and made considerable financial progress.

In this period of rising incomes it paid these farmers to operate on the largest possible scale and to borrow, if necessary, to get the needed capital. Expansion in the farm business was largely accomplished by milking more cows and increasing the production per cow.

By 1941 a few tenants were beginning to put cash earnings into the purchase of land.

c LIST OF TABLES TABLE PAGE 1 Classes of debts owed by 146 farmers on December 31, 1941............ 526 2 Capital position of operators by tenure, 1940, 1941, 1942................ 527 3 Detailed statement of capital position, December 31, 1941............... 528 4 Changes in capital position of owners, 1940; 1941 1942 0055 0:6) ale aa eels 530 RO TOM. LOBONES os 5 cia ss vale sven a wclgt ag cbse ede bs need ia OEe 531 6 Capital position of owners with different debt ratios, December 31, 1941. .532 PE FOR ACHONES 5 555s Soils ace 3 sibel So ae oS S ee AS Vila Veep eee 533 8 Changes in assets and liabilities of owners with different debt ratios, ML UM So nn vcd paclkiin wh bok WaM eas bead aid eae NEA EN OE eT. 535 ETE ONS CTUINE os oii w 5 So ied 0 a'sis'g tv Oaled bp habinn oka aes ste webs nee 536 10 Capital position of owners with businesses ‘of different size, Decem- ber 31; 1941.....: A OR ay he ey Wet eet ony en ey ER en arate a er a ts 537 A NNN AOE, CUMRNIS a. 5 in.8-'s) vida ale FUP eink Fe aE D RW To aye w baa Coden ee 539 12 Changes i in assets and liabilities of owners with businesses of different “ART TR 1” CR ee eve Mane We Med Won nikon Dc 540 RN ME AO TOMGNES GS 'o%s. vive dia Ps oriral Da 6 oad Gals eb sik eae EE AOR eR PaaS eee 540 14 Balance sheets and debt ratios of ‘identical owners, December 31, : DprA OAL, and 1942 8 fo, i ech Oo osc cA eccs SEW eT AER REE 542 15 Same for identical tenants........ Sc bsbed ceded SRERGTE ER TR ea wea 543 16 Changes in animal units on identical farms, 1940, 1941, 1942............. 546 17 Income, expense, borrowings, and debt repayments of owners, 1940, RE KE ore oe ook Ske ha ie ORS HL Skies EOE Ae DP RCs ae Ce wee 548 EA AUN TOF COMUNES osc vx os ke oa REN aa OG EY phe LE a BY ~ DAME FOV MUCHOCR-SHOVE: TENGHIE 6.5. Colne baad cna cota tb eho beet ek Gat 550 20 Income, expenses, borrowings, and debt repayments of owners with Utrerentr geht FawOos. 2 (O42. oe. ais cts cheers wus eles sion eos Mele wisi taoes See 554 AE = SUES FOR CHMOD Eo Soo ues yo sare el EWA RARER WOR PA ORE Rete RS ad 554 22 Cash income and expenses of owners with different debt ratios, LPO SOMA Oh ers nevi ea ake die ee rete sin tie ht abe Ore KER ie aaa ae 555 BS — ee T OT SEMBLE ac 6 ons Cate FG cde EE TROON Ek DRIER ba en 555 24 Same for owners operating businesses of different Size....... cece eee eee 556 So SOME TOP LER ooo 8 50 0d clase og 2558 LES Caren OY vag ELAINE wee Te eaTS 556 26 Income, expenses, borrowings, and debt repayments of identical BRUNER, AO TOE NGA cs ox tie doles onde eeui pee on ae eee hee pao aoe 557 TE SAE FOR TIE as GA nk ia Saeko CH MAIER OAR COTS KO AES ARO 557 28 Expenditures by owners for various purposes, 1940, 1941, 1942.......... 558 SF AVE FOF. LEONE R Cr 6 5 6 yao ov pene ad wand Seale 311 od a AG ARRAS ROAD OS 558 30 Equity of owners in total farm investment and in land and improve- ments, increase in net worth, and cash available for savings or ex- RUE OSE POM: PORE Cte, oy ccle 2 San dts, hos o-4j8> ph eg ene Ne haw eT 560 Ge SRNR SOM RONTME SG. 20 oS oad glere CRG s 6 aan FEDS 8 4A SAO EO OT Weg LEANER 561 32 Characteristics of owner-operated farms and their operators, 1940, PRR 5 LOA. Sones Gatch te tick acca he MAAS TSO RCSN SET eR ams RENN ee 562 BS GME FOr TENG OP ELUNE. FORE SE ssiscc Soy 0a5 oi ev es We gan vcisielé Hams ein’ 563

592 Buiter No. 512

LIST OF TABLES (concluded)

TABLE PAGE

34 Selected items concerning owner farms classified by debt ratios, 1940; 1941, 1942. over cae ccuecicsew sep y ces oles ta ud sad slh an ep o— ne

35. Same for tenant farms. 0. o.oo cl dan cele dds g 04800004 4) pes Peete ae

36 Selected items concerning owner farms grouped by's size of business,

1940, 1941, 1942. 0.5 cc vicecces cevce ss 0b 0 divin ntsc eueae Pons yoy Saeed ern 37. Same. for tenant fOrm68... 5 60s ce Sic ec vias yin o's Vow veb'de wadee tes eee 38 Milk produced per farm on 72 farms, 1940, 1941, 1942...............008-

39 Selected items concerning total 1942 business of 118 farms grouped

by tentire Of operators. 0... iscisc si cae dis oss edt cece cle gid cate ditty es aeeer a nne— 40 Same for same farms grouped by tenure and debt ratio................ 41 Same for same farms grouped by tenure and size of business...........

42 Percentage each class of debt was of total debts, all cooperating farmers, December 31, 1940; 1941, 1942 sic. 500. eS oes get daca eee

43 Percentage of long-term and short-term debts owed by owners to various lending agencies, December 31, 1940, 1941, 194823035 ae ce

44 Same for tenants... ...6cc. caw cacacnd 6 b.8aa/erne oah ope hen erent ae 45 Purposes for which each year’s borrowings were used..............0005

46 Actual and percentage changes in bigs debts of owners at beginning GF 1940, 1941, 1942. 00. ee cicndeccsde Pavia ves 0b. 6h nu sees Beet Re cneeena

47. Same for tenants 506 osi0< ness hg a tls ah yeedeas gels steele

48 Comparative sources of income on 54 highly specialized dairy farms and 59 less specialized dairy farms, 1942.. setae eeeceesencece seis Meme

49 Comparison of items reported in 1940 U. S. Census of Agriculture and iM GHIS Study ac Se hap ooh oa Be te coe eben LEY ee + aes

3050—6-45—29676

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