Donald C. Horton

English

Research Papers in Economics

This PDF is a selection from an out-of-print volume from the National
Bureau of Economic Research
Volume Title: Patterns of Farm Financial Structure: A Cross-Section View
of Economic and Physical Determinants
Volume Author/Editor: Donald C. Horton
Volume Publisher: UMI
Volume ISBN: 0-870-14150-3
Volume URL: http://www.nber.org/books/hort57-1
Publication Date: 1957
Chapter Title: APPENDIX A SOURCES OF DATA AND METHODS
OF ESTIMATING INDICATORS OF THE ECONOMIC AND FINANCIAL
CHARACTERISTICS OF AGRICULTURE
Chapter Author: Donald C. Horton
Chapter URL: http://www.nber.org/chapters/c2710
Chapter pages in book: (p. 170 - 176)APPENDIX A
SOURCES OF DATA AND METHODS OF ESTIMATING
INDICATORS OF THE ECONOMIC AND FINANCIAL
CHARACTERISTICS OF AGRICULTURE
Tms appendix reviews briefly the sources from which the basic
data were drawn and indicates, in as detailed a manner as space
allows, the procedures that were followed in adapting them for
use in the study. In most instances these adaptations were ex-
tensive. For this reason it would be well for the reader to regard
the results as merely estimates descriptive of the characteristics
of agriculture, and to bear in mind that they should be employed
in other connections only with a full appreciation of their Un-
avoid able shortcomings.
Indicators of Asset and Product Characteristics
TOTAL PHYSICAL ASSETS
For each county the reported value of land, buildings, live-
stock, and implements and machinery was taken directly from
the 1940 Census of Agriculture; to this were added estimates of
crops, feed, fertilizer, and other miscellaneous supplies on hand
at the beginning of the year. Estimates for the latter items were
derived from a number of sources, principally agricultural experi-
ment station bulletins reporting local studies based on farm
records. Since the data are for the beginning of the year, the
actual value of growing crops was excluded except in areas where
such crops were likely to be maturing at that time. No compre-
hensive body of data on which to base these estimates of the
value of growing crops was available; we therefore made allow-
ance for them by increasing moderately the percentage of total
assets represented by non-real-estate assets in those counties
where this item was thought to be significant. In general, the
amount of non-real-estate assets other than livetstock and imple-
ments and machinery is so small relative to total assets that even
a fairly large error in estimating crop value would result in only
a moderate error in the estimate of total physical assets.
Household equipment and other personal effects of the farm
family were excluded from total physical assets, although from
many viewpoints they may properly be regarded as assets of the
170APPENDIX A
combined firm—farm home. The omission of these categories for
which data are unavailable causes an understatement of the
total, but this is not serious where, as in this study, measures
based on total asset size of farm are employed only to indicate
intercounty differences.
AVERAGE PHYSICAL ASSETS PER FARM
The average of physical assets per farm for each county is
affected, of course, by the estimates of both total physical assets
and number of farms, the latter being considered identical with
the number of farm operators, exclusive of croppers. The ex-
clusion of croppers helps to make the average farm size of the
southern counties comparable to the averages for other areas,
but it is at best a rough adjustment and the results must be in-
terpreted with this fact in mind. However, since the sample was
chosen to show extremes in kinds of agriculture, the per farm
data serve reasonably well to indicate intercounty differences in
average assets per farm even where they do not accurately
measure the amount of this difference.
COMPOSiTION OF PHYSICAL ASSETS
While the division of real estate value between land and build-
ings is somewhat artificial as a measure of asset composition for
a particular farm, it is usable as a means of comparing all farms
in one county with those in another. For example, the farms in
counties in which census figures show land to equal 75 per cent
of the value of all real estate assets are clearly different from the
farms in counties in which land is shown to be only 50 per cent
of such assets.
In computations of the percentage of total acreage in crop-
land, cropland acreage includes cropland harvested, acreage in
land involving crop failure, and idle or fallow cropland. Plowable
pasture is excluded. The value of farmers' dwellings is taken
directly from the 1930 Census of Agriculture.
PRODUCT OF FARMS
Dataon the distribution of the value of farm product sales
by type of product were taken directly from the 1940 Census of
Agriculture, with sales of crops and livestock combined, since
crops are frequently marketed via sales of livestock. For most
purposes, the relative importance of crops, as compared with
livestock raised on pasture, can be better evaluated by reference
171APPENDIX A
to the percentage of acreage in cropland than by direct compari-
Sons of the respective product sales. Dairy product sales are self-
explanatory. The third category includes sales of poultry and
poultry products as well as a wide range of miscellaneous prod-
ucts. Value of products consumed by the farm. household provides
an indirect clue to the extent to which commercial farming is
practiced; and off-farm work per farm operator is useful as a
measure of the extent to which nonfarm occupations are combined
with the operation of the farm.
The data on product composition are deficient in that they
exclude certain products of the farm firm, such as housing, but
intercounty differences in the importance of this service can be
inferred from the ratio of the value of the farmers' dwellings to
the value of total real estate. LikewIse, the income derived from
off-farm work is, in a sense, income derived from the farm, but
differences in its importance among farms can only be inferred
from the number of days of off-farm work performed yearly per
farm operator. Although these two items cannot be included
directly in the percentage distribution of farm product value,
measures of them can be used to supplement the product data
and thus to give a reasonably complete coverage of farm product
throw-off.
of FinancialCharacteristics
Dataon the financial characteristics of farms are less plentiful
than data on the asset and product characteristics reviewed
above, and those available are deficient in many respects. The
basic objective is to indicate differences among counties in the
capital structure of agriculture, but since most farms are organized
on an individual proprietorship basis, a description of capital
structure comparable to that available for corporate business is
not feasible.
OPERATOR INTEREST IN TOTAL
PHYSICAL ASSETS
The dollar value of this interest includes the interest of both
owner operators and tenants; in order to measure the extent to
which agriculture draws its capital from active farmers, it also
includes the equity interest that farm operators may have in farms
other than those they operate. However, operator interest ex-
cludes whatever creditor interest operators may have in other
farms, since we had no way of estimating this amount.
172APPENDIX A
Separate estimates have been made of the interests of operators
in real estate assets and non-real-estate assets. Census data pro-
vide a basis for estimating the interest of operators in farm real
estate, and survey data obtained by the Department of Agricul-
ture in a mailed questionnaire make it possible to estimate the
value of the operator's equity interest in farm real estate other
than that of the farm he operates.
Estimates of operator interest in non-real-estate assets were
made as follows: From an estimate of total value of non-real-
estate assets were deducted the reported non-real-estate loans
of banks, Production Credit Associations, the Farm Security Ad-
ministration, and the Emergency Crop and Feed Loan Division of
the Farm Credit Administration, and an additional amount es-
timated to represent obligations to other sources of non-real-estate
credit. In most counties this additional amount was estimated at
about 40 per cent of total non-real-estate debt.
The estimate was then reduced to take account of the probable
landlord interest in non-real-estate assets by shifting to landlords
the entire equity in non-real-estate assets for cropper farms and
a partial equity in the case of farms operated by share tenants.
This procedure is far from precise, but it does take account of
those situations in which the landlord interest in non-real-estate
assets is relatively high. Moreover, it gives a measure which,
when combined with the measure of operator interest in real
estate, produces a reasonably accurate indicator of intercounty
differences in operator interest in total physical assets.
The principal deficiency to be noted in this estimate is the
adjustment that was necessary to take account of the non-real-
estate loans made by individuals and miscellaneous lenders. The
estimate is used, therefore, only in combination with the estimate
of operator interest in real estate assets, which reduces appreci-
ably the possible percentage error. Furthermore, the selection
of extreme counties for the 108-county sample gives reasonable
assurance that the indicated differences among counties with
respect to operator interests in non-real-estate assets are real,
even though the precise extent of the differences may not be
represented reliably.
INTEREST IN PHYSICAL ASSETS
The measure of creditor interest in physical assets is based on
three sources:estimates of total mortgage debt for owner-
operated farms, constructed from the 1940 Census of Agricul-
173APPENDIX A
ture; survey data for tenant- and manager-operated farms ob-
tained from a mailed inquiry sent to farm owners; and the
estimate of total non-real-estate debt used in obtaining a measure
of operator interest in physical assets. As pointed out earlier,
credit interests of farm operators and landlords are included in
the category of creditor interest rather than in that of operator
or landlord interest. Since debt relates to a somewhat larger
universe than assets, the percentage creditor interest is overstated,
but this is not serious insofar as the measures are used only to
indicate intercounty differences.
LANDLORD INTERESTIN PHYSICAL ASSETS
Estimates of landlord interest are residuals, after deduction
from total assets of the estimated interests of farm operators and
creditors. The two major items in this computation are the value
of farm real estate in tenant- and manager-operated farms and
the estimated mortgage debt on these farms; the estimated land-
lord interest in non-real-estate assets is but a small percentage of
the total landlord interest in most counties.
PERCENTAGE OF FARMS UNDER MORTGAGE
County estimates of the total number of mortgaged farms of
full-owner and part-owner operators were made on the basis
of data from the 1940 Census of Agriculture. The number of
mortgaged farms operated by tenants and managers, on the
other hand, was estimated from Department of Agriculture
survey data. For the estimate of the number of mortgaged tenant-
and manager-operated farms, cropper farms were deducted from
tenant-operated farms before the survey data on the percentages
of farms under mortgage were applied. The total number of
farms, excluding cropper farms, was used also as the basis for
the estimate of the percentage of all farms under mortgage. The
resulting percentages are somewhat higher than would be ob-
tained if cropper farms were included, but this fact probably mi-
proves their quality for purposes of comparison among counties.
RATIO OF MORTGAGE DEBT TO THE
VALUE OF MORTGAGED FARMS
Total farm mortgage debt was estimated in the manner de-
scribed above, and the value of mortgaged full-owner and part-
owner farms was derived from 1940 census data. Two bases were
used to approximate the value of mortgaged farms operated by
174APPENDIX A
tenants and managers, namely the 1940 survey data and the
relationship between the average values per farm of mortgaged
and debt-free farms of full-owner operators. The estimate ob-
tained on the latter basis was checked against independent es-
timates based on the 1940 survey data, and where substantial
differences were found the data were further analyzed to produce
a final estimate.
PERCENTAGE OF FARM MORTCAGE DEBT
HELDBY PRINCIPALLENDERGROUPS
Estimated total farm mortgage debt by counties is the starting
point for apportioning farm loans among the several lenders.
Survey data and complete tabulations are available for federal
land banks, the Federal Farm Mortgage Corporation, and com-
mercial banks, County data for the first two are based on the
original amount of loans outstanding in 1940; independent es-
timates were prepared on the basis of survey questionnaire data
for groups of counties falling in major type-of-farming regions.
County estimates based on original loan amount were then ad-
justed downward to bring them into line with the county group
estimates based on unpaid balance data.
There is probably some upward bias in the loan estimates,
since the responses to mailed questionnaires from farm owners
whose mortgages are held by the indicated lenders are usually
relatively high, in contrast to replies of farmers borrowing from
other sources. It seems unlikely, however, that there would be
any appreciable difference in this bias among the several counties.
Estimates of bank holdings of farm mortgage debt are based
on the same types of data as those described above, but the
method of adjustment was different. Farm real estate loans re-
ported by banks located in the respective counties provided the
starting point for these estimates; the second basis was the replies
of farm owners to mailed questionnaires. Where the two bases
disagreed markedly, data for the counties were further analyzed
to produce a compromise estimate. Although the possible error
in individual county estimates was reduced by use of these
independent bases, a substantial element of judgment necessarily
entered into the estimates for a few of the counties.
The estimates for insurance companies, mortgage investment
companies, and the residual group of miscellaneous and indi-
vidual lenders represent a segment of farm mortgage debt not
accounted for by land banks, the Federal Farm Mortgage Cor-
175APPENDIX A
poration, or commercial banks on the basis of survey data ob-
tained from farm owners. Since no independent check on the
survey data could be made for these two major groups, the possi-
bility of error in evaluating their loan percentages for individual
counties is greater than that for the other two lender groups.
However, the importance of insurance and mortgage investment
company loans varies widely among counties, so that substantial
differences in the estimated percentages of total mortgage debt
held by the residual group may well represent nearly equal
real differences.
NON-REAL-ESTATE LOANS OF THE
PRINCIPAL INSTITUTIONAL LENDERS
Data for FCA loans, FSA loans, and Emergency Crop and Feed
loans are directly available for individual counties, but in a num-
ber of the drought-stricken counties the latter two classes of
loans represented in 1940 an accumulation of past-due relief
loans as well as current production loans. It is unlikely that the
stratification of the sample for asset change in the 1930's fully
offsets the distorting influence of these accumulated loans, but
no basis was found on which to declare specific portions of the
loans "dead debt" and to eliminate them from the total, especially
since many of the debts incurred during the 1930's were repaid
during the 1940's.
Data on non-real-estate loans of banks pertain to banks located
in the county. Each county was separately considered from the
viewpoint of the appropriateness of such data as a measure of
current non-real-estate debt. Loan data of this type for counties
in the range livestock area are particularly deficient; accordingly,
after the counties were grouped, weight was given both to the
ratio of loans to non-real-estate assets for the group and to the
individual-county data in the estimates for individual counties.
It is probable, however, that the result for this group of counties
still underestimates the non-real-estate loans of banks in some of
the counties, particularly where such loans are obtained from
larger financial centers located outside the county.
178

Patterns of Farm Financial Structure: A Cross-Section View of Economic and Physical Determinants

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