UNITED STATES DEPARTMENT OF AGRICULTURE 3ureau of Agricultural Economics - August, 1949 |l" FINANCING FARM MACHINERY AND EQUIPMENT PURCHASES, 19^7 By Richard G. Schmitt, Jr., Agricultural Economist Nearly three-fourths of the dollar volume of new machinery "bought "by farmers in 19^7 were paid for entirely "by cash or trade— in according to an inter- view survey conducted by the Eureau of Agricultural Economics. l/ The remainder of the dollar volume of purchases appears to have "been divided almost equally "between all-credit transactions and transactions involving part-cash (or trade-in) and part-credit. With used machinery, the dollar volume of all-credit transac- tions was relatively higher and all-cash or trade-in transactions lower than in the case of new machinery. In terms of all money spent for machinery, credit was used to a much greater extent in large transactions than in transactions involving small amounts (table l). For all purchases of less than $100, the credit used amounted to less than 10 percent of the cost of the machinery or equipment. This compares with credit amounting to 25 percent or more of the cost for transactions that involved $1,500 and more. These figures confirm the common supposition that more farmers could pay entirely with cash or trade-in for low-priced items than for more expensive machines. However, in most of the coses in which credit was used it covered the entire purchase price (table 2). This was particularly true of the smaller purchases. Regional, type- of-f arming, and tenure differences with regard to the use of credit in purchasing farm machinery and equipment are shown in table 3« Credit in relation to the cost of the machinery, appears to have "been greatest in the South Central regions and least in the New England and East North Central regions.- It was greater for cotton and wheat farms than for other types of farms, although in the case of corn farmers who bought used machinery the ratio of credit to cost was noticeably high. Manager-operated farms used less credit in relation to the cost of the machinery purchased than did farms under other tenure arrangements; tenant- operated farms used the most credit. 1/ The survey, made in late April and early May 19^*8, included about 12,000 farmers in 872 counties * The sample was an area sample designed to obtain data representative of the entire countryand of major geographical divisions. Results included in this report are based upon transactions reported by the interviewed farmers which, when expanded, ^appeared to account for about 80 percent of the larger,- more expensive machines but probably not more than 50 percent of the smaller items bought by farmers during 19^7. The survey did not cover automo- biles, trucks or small tools. ■ - 2 .- Who Supplied the Credit? Commercial "banks appear to have supplied approximately one-half of all credit used "by farmers to "buy farm machinery and equipment during 1947. In case of new machinery, retail dealers granted a total volume of credit second only to commercial banks. For the financing of used machines, individuals sup- plied the second largest volume. In "both instances, the second-place lenders v;ere probably the sellers of ; the machines; they probably extended credit to facilitate the sales. So far as other lenders are concerned, they, like com- mercial banks, provided credit for the financing but usually had no part in selling the machinery. For new machines costing from $500 to $2,500 commercial banks appear to have supplied most of the credit (table 4) . Retail dealers outranked banks in the exceptionally small and large purchases, and were an important source of credit for purchases of all sizes. Individuals also appear to have financed a large proportion of the small- and large-sized purchases of new ma-chines but supplied less of the credit used for medium-sized purchases. The production credit associations furnished a substantial part of the credit for new machines in most of the price brackets. Used machinery was financed in much the same way as new machinery except that individuals (probably the sellers of the machines) were the second largest source of credit. The relative importance of various sources of credit by type of farming is shown in table 5. Credit Arrangements The bulk of the credit used to buy farm machines as revealed by the survey was extended on single-payment notes. The remaining credit was repre- sented by installment notes or contracts and charge accounts or they involved "other arrangements." The term "other arrangements" is used as a catch-all to cover cases in which the farmer obtained credit from several sources under different arrangements as well as cases that were not clearly described. It also includes cases in which money was borrowed, or machines were bought, from persens other than dealers on the basis of verbal promises to pay. Such cases, thoxigh involving open accounts, were not classified as financed by charge ac- counts. The main difference in credit arrangements for purchases of new and of used machines was tha.t installment contracts and charge accounts were relatively greater for the new machinery while"other arrangements" were more important for used machines. These differences are probably due to (l) the greater volume of new machines sold by retail dealers and (2/ the willingness of farm- ers who sold to other farmers to accept verbal promises of payment. The single-payment note was the principal credit a.rrangement for all except small purchases of new machinery* Where charge accounts predominated (table 6). "Other arrangements" were nearly a.s important as single-payment notes for the very few large purchases of used machinery occurring in the sample. The installment contract was of substantial importance for credit purchases of all sizes. A/etfi HOW FARM MACHINERY AND EQUIPMENT PURCHASES WERE FINANCED DURING 1947 MACHINERY AND EQUIPMENT &W MACHINERY AND EQUIPMENT METHOD OF FINANCING (Based on total cost of machines) All cash or trade-in Part cash or trade-in and part credit F^^> All credit SOURCES OF CREDIT (Based on dollar amount of credit) Bank Retail dealer ^> PCA <^^ Individual f^>> Farmers Home Adm. <^^j Finance Company r^> Manufacturer <*| Other CREDIT ARRANGEMENTS (Based on dollar amount of credit Single payment note Installment contract V#|^ Charge account - G> | ON W lO ON rf ^.V^ ON M o O I ON £}0 -4" O -HO {>- •H W I C7N O On CM O CNl t3 O ^■NO, no c*N nc en vo c\ ^ o 1 o 1 r-\ I I i 1 o * •P ■r-l ■p A -d & n CD CD cV, h O PJ fn O -p -p P d C s -d r-\ cri m h (-1 -p 0) 4-> Ph Ph IH N o -^ >l P O O CO un, -d fc - PI co CM to a. -P l on P o ON o .* CJ vn. 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P P CD O 0' P^ P< P. -r> O VA ON p, CM VTM.^- ON I I I I O rH NO rH -sO O CM VA [>- rH H| Tablo 3.- Farm machinery and equipment purchases: Percentage of cost of machinery represented by credit, for all, new, and used machines "by geographical region, type of farn, and tenure of buyer, United States, 1947 Geographical Credit as a percentage of cost of: region All machinery New machinery Used machinery _and_ea.uipment_ , and equipment _ . _nd equipment _ Percent Percent Percent 15 18 Middle Atlantic 24 23 28 East North Central 14 13 17 West North Central 20 17 30 South Atlantic 19 18 22 Erst South Central 28 30 20 West South Central 33 32 36 Mountain 23 22 27 Pacific 21 20 26 Type of farm Dairy 21 20 26 Poultry 18 1/ 17 1/ 20 Livestock 16 16 17 Fruit and truck 18 17 24 Cotton 37 26 36 Tobacco 13 1/ 10 1/ 20 Wheat 25 21 35 Corn 20 18 39 Other 22 18 30 Tenure of "buyer Full owner 16 16 18 Part owner 20 18 27 Manager l/ 6 6 Tenant gj 32 30 35 All buyers _ 21 20 26 1/ Based on less than 100 cases 2/ Excludes croppers. 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SO VO O 3 -H (J h ■ ra O © -P ft o •H S Ci C H 1© ."3 r-J fl P O f* O Cj rj P CJ O BiW 4» O 0) cd h 2 -r* -H 10 ^d ""^ •Ti -P 4^ O M -H CO rH| Pi o O ■£ •H O -rl O h P5 O r-i EHlM l> p( ^ (1) ?) -H fi t< h' ^•H-tiOJwGBdidJO 1 ra C u o rJ «sj -h o +3 I H| FP ^ PL, Pw Ps « o; f - 10 - • K ■*> 1 | 0>| d c-\ CO IN- CM o § C0O4I o 1 1 > CD vr» C^ o •3\ o 1 |o o| O iH «H | O U |\A t3| O 1 |CM C\ "cmj ii ! -P 1 1 Id ,J o\, o 1 loos o NO O- CM LT> CM O o NO CM O^". c<^ 1 o . o I .O .3- t-t iH iH ' 1 |vT\ -J o . *«.P( 1 IrH | "cm] ^ ! : 1 1 1 -P d 1 1 I (M i' CO 0-3" CO c o CM o^ irS o I .O ON O 1 lo^l ^ »r> cn o vr> C^ rH o T~\ rH | O « CD 1 1 -rHl fL, rH | -P 1 1 On f! On CO tv C^CM-3' o »T> ON O NO o 1 1 ON I O NO rH rH o -p u*\ rH CM| o | 1 . ^ -p rH d +* •H XI 1 o 1 on | d .3 o ON C O fc- VTNOO O O rt o VOOO^O, O I o | 4 | o g -3- C*N,rH O c NO r-i rH| o | . N . » . f-> c rH rH 1 -H | O I G tj CO UN PL, £ - rH O 1 1 CM \ u rH r-i 1 1 . ° 1 1 O PL, , o 1 | r— 1 | . -P 1 1 l« CD O \T\C^ON O o rH r-il O 1 1 ON | O -d- r> rH o o- O 1 ON U rH rH . O :P< 1 1 V\ 1 1 1 1 -P . d 1 1 CD o- rNC^cM O r^ l>-00 CM| o | . ^ . ° CN O VT| CM r-i O 1 1 O | !h rH iH | tJ -. cJ c!^ •P 1 o a 1 rH o o I H o ^ iH| o I «5 CD H P © eh rH ■P O EH 1 u 1 rH o cd o d M S-, rH CD o] o d M fs ^ M +J p p O U CD W) P -i^ +3 O fs CD «s d o (0 O O (0^ d O w o o c.^ Pi PI d Xi +> •H ti d d XJ -p CO O O co t-i o o 1 G o fH P) rH C^ ■Q >-. CD m > o Vj r, M o -»J d c> o C ) P rH o 3 I ^ 4J fn Cw B a; <*H CD rH PI d d o o •H •d *a Q) Cw CO d Bl .h rU r^ P d o o CJ •H -^ to Pi CD rO ■a rH rH +-> C) to Pi •H IH rH| O •H -P rH" CO HNC b ^•2; ° CM <\> -3" o I o c-l ■^ cm o en n N pS e o Fh ft . H & ON Th rH fl •H K -rt -P rH Pi O 0) to £3 « 4-5 M u rj O a en ca -s r-( ft o rH o rH d ft o o c ) rH > rH d o Pi r" d o d 8 Pi Q) 4-> £ h -P (0 ft n 4h a) o O rH H-> 03 £ M PI o o «H Ti Ti 49 flJ rH tti 01 O £ C, O •H r" U o i_i Pi O "ti u •rH C> +3 •H n Pi SH a rQ •H xt • H Pi 43 o o o o B h d d -«*, rH O Pi C\fl rH +> © cJ o pi fuj u +» H-> O P. O m o o d H-> O 0J CM CJ ffi PI m0 rH o o o p: .d o o S.8 rH|oj|rn| - 12 Table 8.- Farm machinery and equipment purchases: Percentage distribution of anount of credit used to purchase new and used machinery according to source of credit and credit arrangement. United States, 19i+7 Arrangement Source Single- Installment Charge account All payment note or 1/ Other arrange- <, _note .contract _ ments. _ Percent Percent Percent Percent Percent New machinery and eauroment Bank 38 9 1 HS Retail dealer 4 7 6 1 18 Individual 3 6 9 Production Credit Association 5 2 3 10 Finance company 3 1 k Farmers Home Manufacturer 1 1 Other 2/ k 1 1 6 All soiirces ___! 8 __j 30 6 6 100 Used machinery and eauinment Bank 38 7 7 52 Individual 12 5 1 5 2^ Production Credit Association 6 1 o 7 Farmers Home Administration k 2 6 Finance Company 1 k 5 Retail dealer 1 1 2 Other 2/ 1 3 4 All sourceg 57 23 L 2 17 100 l/ Includes combinations of arrangements , verbal promises, and arrangements not clearly described. 2_/ Includes combinations of sources. o w i m o +» ^ •H ►d ft 43 B *J ft 0) O ^ o CO «H u O p h 0) d (5 (1) o b f-i o CI) ^ ft 43 CO ro o CO 89 o 4 +-> O 43 •H -d ft -P o d QJ ft O P. •H o 9 «) cr a, 01 +-> c >- d QJ ~-t d O on Gd rH >s P. - rH H O o H) d +j +-> Hi d hi) 43 f) d CO r : H ■d >d h 0J o 43 ri o 01 O d pq d p ! Si +3 d O v^ Cvl C^- MD| O O O O CO CN1| 1 O a rlrl H\A O H CO O I 1 *-■ r4 r-{ ^ 1 -d 43 ft 1 1 +j 1 -d 5 vPv CO C°> On vr\ C\! U"i O rH 00 ON CN) O O | 1 s> O col O *H H r-i 1 1 £ r-4 O | JS ^ ft 1 •+3 O d cC CO c^cm -=r| O I 1 1 1 1 •1 1 1 •h ^ P CD 43 O 43 p d r-i d 1 SS ft CD E G 1 zz +3 p • d D P •H C 43 d CO O I iH fH T3 H O 4 H 4| O -d O Cn CNl OnnoI O •H O d CvJ t\J i-i -3" O § CNl fN (TN O | 43 I cJ 1-1 P CJ t-4 r-^ 1 *r« 43 nj CD •d 1 °> | Q) 0) « -d ft U £ ! O CO d CO pi •H 1 ft CO >» +3 & .d O 1 gg d O c;' HcnH C^ CO, O eg O vn aD CM vr\ en CM cH O | ' 1 rj & rH J" C"S O 6 O 1 d « P rH r-l 1 f-. 1 -H O ^ -d 1 PS f*4 O ft CO CO fe J9 1 co P 1 . A 43 w 'd p d 1 U d CO rH V/N CNi NO VOl O CM O H On COI O ! « fH CNl \TN O rH H rH NO O | s O 1 m ft 43 (0 ft O O 43 43 r~i rH d 43 cd a 1 O -H 43 43 O Tj O | $H CD EH EH CO P voo vr\0\ XT^ Q \T\0\ |v ft O C\( U--, C^- On 1 1 1 1 O ■H NO rH NO O CNJ \n, O- rH CM VT\ O ON rH NO rH NO O CM vr\ C- r-t H - CI U. S. Department of Agriculture Washington 25, D. C. OFFICIAL BUSINESS EAE-EFH-8/^9-1700 PERIIIT 110. 1001 Penalty for private use to avoid payment of postage $300 UNIVERSITY OF FLORIDA 1.1 LIU III II 3 1262 08921 5296 iSSr «wwo«t -met. m ; 209 H0RT BLDG. 7-2-48 AFR GAINESVILLE, FLA.