Production costs # (Continued from Page DI8) measuring them. Such things as expectations for the future, the pride of ownership, and the desire to farm are some possible examples. Social justification The principal social justification tor the dairy price support program is to assure an adequate supply of milk for domestic con sumers. Of course, to effect such an assurance, it is necessary that dairymen receive a price that at least equals the sum of costs relevant in their decision-making process. They need not receive a price that assures some minimum level of profits or return, only one that will maintain the desired flow of milk to market. Establishing a minimum price above that level will result in the production of milk surpluses. The point emerging THIGH NITRATES? Do You Have ® Poor Quality ■ Water Due To 9 Warffri High Nitrate " Levels? » IVe May Have The Technical Solution To Vour Problem = "HYDRO-MAG" • Satisfaction Guaranteed • Testimonials Available ■ -i ..i Call Or Write ■ ■« ■ HIESTAND SUPPLY CO. RDI, Box 96 Marietta. PA 17547 (717) 426-1921 Dealer Inquiries Invited Brand New S& • 400 3d\IIZ3 IRBr <(<<<<<<<<<<<<<«<<<<«<(<<<<<<<<<<<<«<<<<<<<c<<<<<<<«<<i<<<<«<«<«<<«<<«<<«feviv Compact & Powerful* 600 lb. Operating Capacity Featuring Fine-Tuned Engineering Better Serviceability: Tip-up operator cab for easier accessibility to hydrostatic compon ents Improved hose routing for quicker service and longer life freater Safety: eat bar for operator safety, convenience and comfort. Rugged operator cab. Increased Durability: Tail gate with 10-gauge steel door. Heavier, smoother Bob-Tach system. Improved Performance: 6.5 gallon fuel tank with gauge for full day operation. 0 PRICE— CHIRK DEALERS: * o PA Martmsburg, PA BOBCAT...#! Uin ;Sjp FOIIIP BURCHFIELD'S INC. ! 3 Models Up To 3700 Pound Capacity l4OO 814-793-2194 here is that dairy farmers have produced an adequate supply of milk at prices that are below the costs which include a charge for land at the opportunity rate of return on that land. Thus, to assure an adequate supply of milk, it is not necessary to assure a rate of return to land where value is based on current market values. When the purchase of any capital asset is contemplated, the decision is made on the basis of whether an additional return will be generated that is at least equivalent to the additional costs of owning the asset. In the special case of land, which does not depreciate in value in the usual sense of the word, there has been unusual ap preciation in values due to in creased demand for the fixed supply that exists. These increases in values really should be counted 10.9% Annual Percentage Rate SANDBLASTING AND SPRAY PAINTING Aerial , Ladder ’ r f % Equipment - Farm Buildings Feed Mills Commercial- , , Industrial . *■■■ \h WSSHH/t "1 Interior/Exterior HENRY K. FISHER INC. 667 Hartman Station Rd. Lancaster, PA 393-6530 Instrument Panel Voltmeter, Hourmeter 72 ? ch S* no Engine Temperature Gauge ( '® 29 ™ m) <or Getting Fuses Ignition trough ™ Doorways Warm nr Smooth Hydroi and Hydraulic Com Room' Grab Handles *cr Easy Operator Entry Seat Ba for Operator Safety and Comfoi Seat Belt for Operator Safety Parking Brakes Lift Arm Stops Available Auxiliary Bob-Tach fc Attachment O Various Attachment Avatlab) 600 tb Rated Ca| 1 5 Inch Di High for Pushingand Di Carlisle, PA PETERMAN FARM EQUIPMENT 717-249-5338 Chambersburg, PA CLUGSTON IMPLEMENT INC. 717-263-4103 on the returns side ot the ledger as offsets to the costs of land if the opportunity cost concept ot land valuation is employed. Otherwise, an upward ratchet effect is set in motion that assures higher and higher costs and so requires higher and higher prices to cover those costs. For example, it the value of land goes up $lO,OOO during a year, there is an increase in costs of $l,OOO if the appropriate op portunity rale of return is 10 percent. Since costs went up to $l,OOO, then price must go up enough to cover the additional cost. In part, at least, because the price of milk went up, then the value of land also goes up next year. Then cost of production again increases, the price of milk must again be raised to cover the increased cost, the value of land again rises, and so on. What is forgotten, ignored, or simply omitted in the cost analysis is the $lO,OOO in appreciation in the value Operator Comi Adjustable 'ires Standard (5 70x12)36*’ Machine Width Flotation (8 50x12) 44" Machine Width HIGHWAY EQUIPMENT & SUPPLY CO. 717-788-1127 Honey Grove, PA NORMAN 0. CLARK & SON INC. 717-734-3682 ot land. This is a return to the owners ot the land that is as real as the foregone opportunity costs of the land that is usually considered a cost. Keplacement reserves in lieu ot depreciation for depreciable capital assets have been m corported in the USDA-COP estimates since their inception in 19 74. Through 1978 they were referred to as depreciation instead of by their current nomenclature, but the basis for their calculation has been the same throughout the entire USDA-COP series. Keplacement costs for any given year are current list prices for the item of interest divided by years of expected life. Using this approach, instead of the conventional depreciation approach, generally overstates the costs of depreciable capital assets in two respects. One is that "list” prices are in fact usually ceiling prices seldom do dairymen pay full list. The second upward effect on cost estimates is the fact that most dairymen have been in business for some time and they have a collection of depreciable capital assets of varying ages and values, bought at average prices lower than current prices. The USDA-COP studies assume that each dairyman is starting ail over each year with a complete set of new machinery, equipment, and buildings. This is somewhat akin to valuing land at its current rather than its acquisition value. It does not seem likely that a dairy far mer, when contemplating the purchase of a tractor, really considers what it will cost to replace the tractor say 10 or 15 years down the road. What is of Bobcat... Ahead of its time... bhn^h 03 ' to keep you ahead of yarn work! Operating lights Available Pins for Long Lite and Durability Mill Hall. PA DUNKLE & GRIEB 717-726-3115 Drums, PA Palm, PA WENTZ FARM SUPPLIES INC. 215-679-7154 BARTROH FARM SUPPLY Myerstown, PA 717-836-3740 SWOPE & BASHORE INC. Harrisburg. PA 717-933-4138 HIGHWAY EQUIPMENT & SUPPLY CO. 717-564-3031 Lancaster Farming, Saturday, June 18,1983—D19 Replacement reserves in lieu of depreciation Isolated Hydraulic Reservoir Keeps Oil Clean BENDER IMPL INC. 814-443-4611 Slatington. PA SCAT ENTERPRISES INC. 215-767*1711 importance now is whether enough revenue will be generated to cover the present purchase price over the tune the tractor is used. What a farmer paid for a depreciable capital asset is what is cost him or her not what he or she would have to pay for that asset if he or she were to buy it now. Suppose, unlikely though it seems, that prices of depreciable capital assets generally decline over time rather than continue to increase as has been the case for many years. Is it as likely that anyone would then still argue that replacement costs should be used in heu of depreciation? Management Management charges are now computed at seven percent of the total costs associated with the dairy enterprise in the USDA-COP senes. Earlier, they were com puted at seven percent of dairy enterprise product sales. The 1973 Agricultural and Consumer Protection Act, the basic legislation governing the USDA costs studies, specifies that a "return for management com parable to the normal management fees charged by other comparable industries” can be included in costs (.1, page 1). The problem associated with determining the appropriate level of such fees or charges is recognized and remarked upon in the USDA reports. The notion that management is a risk factor hoping for a return on owner operator dairy farms, rather than a cost factor demanding to be paid was developed in an earlier section of this report. Feed is the most important cost item on dairy farms, and feed prices are probably the most variable of all (Turn to Page D2O) 440 - Air-Cooled, Gasoline 443 - Liquid-Cooled, Diesel Somerset, Pa. Tunkhannock, PA Durable Pm Type Hinges for Longer Life Good Radiator Protection park Arrestor Muffler (or Preventing Fires 10 Gauge Steel Door for Good Engine Protection Quarryville, PA GRUMELirS FARM SERV. 717-786-7318 Rising Sun, NW. AG-INDUSTRIAL 301-658-5568
Significant historical Pennsylvania newspapers