flaw» 20/

' Some Economic Eflects
' of Droutla

' on Ranch Remurces

Q

Mme/z 1955

TEXAS AGRICULTURAL EXPERIMENT STATION

R. D. LEWIS. D ||||| 0R. C LLLL GE S TTTT ON, TEXAS

SUMMARY

Most of the 162 ranches on which data were obtained for this study are on the Edwards Plateau within 100 miles
south and west of San Angelo. Data on ranch operations were obtained from the Texas Production Credit Association
and the Farmers Home Administration at San Angelo, and from the Ozona National Bank.

The current drouth over most of West Texas is the worst within the memory of persons now living. A deficiency
of soil moisture has been accumulating for 11 years, or since 1943. At San Angelo, this deficiency amounted to 60
inches of rainfall by the end of 1953.

Since 1943, the number of animal units of livestock on the range in the Edwards Plateau and the Trans-Pecos areas
has decreased about one-half. The range deteriorated to the point that little new forage was being produced and the quality
of the forage, as indicated by changes in plant composition, was only fair in the fall of 1950 and-poor in 1953-54.

Feed purchases on a group of 45 representative ranches in an area where normally little supplemental feeding is
done averaged almost $25 per animal unit (1 cow or 5 sheep or 6 goats) per year during the 3-year period, 1950-53.

This same group of ranches lost 37.5 percent of their net worth during this 3-year period. At the end of the period,
their short-term debts amounted to 103 percent of the value of their livestock. They had reduced their livestock 20
percent, cash 50 percent, city real estate (mostly homes) 10 percent, stocks and bonds 30 percent and total assets were
down 20 percent, while liabilities, including a 10 percent rise in land mortgages, were up 38 percent and life insurance
42 percent.

A group of 92 ranches receiving special livestock loans from the Farmers Home Administration, and presumed
to represent the more extreme financial conditions among ranchmen, owed in short-term debts 206 percent of the value
of their livestock. If this group liquidated all of their assets, including land at listed prices, and paid off all debts,
they could barely buy back their livestock and equipment with the remaining cash.

Twenty-two borrowers out of 60 livestock loan accounts at the Ozona National Bank had res-orted to the special
livestock loan in their efforts to survive the drouth. At this bank, however, only 25 of the 60 were continuous borrowers
during the 3-year period, 1950-53.

Sharp changes in prices of livestock during the period greatly complicated the drouth problems for both ranchmen and
credit agencies. As prices rose, ranchmen were reluctant to reduce stocking rates, probably speculating on a break in the
drouth. This led to heavy use of high-priced feed in anticipation of continued high prices and, of course, expanded
borrowing when the anticipated prices were not realized.

The 45 Production Credit Association borrowers were divided into three groups of 15 each on the basis of the amount
of decrease in net worth during the period 1950-53. Group 1 lost only 15 percent in net worth, whereas group 3,
at the other extreme, lost 73 percent.

The ranches averaged 13,300 acres in group 1, of which the operators owned almost half. The ranches in group
3 decreased from 17,600 acres in 1950 to 16,160 acres in 1953 and only about 10 percent of the land was owned by the
operators.

Judging from the value placed on it, group 1 owned the best land. In 1950, the average value per acre was $23 in
group 1 and $18 in group 3.

Group 1 ranches were stocked lighter but maintained about the same rate of stocking through-out the 3-year period.

Group 3 ranches were carrying about 6 more animal uni-ts per section than group 1 in 1950 and waited until after
prices broke sharply before liquidating surplus stock. In 1953, the stocking rate per section was the same (21 units) in
both groups.

Group 1 fed consistently heavy throughout the period, while group 3 was erratic in feeding, with relatively light feeding
in the first and third years of the period but extremely heavy feeding in 1951-52.

These practices apparently affected production since sales in group 3 fell to 43 percent of 1950-51 sales, despite the
fact that they were liquidating heavily during 1952-53. Sales in group 1 in 1952-53 were 61 percent of 1950-51.

Group 1 apparently had the higher grade livestock. The value per animal unit was $15 higher in 1950 and $12
higher in 1953 than for group 3.

Group 1 had more cattle and goats and fewer sheep than did group 3. Of the total animal units in group 1 ranches,
27 percent were cattle, 64 percent sheep and 6 percent goats. On group 3 ranches, the distribution was 22 percent
cattle, 74 percent sheep and 2 percent goats.

While outside income helped many individuals, it was not a deciding factor for success or failure between the
two groups. Ten of group 1 averaged $4,200 per year, while 5 in group 3 averaged $6,400 per year.

Total life insurance increased 28 percent among group 1 ranchmen and 71 percent among those in group 3 during
the 3 years covered by the study. There seemed to be a direct correlation between the amount of short-term debt and
the amount of insurance.

The principal features of a management program looking to recurring periods of drouth include: (1) moderate
rates of stocking (maintenance of good ground cover conserves moisture and increases yields); (2) deferred grazing
of pastures to insure reseeding of the better grasses; (3), close culling to eliminate non-productive livestock (aim at high
percent calf and lamb crops); (4) conservative use of credit; (5) moderation in standards of living; (6) adequate insurance
for protection of family and to strengthen credit standing; and (7) reserves developed for the rainless days.

The time to prepare for drouth is during periods of normal or above-normal rainfall. To be prepared for drouth,
one must keep in mind each year that drouth conditions may prevail during the years just ahead.

2

Some Economic Effects of Drouth on

Ranch Resources

C. A. BONNEN and J. M. WARD*

Most of the data on which this study is based were obtained from the TQCECLSlPTOdMCblOTL
Credit Association and the Farmers Home Administration at San Angelo, and from the
Ozona National Bank. Dependence on the credit institutions for data was necessary in
order to obtain continuous records over the period of the drouth. Most of the 162 ranches
for which data were obtained lie within a radius of 100 miles of San Angelo, mostly on
the Edwards Plateau to the south and west, and within the heart of the drouth area.

‘j NATURE AND EXTENT OF THE DROUTH
-- The current drouth, which began in the fall

and Winter 0f 1950, is reportedly the Worst within
_ the memory of persons now living. Official
rainfall data support this conclusion (Figure 1).
In comparison, the 1934 drouth was of relatively
short duration. It began in the spring of 1933
and ended in the spring of 1935. The drouth of
1917 and 1918 may have equaled the present one
in duration but not in intensity. The current
I drouth might be considered part of an 11-year
s ‘drouth which was interrupted only by the heavy
~ rains of 1949.

A, Rainfall records for Sonora, Ozona and San
 Angelo reveal subnormal precipitation 8 of the 11
lx-years from 1943 through 1953. The average

l__‘ rainfall for this 11-year period was 15.6 inches

at San Angelo, as compared with 24 inches for
the preceding 11-year period and a 30-year normal

._ of almost 20 inches. Rainfall during the 8 dry

years averaged almost 7 inches below normal.
The accumulated deficit at San Angelo over the
11-year period is the equivalent of 60 inches of

-/ rainfall. These periods of favorable and unfavor-

table moisture conditions are shown in Figure 2
lglby a 5-year moving average of rainfall at San
rlAngelo.

i; Temperatures tend to be abnormally high
during periods of prolonged drouth. The high
inverse correlation between annual rainfall and

f mean annual temperature is shown in Figure 3.

’ High temperatures intensify the effect of low
rainfall through increased rates of evaporation
and transpiration.

The extent of the drouth, areawise, is diffi-
cult to describe with precision. The entire western
half of Texas has been affected severely. Over
much of the area, very little new grass was
produced during the 3-year period. Clipping
studies at the Ranch Experiment Station near
Sonora show 2O pounds per acre of air-dry grass
produced in 1951 and none in 1952 or 1953.

*Respectively, professor and assistant professor, Depart-
ment of Agricultural Economics and Sociology.

During the latter part of this period, ranges
have been relatively bare of palatable grass.
Range feed has been mainly dry tobosa grass,
browse, burned pear and sotol plus some annual
weeds. Year-around feeding has been common
on many ranches.

The rains have been ineffective because of
the bareness of the range and the consequent
excessive runoff. San Angelo had above-normal
rainfall in 1953 but it was highly localized and
poorly distributed. Most of it fell during intense
storms at wide intervals. Because of the local
nature of the rain, temperatures remained abnor-
mally high and, with hot winds, resulted in high
rates of evaporation.

To break the drouth, rainfall must be general
and occur at frequent intervals. To overcome
the effects of this long period of deficient mois-
ture, several years of above-normal rainfall will
be required.

CONTENTS
Page
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. Z

Nature and Extent of the Drouth . . . . . . . . . . . . . . 3

Sources of Data . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 4

Effect of Drouth on-Livestock Numbers . . . . . . . . 4

Effect of Drouth on the Range . . . . . . . . . . . . . . . . . 5

Effect of Drouth on Financial Resources . . . . . . . 6

A Look at the Extreme . . . . . . . . . . . . . . . . . . . . . . . . 8

Management During Drouth . . . . . . . . . . . . . . . . . . . 9

Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 9

Livestock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 9

Supplemental Feeding . . . . . . . . . . . . . . . . . . . . . .10

Outside Income . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Life Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Emergency Practices . . . . . . . . . . . . . . . . . . . . . .10

Conclusions on Management . . . . . . . . . . . . ..l1

Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

$ONOIAZ

HOCNES OF

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l92l 22 23 24 25 26 27 32 33

YEARS

Figure 1. During the period 1943-53. rainfall was below normal 8 of the ll years.

SOURCES OF DATA

The most complete and probably the most
representative data were obtained on 45 ranches
from the files of the Production Credit Associa-
tion. These data included land organization and
tenure, livestock organization, a net Worth state-
ment, records of sales and purchases, outside
sources of income and condition“ of livestock and
range.

Less complete data were obtained for 25
ranches from the Ozona National Bank. Mainly,
these data lacked net worth statements and rec-
ords of purchases.

The data obtained from these two institu-
tions cover a period of 3 years, beginning in the
fall and winter of 1950 and ending on the same
dates in 1953. The drouth, of course, continued
into 1954, but its effects were somewhat relieved
by government subsidies in feed and transporta-
tion costs. Some benefit was obtained during the

INCHES OF

5 Yeor Moving Average of Rainfall-Sun Angelo Texas

numnu.
30
P‘
25 b \
2° §\ /____\   A ’\
- w f V V  1o Tun AVERAGE
I5 F v/\\
IO p
P‘
f
5
I
I906 ll l6 2| 26 3| E6 4| 46 5| I926

runs’

Figure 2. The extreme nature of the current drouth is
shown by means of a 5-year moving average of rainfall at
San Angelo. Note also that it was preceded by a period of
favorable moisture conditions of equal length WhichIundoubt-
edly led to the high rate of stocking reached in 1943.

4

last few weeks of the period covered by these data.

Data from the Farmers Home Administration
relate to ranches obtaining emergency or special
livestock loans and are useful as a description of
the more extreme conditions to be found among
ranchmen after 3 or more years of drouth.

EFFECT OF DROUTH ON LIVESTOCK NUMBERS

Livestock numbers reached a peak in 1943
just as the long period of dry years began and
have decreased about 50 percent during the 11-
year period (Figure 4). The only interruption
in this trend came following the one Wet year
(1949). The same upturn in numbers may be
noted in the individual ranch data to be shown
later.

An associated factor contributing to the
upturn in numbers was the sharp rise in prices

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1920 2s so as 40 45 5° ‘955
V E AIS

Figure 3. During periods of low rainfall (solid line).
temperatures (broken line) rise and intensify the effects of
lack of moisture.

, . ,......m¢. .. .44 ‘a ‘ma... .¢.-._......._.M

following 1949 (Figure 4). This was due largely
to the outbreak of war in Korea. The rise in
prices, coupled with optimism over improved
range conditions led to efforts on the part of
ranchmen to expand herds. This resulted in
livestock being kept from the market which other-
wise would have been sold; The effect was to
add to the upward pressure on prices.

This was the situation when the current
drouth started in the winter of 1950-51. Antici-
pating a continuation of the peak prices pre-vailing
in the spring of 1951, most ranchmen made stren-
uous efforts to maintain and, in some cases, to
increase stocking rates despite the rapidly de-
creasing range feed supply. This led to heavy
expenditures for feed during 1951-52. The finan-
cial position of ranchmen generally was greatly
weakened’ when anticipated prices were not
realized.

The prices shown in Figure 4 are not the
peak prices obtained but the average price for
all sales during the calendar year. The price of
all livestock and livestock products reached a
peak in the spring of 1951. The price of wool
and mohair broke sharply and continued to fall
to a new low by the spring of 1952. Calf and
lamb prices declined some after reaching the peak
in March 1951, but the big break did not occur
until the summer of 1952 and the low was reached
in October 1953. Thus, price changes intensified
the effects of the drouth for both ranchmen and
credit institutions. The decline in numbers of
livestock resulted from the effects of the drouth
on range feed, and the effect of price, if any, made
ranchmen reluctant to liquidate while prices were
rising.

A summary of the data obtained fro-m the
Texas Production Credit Association on 45
ranches reflects the same trend in numbers as
that shown in Figure 4. Numbers rose slightly
during 1949 and 1950 and then continued to
decline for the rest of the period. By the fall
and winter of 1953, the number of animal units
(1 cow or 5 sheep or 6 goats) had fallen to 80
percent of the 1950 number. This may be com-
pared with a decline for the same period to 76
percent for the whole Edwards Plateau and
Trans-Pecos areas. Figure 4 suggests that liqui-
dation continued on into 1953-54 and the same
trend occurred on this group of ranches.

EFFECT OF DROUTH ON THE RANGE

Although ranges deteriorated during the
drouth, data indicating the nature and extent of
deterioration of the range are scarce and difficult
to obtain. One crude measure of the effect of the
drouth on forage yields is the trend in livestock
numbers and in the size of the feed bill. Despite
almost continuously rising prices from the mid-
thirties until 1952, livestock numbers in the
Edwards Plateau and Trans-Pecos areas decreased
about 50 percent from January 1944 to January
1954. As has been shown, this period was one

of almost continuous subnormal rainfall. The
extreme bareness of the range during the winter
and spring of 1954 suggests that adjustments in
livestock numbers did not keep step with the
decline in forage yields. Further evidence of this
lack of adjustment is the large amount of feed
purchased from the fall of 1950 to the fall of 1953.
An average of $25 was spent for feed per animal
unit on 45 ranches which were well distributed
over the area most affected by the drouth, while
the normal expenditure is approximately $3.

AVERAGE PRICE
RECEIVED FOR

ANIMAL UNITS
IN PERCENT 0F
I943 NUMBERS.

-_—--——Pw|cz or anvrs mo LAMBS
ii- ANIMAL umrs or uvzsrocx

mob :2
mo? l‘. _ 2a
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5' I \ j
12o: I \. 24
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4o 4| 42 43 44 4s 4s 41 4e 4a so sn s2 s: 54

YEAR

Figure 4. Livestock numbers have decreased since 1944
despite an almost continuous rise in prices (cents per pound
weighted by the number of animal units of calves and
lambs). (An animal unit is 1 cow or 5 sheep or 6 goats.)
The number oi livestock maintained on ranches in the Ed-
wards Plateau and Trans-Pecos areas is closely related to
moisture conditions (also see Figure Z). (This chart is based
on data supplied by the Ofiice of Agricultural Estimate.
Agricultural Marketing Service. U. S. Department of Agricul-
ture, Austin, Texas.)

The quality of the forage on the range, as
indicated ‘by plant composition, also deteriorated.
Range management specialists base the classifica-
tion of range conditions mainly on the extent to
which climax species make up the plant popula-
tion. Climax species are those species of plants
that are most productive under a given set of soil
and climatic conditions. Excellent range is made
up of 75 to 100 percent of plants of the climax
species. Good range contains 50-75 percent; fair
range 25-50 percent and poor range 0-25 percent
plants of the climax species. According to studies
made on 8 of these 45 ranches by the Soil Con-
servation Service, the general condition of the
range was “fair” in 1950" and “poor” by 1954.

At the Texas Range Station near Barnhart,
where range management practices are being
studied intensively, it was reported in Texas Agri-
cultural Experiment Station Bulletin No. 786 that
forage production was extremely low and plant
density was seriously reduced during the low

5

CALVES AND LAMBS.

Figure 5. This picture, taken in a pasture on the Texas
Range Station near Barnhart prior to the drouth. shows good
ground cover despite heavy grazing.

rainfall period 1951-53. The composition of the
forage also was changed. High death losses
occurred in all grasses except tobosa grass. At
the same time, invader plants, such as mesquite
trees and prickly pear, increased in number.
These changes occurred in ungrazed exclosures
but not to the same extent as they did in heavily
grazed pastures (Figures 5 and 6).

The tall, higher yielding and more palatable
grasses, such as side-oats grama and silver blue-
stem, appear to be more drouth resistant than
are some of the lower yielding but more abundant
short grasses. The September 1953 issue of the
Sheep and Goat Raiser reported that tests made
during the summer of 1953 at the Ranch Experi-
ment Station near Sonora, after 2% years of
intense drouth, indicated that only 12 percent
of the curly mesquite plants were alive while 97
percent of the side-oats grama and 87 percent of
the silver bluestem plants survived. Some desir-
able but sparsely distributed _grasses, such as

Figure B. The effects oi 3 years oi extreme drouth and
heavy grazing is shown in the above picture taken_in Novem-
ber 1953 at the same site but irom the opposite direction as
Figure 5. Note the tire tracks in the ioregrourid. Most oi the
short vegetation in the exclosure is dead despite the iact that
it had not been grazed since 1940. This picture describes
more accurately than can be done with words the appear-
ance oi most oi the range in the north and western portions
oi the Edwards Plateau in the late winter and early spring
oi 1954.

little bluestem, pinhole bluestem, Texas Winter-
grass and fall Witchgrass, also responded vigor-
ously in the tests.

These tests Were made by Watering small
plots which were established on all pastures of the
station. Since different rates of stocking and
systems of management are practiced on these
pastures, the tests throw some light on the effect
of these practices on the rates of survival of the
various grasses. During normal years, curly mes-
quite has comprised three-fourths of the grass
ground cover on the Sonora station. On heavily
stocked pastures (48 animal units per section),
only 9 percent of the curly mesquite survived. On
moderately stocked pastures (32 animal units per
section), 12 percent survived, while on rotated
pastures which Were moderately stocked, 22 per-
cent survived. The heaviest loss in curly mesquite
was on the pasture stocked heavily with sheep
only (Figures 7 and 8).

Three-awn grass (sometimes called needle-
grass) suffered heavy death losses on all pastures
but the kill was greatest on the pasture stocked
heavily with cattle only.

These tests suggest the importance of man-
agement in determining the extent and rate of
recovery of range productivity when the drouth
is relieved.

EFFECT OF DROUTH ON FINANCIAL
RESOURCES

Changes occurring on the ranches of the 45
Production Credit Association borrowers during
3 years of drouth include a decrease of 2%
million dollars, or 37.5 percent, in net worth. Out
of total assets of more than 8 million dollars, real
estate (including mainly ranch lands and city
residences of ranchmen) made up more than 5O
percent and livestock more than 40 percent in
1950. All other assets, including cash, feed, Wool
and mohair in storage, equipment and stocks and
bonds, made up less than 6 percent of the total.
By the fall and Winter of 1953, total assets had
dropped in value to about 61/; million dollars and
real estate, on Which prices were held constant
during the 3-year period, represented almost 65
percent of the total, while livestock, which had
decreased in both numbers and price, made up
only 26 percent. __

While total assets Were decreasing 20 percent,
liabilities were increasing 37 percent. Most of
this increase in liabilities -W&S in chattel mort-
gages. Debts other than real estate mortgages
in 1950 represented only 30 percent of the total
value of livestock, or $47 per animal unit, but by
1953 these debts amounted to 103 percent of the
value of the livestock, or $90 per animal unit.

Incomes fell sharply during the 3-year period.
In 1952-53, the dollar sale of livestock and live-
stock products was only 48 percent of such sales
in 1950-51. This decline stems directly from the
20 percent decrease in livestock numbers and the

sharp break in prices shown in Figure 4 and was
reflected in the average prices received on the 45
ranches._ In 1952-53, average price received for
calves was only 43 percent of the average price
in 1950-51, and lambs sold at 56 percent of the
1950-51 average. Average prices received for
wool indicate that most growers missed the peak
prices reached in the early spring of 1951. The
average price received for the 1950-51 wool crop
was 85 cents per pound compared with 63 cents
in 1952-53 and a mid-month peak of $1.25 reached
in March 1951. A few sales were reported as
high as $1.50 per pound. An increasing number
reported income from outside sources, but the
amount of such income per ranch did not increase
substantially. In 1950, 21 of the 45 ranchmen
expectedoutside income averaging $3,800. By
1953, the’ number had increased to 25 and the
average amount was $3,865. Most of this outside
income was from mineral leases, rentals and
royalties and from wages but the source was not
always specified.

Some relief was obtained through substantial
income tax rebates, but such items were not
reported consistently and it was not possible to
arrive at the amount of income thus obtained.

Since livestock constitute the principal collat-
eral for production credit, it was not surprising
to find a tightening of credit arrangements as the
drouth became more intense and prices fell. Total
disbursements or advances to these 45 ranches by
the Texas Production Credit Association de-
creased in almost direct proportion to the de-
creases in livestock values and in net worth.
Disbursements which decreased 36 percent from
1950-51 to 1952-53 ranged narrowly around 30
percent of net worth and 61 percent of the total
value of livestock at the beginning of each year
or loan period. In addition to closer scrutiny of
credit demands by credit agencies, lower prices
for dfeed and livestock served to reduce the credit
nee s.

It was expected that large amounts of pro-
duction credit had been shifted by owner-opera-
tors to long-term land mortgages. Actually, the
amount of land mortgages was being reduced
until 1953 when an increase of 10 percent occur-
red. The value of the land ($3,789,000 or $20
per acre) was still almost five times the amount
of the mortgages ($791,000) and represented a
comparatively untapped means of covering over-
extended short-term credit.

Life insurance is a factor for stability in
credit operations. The cash value of insurance
represents a liquid asset, the amount of which
may be borrowed from any credit institution. At
the same time, the insurance itself may be used
to assure the credit agency of payment in case of
death of the borrower. Thirty-six of the 45
Production Credit Association borrowers reported
life insurance totaling $670,000 in 1950. In 1953,
37 reported insurance totaling $951,000, an in-
crease of 42 percent. This is an average, per

Figure 7. This picture. taken in Iuly 1949 on the Ranch
Experiment Station near Sonora, shows good range on rocky
soils of a deferred rotation pasture stocked with 32 animal
units per section. Approximately 45 percent of the grass
pictured was lost during the drouth. However, with good
rains in the fall of 1953 and spring of 1954, this recovered
rapidly to near its pre-drouth condition.

person reporting, of $18,600 in 1950 and $25,700
in 1953. It is significant that the big increase in
insurance came in 1952-53 as short-term debts
approached or exceeded the value of the collateral.
Borrowers, probably encouraged by the credit
agency, recognized the possibilities of strengthen-
ing their credit position through insurance.

There was little change in the average size
of these ranches during the 3-year period. The
range was from 12,200 acres in 1952 to 12,900 in
1953. These fluctuations were largely the result
of shifting leases. The average cost of leases
fell from 53 cents per acre in 1950 to 48 cents in

Figure 8. This picture, also taken on the Ranch Experi-
ment Station on the same type of soil and near the site
pictured in Figure 7, shows the eiiects of heavy grazing with
1 year oi intense drouth. Approximately 75 percent of the
grasses on this area were lost during the drouth and this
site remained in about the same condition shown above
despite the good rains in the fall of 1953 and spring oi 1954.
By April 1954. most oi the range from Fredericksburg west
to the Pecos river appeared to be in worse condition than
the range pictured here.

7

1953. There was some adjustment in rates, but
individual cases indicate that the shifting of
leases to lower grade land Was the main cause of
the decrease.

On these 45 ranches, almost 70 percent of the
land was leased and 30 percent owned. There
was no significant change in this proportion
during the 3-year period. Also, there was little
change in the tenure status of these operators.
In 1950, 8 of the 45 owned all land operated, while
17 leased all of their land and 20 operated both
owned and leased land. In 1953, there still were
8 strictlv owner-operators, but 2 of those operat-
ing on leases had acquired some land and were
classed as part-owners.

The average size of owner-operated ranches
remained the same, 5.800 acres, while mortgages
on the land increased $12,944 per ranch. Part-
owners had 7,064 acres and leased an additional
11,786 acres in 1950. In 1953, they owned 7,245
acres and leased only 10,700 acres. The average
amount of land mortgage decreased almost $5,200.
Lease holders increased their holdings from 11,300
acres to 13,360 for which they paid an average of
50.5 cents in 1950 and 48 cents in 1953. The
decrease in average cost of leases was largely the
result of shifting leases.

The owner-operator decreased his livestock
from 258 animal units, or 28 units per section,
to 203, or 22 units per section. The part-owners
decreased from 690 animal units, or 23 per sec-
tion, to 546, or 20 units per section. Lease opera-
tors, while increasing the acreage leased by more
than 2,000 acres per ranch, reduced their livestock
from an average of 500 units, or 28 per section,
to 390 units, or 19 per section.

Owners remained in strong financial condi-
tion, dropping only 28 percent in net worth. They
could increase the mortgage on their land, pay
all of their short-term debts and retain a 50
percent equity in their land (assuming no change
in the value of land).

The part-owners dropped 38 percent in net
worth. If they shifted all debts to land they still
would have a 47 percent equity in the land.

Tenants lost 69 percent of their net worth,
or almost $40,000 per ranch, largely as the result
of decreases in the number and value of livestock.

If the data obtained from the 45 Production
Credit Association borrowers err in any direction,
it probably presents a too optimistic picture of
actual conditions in the drouth-stricken portions
of the range country. This is not to say that the
ranches themselves are not representative but
that the tendency of credit agencies to avoid
following extreme changes in prices, et cetera,
introduces a natural bias. In this case, prices and
values were somewhat below market prices in
1950 and somewhat above the market in 1953.

The data on 25 ranches obtained from the
Ozona National Bank substantiate the foregoing

information. Livestock inventories decreased and
short-term debts increased until they about
equaled the value of the productive livestock.
Eighteen of the 25 ranches had obtained special
livestock loans from the Farmers Home Adminis-
tration, which suggests that this group was prob-
ably the less substantial of the ranch patrons of
the bank. This conclusion is further suggested
since, of a total of 60 livestock loans, only these
25 were continuous borrowers during the 3-year
period and only 22 of the 60 had resorted to
special livestock loans. The sale of mineral rights
and other sources of outside income purportedly
were a determining factor in keeping down the
amount of credit used during the period of
extended drouth.

These 25 ranches averaged about 7,500 acres
as compared with the more than 12,000 acres for
the Production Credit Association borrowers.
Fifteen of the 25 were operating on leased land.
The average cost of their leases was 55 cents an
acre in 1950-51 and 53 cents in 1952-53.

These ranches were carrying about one-third
more animal units of livestock per section
throughout the 3-year period than were reported
on the ranches of the Production Credit Associa-
tion borrowers.

A LOOK AT THE EXTREME

To obtain a view of the more extreme condi-
tions as they existed during the fall and winter
of 1953-54, the special livestock loans being
administered by the San Angelo office of the
Farmers Home Administration were studied in
detail. The recipients of these loans are consid-
ered to have reached the practical limits of the
usual sources of credit. The geographic distribu-
tion of these ranches is similar to the distribution
of the Production Credit Association borrowers
but with more concentration in Sutton, Crockett
and Reagan counties.

These ranches average smaller than those of
the PCA borrowers, having slightly more than
7,600 acres. Only 28 of 92 ranchmen owned any
of the land operated. Another 39 owned real
estate, mostly city homes, but including some
business property as well as farm and ranch lands
owned but not operated. Thus, 67 of the 92, or
73 percent, owned some type of real estate. This
real estate made up about 65 percent of the total
assets of the group and livestock made up 26
percent. This distribution is identical with the
distribution of assets of the PCA borrowers at
the end of the 3-year period. The real estate was
mortgaged to the extent of 28 percent of its value,
55 percent higher than in the case of the PCA
borrowers. Ranch lands were valued at $25 per
acre as compared with $20 on the ranches of PCA
borrowers.

Indebtedness other than real estate mort-
gages ($3,928,000), but including the special
loans, was more than twice the value of the
livestock.

The net worth of the group was only 30
percent of the assets as compared with 61 percent
in the case of the PCA borrowers. If all property
was sold at the prices at which it was valued and
all debts were paid, these operators would have
barely enough cash left to buy back the livestock
and equipment listed. They would own no real
estate or other property.

Under the same conditions, the PCA borrow-
ers could buy their livestock and equipment and
retain better than a 50 percent equity in the
land they now own.

Fifty-five of the 92 special loan recipients
expected to receive an average of $2,200 of outside
income during 1954. About 30 percent would
come from oil leases, rentals and royalties, 30
percent from wages for work off the ranch and
 gercent from rentals of real estate of various

1n s.

These 92 ranches were stocked heavier than
were the PCA borrowers and at about the same
level as were the 25 customers of the Ozona Na-
tional Bank. This relatively heavy rate of stocking
may explain in part at least the comparatively
weak position of these ranches with the credit
agencies. Attempts to maintain numbers far
above the capacity of the range usually leads to
high feed costs, heavy death loss or low market
quality.

MANAGEMENT DURING DROUTH

The 45 ranches for which data were obtained
from the Texas Production Credit Association
were divided into three groups on the basis of
degree of change in net worth. In other words,
ability to maintain net worth was selected as the
best available measure of success in combating
the effects of the drouth. Group 1 includes the
15 ranches that had the least loss in net worth
between the falls of 1950 and 1953. Group 3 is
composed of the 15 ranches having the greatest
loss in net worth during the same period, while
group 2 includes those between the two extremes.
To simplify the discussion, these groups will be
referred to by number hereafter. Most of the
discussion will center on groups 1 and 3.

Group 1 had an average drop of 15 percent
in net worth, group 2, 35 percent and group 3,
73 percent.

Lcmd

There was no change in the size of the
ranches in group 1 during the period. The
average size was 13,300 acres, both in 1950 and
1953, and in each year slightly less than half of
the land was owned. The group 3 ranches de-
creased in size from 17,600 to 16,160 acres and
approximately 10 percent of the land was owned
by the operator.

The land owned by group 1 apparently was
better than that owned by group 3. The value
placed on land was affected somewhat for both

groups by transactions. These transactions made
little difference in group 1 but in group 3 a large
land deal apparently lowered the quality of land
owned by that group. The average value of the
land in group 1 was $23 in 1950 and $22 in 1953.
In group 3, the average value fell from $18 to less
than $15 per acre.

All except 2 ranchmen in group 1 owned some
of the land they operated, while 10 of group 3
owned none of the land operated. Conversely, 4
in group 1 owned all of the land operated, while
only 1 in group 3 owned all land operated. Fur-
thermore, most of the land owned by group 3 (95
percent) was in the hands of 2 men so that for the
most part group 3 was made up of lease operators.
This tenure difference between the two groups
may explain a substantial part of the greater
decrease in net worth by group 3.

If land values and land mortgages are ex-
cluded and only short-term debts in relation to all
assets other than land are considered, group 3 still
compares unfavorably with group 1. The net
value of such assets decreased 35 percent in group
1 and 85 percent in group 3. In relating short-
term debts to the value of livestock in the two
groups, group 1 owed 47 percent of the value of
its livestock in 1950 and 79 percent in 1953;
whereas group 3 owed only 35 percent of the
value of its livestock in 1950 but had borrowed
to the extent of 132 percent by 1953.

While group 1 owned better land than group
3, they paid, on the average, about 10 cents per
acre less for leased land than did group 3. Rentals
in group 1 averaged slightly above 40 cents per
acre and group 3 slightly above 50 cents. There
was no significant change in rates during the
3-year period. Close family ties may have influ-
enced rates among the group 1 operators.

Livestock

Group 1 had almost (98.5 percent) as many
units of livestock (6,359) in 1953 as in 1950
(6,451), while group 3 had lost 30 percent of the
11,242 units on hand in 1950. From a manage-
ment standpoint, this is perhaps the most signifi-
cant difference between the two groups. Although
supposedly having the better land, group 1, or the
group with the smallest decreases in net Worth,
was relatively lightly stocked in 1950, having 21
animal units, or 6 less units per section than group
3—the ranches having the largest decreases in
net worth. By 1953, there was no significant
difference between these groups in the rate of
stocking, both having about 21 units per section.

Group 1 apparently had adjusted early to
deteriorating ranges or had not restocked imme-
diately following favorable moisture conditions in
1949. Except for a brief speculative flurry in
1950-51, probably in response to peak prices, this
group maintained livestock numbers at near the
same level throughout the 3-year period. Group
3 adjusted slower. It was not until 1952-53 that
the major adjustment was made.

Further evidence that group 3 was heavier
stocked than group 1 is found in comparing actual
rates of stocking with estimates of normal carry-
ing capacity. Each year, the loan inspectors from
the Texas Production Credit Association visit
these ranches, count the livestock, report on the
condition of the range and the livestock and
estimate the normal carrying capacity of the
range. While these estimates may not be com-
parable from year to year because of changing
weather and range conditions, they are reasonably
comparable from ranch to ranch during the same
year. In 1950, the number of livestock on group
1 ranches was 68 percent of normal capacity and
on group 3 ranches it was 82 percent of normal.
In 1953, group 1 Was stocked at the rate of 78
percent of estimated normal capacity, while group
3 still stood at 82 percent of normal capacity.
Group 1 had taken advantage of rapidly rising
prices to reduce inventories and to adjust live-
stock to range conditions and thus was prepared
to meet the problems arising out of the current
drouth. Group 3 waited until prices broke and
liquidation was forced under unfavorable condi-
tions. These conditions are reflected in the sale
of livestock and livestock products. Despite the
fact that group 3 was liquidating during the latter
part of the 3-year period, 1952-53 sales were only
43 percent of 1950-51 sales; whereas on group 1
ranches, sales in 1952-53 were 61 percent of
1950-51 sales.

Group 1 apparently had a better grade of
livestock than did group 3. The value of livestock
per animal unit in group 1 averaged $15 more in
1950 and $12 more in 1953 than did the livestock
in group 3.

Similarly, group 1 had more cattle and goats
and fewer sheep than did group 3. Both tended
to increase the number of cattle relative to the
number of sheep, but group 1 averaged 27 percent
cattle and 64 percent sheep, while group 3 aver-
aged 22 percent cattle and 74 percent sheep. In
group 1, 6 percent of the animal units were goats,
While in group 3 only 2 percent were goats.

Supplemental Feeding

The group (1) with the least loss in net
worth fed heavily and consistently throughout the
3-year period. Feed purchases ranged from $23
per animal unit in 1950-51 to $27 per unit in
1952-53. The group (3) having the greatest loss
in net Worth fed relatively lightly ($16) in 1950-
51, went to the extreme of $34 per unit in 1951-52
and fell back to $17 per unit in 1952-53. Heavy
feeding by this group in 1951-52 may be attributed
partly to heavy stocking and partly to the antici-
pation of high prices. When these anticipated
prices were not realized, the rate of stocking and
the rate of feeding were reduced. Probably
another important factor was the weakened finan-
cial condition of the group.

The severity of the drouth is reflected in
these feed expenses. When range conditions are
normal, very little supplemental feeding is done.

l0

Sheep may not receive any feed, while cattle feed-
ing may be limited to thin cows and bulls for
short periods before the breeding and calving
seasons. An average of $3 per animal unit usually
will buy the feed used. This means that feeding
rates during these 3 years of drouth averaged
from 5 to 10 times the usual rate of feeding.

The importance of supplemental feeding to
the size of the lamb and calf crop was shown
during the drouth. Ranchmen and bankers seem
to be of the opinion that in future years there will
be more feeding of ewes and cows to increase the
size of the calf and lamb crops. Faced with large
feed bills and tightening credit, ranchmen culled
closely to eliminate nonproducers and gave special
care to mother stock. With this combination of
practices, the percent lamb crop in Texas rose
from a low of 57 in 1952 to 77 in 1954, despite
continuous drouth.

Outside Income

It was expected that outside income, espe-
cially income from mineral rights, would be an
important factor in the success of ranchmen in
combating the effects of the drouth. It undoubt-
edly helped many individuals and since any large
amount of outside income was associated in some
way with land, group 1, which controlled more
land than did group 3, profited most. Oil and
gas operations also helped leaseholders and small
owner-operators by providing employment oppor-
tunities that otherwise would not have been avail-
able. However, it was not a determining factor
in explaining differences in success between the
two groups. Group 1 expected a total of $42,000
of outside income per year and group 3, $32,000
per year. This $42,000 in group 1 was divided
among 10 ranches; Whereas an average of only 5
participated in the $32,000 going to group 3. The
average for the 15 ranches in each group was
$2,800 per year for group 1 and $2,100 for
group 3.

Life Insurance

A comparison of these two groups also throws
more light on the place of life insurance in the
management of ranch finances. Twelve of the
15 ranch operators in group 1 carried $292,500
of life insurance in 1950, or an average of
$24,375. By 1953, the average amount of insur-
ance had increased 28 percent, or to $31,250 for
each of the 12 men. In group 3, 13 men had an
average of $18,673 in insurance in 1950, but with
the Worsening of financial conditions during the
current drouth, these men added 71 percent to
their insurance to bring it to $31,885 each. Most
of this increase came during the last year of the
3-year period.

Emergency Practices

Numerous emergency practices were being
followed, but it was not possible to measure their
effects as means of overcoming drouth conditions.
Burning prickly pear, “knocking” sotol and cut-
ting liveoak brush were most common on the
group 3, or poorly financed, ranches. These

practices may, along with restrictions on credit,
explain the sharp reduction in feed purchases on
the group 3 ranches in 1952-53. Judging from
the light sales reported by this group, production
also was sharply off.

A few individuals moved cattle to grass in
other states and regions. The consensus of opin-
ion in regard to this practice seemed to be as
follows: The size of the operation needs to be
large enough to permit the employment of effi-
cient management. Otherwise it is best to let
someone living near the grass own the cattle.
As one small ranchman tersely put it, “the next
time cattle leave my place they will belong to
the other fellow.” One of the unforeseen diffi-
culties encountered with this practice was the
spreading. of the drouth. After the cattle were
moved, drouth spread into the new area, again
making it necessary to feed. In many cases, this
proved to be more expensive than it would have
been had the cattle been kept at the home ranch.

Conclusions on Management

There is no magic by means of which the
effects of drouth may be overcome. In some
instances, a substantial oil lease may appear like
magic to fill the income gap caused by drouth.
In other cases, outside employment may be the
answer. But to the greater number of ranchmen
there is no alternative to good ranch management.

The principal features of a management
program looking to recurring periods of drouth
include:

1. Moderate rates of stocking (maintenance
of good ground cover conserves moisture and
increases yields).

2. Deferred grazing of pastures to insure
reseeding of the better grasses.

3. Close culling to eliminate nonproductive
livestock (aim at high percent calf and lamb
crops).

.4. Conservative use of credit.
5. Moderation in standards of living.

6. Adequate insurance for protection of
family and to strengthen credit standing.

7. Reserves developed for the rainless days.

The time to prepare for drouth is during
periods of normal or above-normal rainfall. To
be prepared for drouth, one must keep in mind
each year that drouth conditions may prevail
during the years just ahead.

ACKNOWLEDGMENTS

The authors are greatly indebted to Phil H.
Lane of the Texas Production Credit Association,
Howard Warner of the Farmers Home Adminis-
tration and Lowell Littleton of the Ozona National
Bank and their associates for making available
much of the data upon which this study is based.
Without their help it could not have been made.

We are particularly grateful to the 45 mem-
bers of the Texas Production Credit Association
for permission to use the information pertaining
to their individual ranches.

Another group to whom we are indebted
include E. B. Keng and C. A. Rechenthin of the
Soil Conservation Service, Leo B. Merrill of the
Ranch Experiment Station and Gerald W. Thomas
of the Department of Range and Forestry of the
Texas A&M College System. All of these men
gave generously of their time and resources in
assisting the authors in gathering and interpret-
ing range condition information.

A number of ranchmen, and particularly
Willie B. Wilson of San Angelo, assisted the
authors with helpful suggestions and encourage-
ment.

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