Economic Considerations

Introduction

There is a debate over which is the best forage to raise to feed a dairy herd, corn silage or alfalfa. This paper can not give the definitive answer because that answer depends on your land base (acres/cow), the type of land you own (crop rotation required to protect the soil), and manure disposal (the possible build up of nutrients in your soils). However, it will shed some light on these issues and the cost of production and the profit from producing corn silage and alfalfa.

The analysis was prepared using Excel and the Agriculture Budget Calculation Software (ABCS). ABCS allows the user to enter the tasks involved in the production recipe along with the inputs required by each task. Example, the corn-planting task requires the inputs of corn seed and starter fertilizer.

The ABCS program calculates the costs associated with using tractors and implements. The costs calculated are energy, labor, repairs, ownership interest cost, and a depreciation charge. The number of acres a task is preformed on in a year can cause the per acre costs to vary.

Excel is a spreadsheet program. It was used determine the percentage corn silage in the dairy herd’s ration; given a crop rotation. It determined the number of acres required per cow for manure disposal and the change in Nitrogen, Phosphorus, and Potassium level in the soil if that crop rotation was followed. Also, it estimated the change in purchased feed costs per cow as you added more corn silage to your dairy cow ration.

The analysis required the creation of 7 enterprise budgets. They were:

an direct-seed alfalfa establishment budget an alfalfa hay budget for the first year following establishment, an alfalfa hay budget for the second year following establishment, an alfalfa hay budget for the third year following establishment, an alfalfa hay budget for the fourth year following establishment, a corn silage budget for the year following the plowdown of the hay stand (see Figure 2-4), and a corn silage budget for the corn after corn year(s).

The alfalfa yield was reduced 0.5 tons of dry matter yield each subsequent year. The corn silage yield was 10 percent higher in the year following the plowdown than in the corn after corn year(s).

The ABCS program has a feature that calculates whole farm incomes and costs based on enterprise budgets. This feature requires the selection of a fixed acreage for comparison among rotations. The acreage selected was 600 crop acres. This is acreage sufficient to support 200 - 300 dairy cows depending on your land type, cropping rotation, etc.

The machinery complement selected was originally purchased for an estimated $279.550. This machinery complement had $139,775 cost basis value remaining. This machinery complement would cost $417,810 if purchased new today.

Figures 1 - 4 (located at end of text) contains information for a corn silage budget in Central Wisconsin. You may live in Southern or Northern Wisconsin, so what does it do for you? Regardless of your location, it provides a starting place. To make the budget fit your conditions, find out from Extension agronomists what sort of yields you can expect, what fertilizer rates they recommend, etc. After you site-specific the practices in a budget, there is another step. You may be able to get fertilizer cheaper, or input prices may be different and product prices may have changed since the budget was published. You can make whatever changes are necessary to site-specific the budget for your farm, update the price information and you have a current budget for corn production in your farm. The same process is followed for any enterprise.

CAUTION: Economic conditions change rapidly, therefor regardless of the publication date, always examine any economic information carefully to be sure that prices are current. Local prices for your area are the ones that should be plugged in to any budget to make it fit your situation. All items are listed separately, along with their amounts and prices, so that this can be done easily.

Economic answers are always conditional. They depend on:

(a) the expected yield from a recommended practice,

(b) the price of the product to be sold, and

(c) the cost of the input.

The most general use of a planning budget is to provide an estimate of the profitability of producing a particular crop. Established farmers may already own all the necessary equipment and want an estimate on how some new enterprise stacks up with what they are now producing. People just starting in agriculture may wonder if there is any money to be made in farming. Different situations require different interpretations of a budget. The producer who already has invested in the necessary machinery will be interested in returns above cash costs (sometimes called variable expenses). This is a short-run decision, tied to the economic life of the farm machinery. Since the equipment is already owned, the producer may switch enterprises if the returns over cash costs are higher in the "new" crop than in the crop that is already growing, even if none of the enterprises would cover total costs.

When discussing the acres required per cow for manure disposal, some assumptions need to be made. The assumptions made for this study are:

1. a cow produces 20 tons of manure per year,
2. the average nutrient value of dairy manure is 5-4-10,
3. 20 tons per acre are spread in the plow-down year,
4. 30 tons per acre are spread in other corn years, and
5. 10 tons per acre are spread in new seeding year.

With these assumptions and a CCCEAAAA (8-year) rotation, there is almost no change in the level of N, P, and K at the end of 8 years. This rotation requires 1.8 acres of land per cow in order to have sufficient land to dispose of all the manure produced and not increase N, P, and K levels.

The CCCEAAAA rotations, when all the corn is used as corn silage, leads to a forage feed ration that is 56% corn silage. The cost, to balance this ration versus all alfalfa forage ration is an extra $92 per cow per year. This extra cost is has two parts; $137 to purchase the additional protein required and $45 savings on the purchase of corn grain. This calculation is based on the following assumptions.

1. The protein content in the corn silage is 8 percent.
2. Adding two pounds of corn silage to the ration replaces 1 pound of corn.
3. The price of corn is $2.25 per bushel.
4. The protein content in the alfalfa forage is 18 percent.
5. The price of a 44 percent protein source is $0.09 per pound.

Variable cash costs per ton of dry matter are reduced by the application of manure. However, the value of the manure applied is included as a non-cash cost. This non-cash cost is included in the "Other Fixed Costs" category.

Also, the cost per ton of alfalfa hay is really a weighted value based on the number of years from new seeding to plow-down. In a 4-year (1-year new seeding and 3-years of alfalfa crop) cycle, the total cost per ton of alfalfa dry matter is $87.43, compared to the total cost of a ton of corn silage dry matter at $58.88. In a 3-year alfalfa crop cycle, the total cost per ton of alfalfa dry matter is $92.61, and in a 5-year cycle, $84.72. In comparing these numbers remember that the yield on alfalfa was reduced from 4.0 tons DM by 0.5 tons per year.

The total forage cost per cow, use 6 tons of forage dry matter required per cow, in an all alfalfa forage ration and a 5-year forage cycle is $508. Of this $129 is variable costs, $137 is land costs, and $243 is other costs, including the cost of the dairy manure applied. Using 56 percent corn silage ration led to a forage related cost of $513 or only $5 per cow more than an all alfalfa forage ration. A 70 percent corn silage ration has an added cost of approximately $7 per cow per year.

The all alfalfa forage ration requires 1.9 acres of land devoted to forage production per cow. The 8-year 56-percent corn silage regime requires 1.34 acres per cow. This comes with an increase in variable costs of $92 per cow, however the land costs are $40 less per cow and the other costs are $47 less per cow.

This may be a good time to discuss the land cost issue. Total land costs were entered as $72 per acre. As this value increases the small advantage that the all alfalfa ration forage ration will disappear, because the land cost per ton of corn silage (DM) is less than half of the land cost per ton of alfalfa hay (DM).

Conclusions and Summary

Are there enough assumptions in this analysis to really confuse you? Below is a partial list. It would be nice if it was shorter, but the economics of crop production and ration balancing are not very simple.

1. a cow produces 20 tons of manure per year,
2. the average nutrient value of dairy manure is 5-4-10,
3. The protein content in the corn silage is 8 percent.
4. Adding two pounds of corn silage to the ration replaces 1 pound of corn.
5. The price of corn, per bushel, is $2.25.
6. The protein content in the alfalfa forage is 18 percent.
7. The price of a 44 percent protein source is $0.09 per pound.
8. The land cost was set at $72 per acre.

This list does not include the prices paid for machinery or other inputs into the production of alfalfa or corn silage. The land issue is the most pronounced. As land costs increase, including having to travel further, adding additional corn silage to the ration makes economic sense, all other things being equal.

Each additional 10 percent of corn silage in the ration reduces the land required per cow, necessary for forage production, by approximately 0.10 acres. This value will change depending on the both absolute and relative yields of alfalfa and corn silage.