Diversified vs. Diversified vs. Specialized Swine and Specialized Swine and Grain Enterprises in Grain Enterprises in Iowa Iowa Laura Borts, Gary May, Laura Borts, Gary May, and and John Lawrence John Lawrence Iowa State University Iowa State University
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Diversified vs. Specialized Swine and Grain Enterprises in Iowa Laura Borts, Gary May, and John Lawrence Iowa State University.
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Diversified vs. Specialized Diversified vs. Specialized Swine and Grain Swine and Grain
Enterprises in IowaEnterprises in Iowa
Laura Borts, Gary May, and Laura Borts, Gary May, and
John LawrenceJohn Lawrence
Iowa State UniversityIowa State University
Iowa 1980 – 2001Iowa 1980 – 2001 Number of farms -22%Number of farms -22%
Average acres per farm +23%Average acres per farm +23%
Hog producing farmsHog producing farms 1980 over 53% of farms 1980 over 53% of farms
2002 only 11% of farms2002 only 11% of farms
Background and Background and JustificationJustification
Research QuestionsResearch Questions
The research committee from the Iowa The research committee from the Iowa Pork Producers Association approach Pork Producers Association approach ISU with the following questionsISU with the following questions
Is there still a role for traditional Is there still a role for traditional diversified crop-hog farms?diversified crop-hog farms?
Is the trend toward specialization likely to Is the trend toward specialization likely to continue?continue?
Role of public policyRole of public policy
Previous Studies Purdy, B.M., M.R. Langemeier, and A.M.
Featherstone. 1997. Financial Performance, Risk, and Specialization. Journal of Agricultural and Applied Economics, 29,1(July 1997): 149-161 Grain operations that diversified into beef cattle
production reduced mean return on investment as well as the variability in return on investment.
Diversification into swine and dairy production increased mean income and decreased variability.
What Other Studies Have What Other Studies Have SaidSaid
Advantages of DiversificationAdvantages of Diversification Complementary characteristicsComplementary characteristics
Byproduct of one enterprise serves as an input Byproduct of one enterprise serves as an input for anotherfor another
Matching feed requirements with feed supplyMatching feed requirements with feed supply More efficient distribution of labor and riskMore efficient distribution of labor and risk
Advantages of SpecializationAdvantages of Specialization Farm resources may offer an advantage to a Farm resources may offer an advantage to a
specific enterprisespecific enterprise Productivity improvement from specialized skills Productivity improvement from specialized skills Volume discounts on larger purchasesVolume discounts on larger purchases
How to have both????How to have both????
The ModelThe Model Whole Farm Budget ComparisonWhole Farm Budget Comparison Cash grain v. diversified grain-hog farmCash grain v. diversified grain-hog farm
Farrow to finishFarrow to finish Breed to weanBreed to wean Wean to finishWean to finish
Measures of profitabilityMeasures of profitability Return to labor, management, and owned assets.Return to labor, management, and owned assets. Rate of return on investmentRate of return on investment
Model AssumptionsModel Assumptions
6,000 hours of labor per year6,000 hours of labor per year No seasonal labor constraintNo seasonal labor constraint Corn production = corn demandCorn production = corn demand Corn acres = soybean acresCorn acres = soybean acres Manure applied ahead of cornManure applied ahead of corn Tractors shared between crop and hogsTractors shared between crop and hogs
Cash Grain v. Hog-Grain Cash Grain v. Hog-Grain Farms With 6,000 Hours of Farms With 6,000 Hours of
Data SourcesData Sources Budget coefficients were derived Budget coefficients were derived
from Iowa State University livestock from Iowa State University livestock and crop enterprise budgetsand crop enterprise budgets
Crop and livestock prices were Crop and livestock prices were derived from USDA-AMSderived from USDA-AMS
Stochastic Component of Stochastic Component of the Modelthe Model
A simple budget comparison represents a A simple budget comparison represents a single point in time.single point in time.
How does enterprise diversification How does enterprise diversification impact income variability?impact income variability?
How frequently is one combination of How frequently is one combination of enterprises more profitable than another?enterprises more profitable than another?
Monte Carlo simulation is a common Monte Carlo simulation is a common method of addressing these issuesmethod of addressing these issues
Research Questions Research Questions RevisitedRevisited
Is there still a role for traditional diversified Is there still a role for traditional diversified crop-hog farms?crop-hog farms? Conclusion: Yes, there appears to be an acceptable Conclusion: Yes, there appears to be an acceptable
return to labor for producers who wish to operate a return to labor for producers who wish to operate a diversified crop/livestock farm. diversified crop/livestock farm.
Is the trend toward specialization likely to Is the trend toward specialization likely to continue?continue? Conclusion: Not directly addressed in this study. Conclusion: Not directly addressed in this study. Our model suggests farm subsidies have trumped the Our model suggests farm subsidies have trumped the
income stabilization benefits of diversification.income stabilization benefits of diversification.
SummarySummary
Cost savings from diversificationCost savings from diversification Less acres per person with livestockLess acres per person with livestock Impact of 2002 Farm BillImpact of 2002 Farm Bill
Without: cash grain was lowest average Without: cash grain was lowest average and highest riskand highest risk
With: cash grain is highest average and With: cash grain is highest average and lowest risklowest risk
Pulling It All Together:
Managing Cattle and Crops through Feed
and Fertilizer
John Lawrence, Iowa Beef Center at ISU
Evan Vermeer, Iowa Cattlemens Association
Cattle
Diet Formation
Manure Application
Crops Management
DGS Commercial Supplement
Commercial Fertilizer
Crop Sold
Manure Export
Cattle Bought
Cattle Sold
Rules & Regulations
Information & Records
Advice & Service
$
Guiding Principles What goes in comes out Everything has a cost or value Nutrients only have value if they are
needed (applies to feed or fertilizer) Influence outputs through inputs
Value of Applied Manure Supply and Crop Demand
Nutrient Applied Needed Lbs valued $/lb Value/A
N (46-0-0) 135 135 135 $0.39 $52.65
P2O5 (18-46-0) 125 54 54 $0.26 $14.04
K2O (0-0-60) 110 41 41 $0.24 $9.84
Total $76.53
Nutrient Applied Needed Lbs valued $/lb Value/A
N 135 135 135 $0.39 $52.65
P2O5 125 125 125 $0.26 $32.50
K2O 110 41 41 $0.24 $9.84
Total $94.99
Nutrient Applied Needed Lbs valued $/lb Value/A
N 135 0 0 $0.39 $0
P2O5 125 31 31 $0.26 $8.06
K2O 110 48 48 $0.24 $11.52
Total $19.58
Table 2: Value of Manure on Corn Needing P Buildup
Table 1: Value of Manure Applied to Corn
Table 3: Value of Manure on Soybean Acres
Nutrients have value where they are needed
300 Head Feedlot ExampleNutrient Supply, Value
* 26#/A available 2nd year
#/T PAN PriceSupplyValue
N 14 3,990* 0.39 $1,556
P 11 13,200 0.26 $3,432
K 14 16,800 0.24 $4,032
$9,020
Feedlot Example C-C Crop Demand, Value
N-Balance Rate #/a P-Balance Rate #/a
27 acres 88,889 65 acres 36,923
N $1,556 148 $1,556 61
P $618 489 $3,432 203
K $888 622 $4,032 258
Value $3,062 $9,020
Difference $5,958
Cannot apply at low rates so use 3 year rotation
Maximize Farm Profit While Balancing Farm Nutrients
Iowa Farms - Nitrogen
1.5 to 11.6 to 11.3 to 11.6 to 1In/Out Ratio
C-4C-3C-2C-1Farm
173 ac452 ac446 ac160 acCropland
3,300 hd4,000 hd4,000 hd2,200 hdFacility
69,000115,000158,00067,000Outputs
105,000185,000211,000109,000Inputs
35,00069,00053,00068,000Imbalance
Iowa Farms - Phosphorus
1.1 to 11.3 to 11.0 to 11.1 to 1In/Out Ratio
C-4C-3C-2C-1Farm
173 ac452 ac446 ac160 acCropland
3,300 hd4,000 hd4,000 hd2,200 hdFacility
14,00021,00028,00014,000Outputs
16,00028,00029,00016,000Inputs
2,0007,00003,000Imbalance
Corn
Milk
Nitrogen
P2O5
Pork
Beef
Eggs
Soybeans K2O
Historic Perspective
Corn
Milk
Nitrogen
P2O5
Pork
Beef
Eggs
Soybeans K2O
Future Perspective
Ethanol DGS ??
?
?
?
Profit Advantage
-5
0
5
10
15
20
25
30
0 10 20 30 40 50
WDGS Inclusion, % of DM
$/h
d a
bo
ve 0
% W
DG
S p
er
153 d
Assume: 95% of corn price, $0.10/bushel increase corn price, costs covered, 153 days
At Plant
30 Miles
60 Miles
100 Miles
Optimum Use
-5
0
5
10
15
20
25
30
35
40
0 10 20 30 40 50
WDGS Inclusion, % of DM
$/h
d a
bo
ve 0
% W
DG
S p
er 1
53 d
Assume: 75% of corn price, $0.10/bushel increase corn price, costs covered, 153 days(Calculated from 2006 U. of Nebraska Analysis)
At Plant
30 Miles
60 Miles
100 Miles
Source: Dan Loy, ISU
Figure 2. Dietary P in Beef Feedlot Diets
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.27% P
85% corn, 0% DGS
0.50% P
40% DGS
Future (?)
75% DGS & CGF
% diet P (DM-basis)
0.40% P
20% DGS
Excretedby
animal
Retained by animal
Animal PRequirement
Inclusion rate of DGS and CGF in diet
Impact of DGS Inclusion on Nutrient Management
Great N and P excretion Greater land requirements. Greater travel distances and time
requirements impacting labor, capital and operating costs.
Book values of nutrient concentration will not be representative.
Annual net value of manure, spreading cost and total fertilizer value of manure ($1,000 per year) for a 20,000 head beef open lot under corn-soybean rotation.
No DGS Inclusion in Diet 40% DGS Inclusion in Diet
Basis for Manure Application:
N-Based 1-YrP-Based
4-YrP-Based
N-Based
1-YrP-Based
4-YrP-Based
20.000 head feedlot
Annual fertilizer value of manure $373 $430 $430 $563 $766 $766
Total value of N $144 $144 $144 $217 $217 $217
Total value of P2O5 $85 $286 $286 $346 $548 $548
Annual cost $177 $344 $244 $240 $669 $329
Net value of manure $195 $86 $185 $323 $97 $437
Paradigm Shift Do crop farmers buy and apply P2O5?
How much do they pay for it? Do livestock producers have enough land for P-
Index based applications? What is the value of excess P2O5?
Is there an opportunity for these two people? What are possible outcomes?
Win-win: Feedlot sells P2O5 at reduced rate Win-draw: Feedlot sells at full price or gives away Lose-lose-lose: Cropper imports, Feedlot wastes, and P
levels continue to accumulate in Iowa soils or Iowa exports value added potential
Natural, Organic, and Grass-fed Beef Production: Economics and Transition
Nicolas Acevedo, Margaret Smith, and John D. Lawrence