Post on 12-Jan-2016
Relative Cost Efficiencyof No-Till Farms
2008 Ag Profitability Conference: McPherson Michael Langemeier January 15, 2008
Outline of Presentation
Introduction KFMA Data Detailed Cost Comparisons Whole Farm Analysis Summary and Conclusions
Introduction
Using the 2006 Crop Residue Management Survey, the adoption of no-till production has increased from 7.4% of planted acres in 1990 to 31.5% of planted acres in 2006.
This paper documents cost differences between farms that have adopted a no-till production system, and those with a conventional or reduced tillage system.
KFMA Data
Identification of No-Till Farms Participating Associations:
Northwest North Central South Central Northeast (Atchison, Jackson, Leavenworth,
and Nemaha)
KFMA Data
Detailed Cost Comparisons (2006 data) North Central South Central
Whole-Farm Analysis (2002 to 2006 data) Central Kansas
142
265
8 2
92
71
3713
318
132
30
41
409
175
60
4 1
10
00
00
10
154
00
70
1910
84
82
4015
80
10
20
00
2210
3616
80
144
152
00
00
31
42 13
5120
247
111
65
103
137
135
195
40 32
13 158
30
104
153
122
278
4917
2214
6826
2911
22 4
3112
184
2511
365
4612
274
25
14 5
4011
356
3110 0
030
6
8
7
1
234 31
9254
205
248
273
5320
356
4725
2719 29
10
517
215
3913
3618 29
13
203
335
3415
4912
4912
2112
7715
3214
7711
238
365 15
14
5535
167
4010
Top Number = Number of Farm Units Per CountyBottom Number = Number of Extra Partners or Persons in the Multi-Operator Farm Units
Kansas Farm Management Associations2006 Membership
Detailed Cost ComparisonsPer Harvested Acre
Labor Hired labor and opportunity charges on operator and family
labor Machinery
Repairs on machinery and equipment, machine hire, gas, fuel, oil, and depreciation on machinery and equipment
Crop Seed, crop insurance, fertilizer, herbicide, and miscellaneous
costs such as irrigation energy, crop storage and marketing, and crop supplies
Improvement Asset Charges Other Expenses
Detailed Cost AnalysisTotal Crop Cost per Harvested
Acre
202 196 205
275
201189 193
269
$0
$50
$100
$150
$200
$250
$300
$350
NW NC SC NE
Item
Avera
ge
TillNo-Till
Detailed Cost AnalysisHistorical Total Crop Cost: NC KFMA
157169
187 196 196
159 161177 184 189
$0
$50
$100
$150
$200
$250
$300
2002 2003 2004 2005 2006
Year
Avera
ge
TillNo-Till
Detailed Cost AnalysisCost Categories: NC KFMA
26
50 5449
24
41
63
45
$0
$15
$30
$45
$60
$75
$90
Labor Mach Crop Asset
Item
Avera
ge
TillNo-Till
Detailed Cost AnalysisCost Categories: SC KFMA
28
59 58
46
22
49
73
38
$0
$15
$30
$45
$60
$75
$90
Labor Mach Crop Asset
Item
Avera
ge
TillNo-Till
Detailed Cost AnalysisMachinery Cost: NC KFMA
16
9
1412
14
5
11 11
$0
$5
$10
$15
$20
$25
Repairs Hire Fuel Depr
Item
Avera
ge
TillNo-Till
Detailed Cost AnalysisMachinery Cost: SC KFMA
18
11
161313
8
1316
$0
$5
$10
$15
$20
$25
Repairs Hire Fuel Depr
Item
Avera
ge
TillNo-Till
Detailed Cost AnalysisCrop Cost: NC KFMA
13
28
1216
30
17
$0
$5
$10
$15
$20
$25
$30
$35
Seed Fert Herb
Item
Avera
ge
TillNo-Till
Detailed Cost AnalysisCrop Cost: SC KFMA
14
28
12
20
28
21
$0
$5
$10
$15
$20
$25
$30
$35
Seed Fert Herb
Item
Avera
ge
TillNo-Till
Detailed Cost AnalysisCentral Kansas
Labor cost, machinery cost, and asset charges are relatively lower for the no-till farms.
Crop cost is relatively higher for the no-till farms.
Whole-Farm AnalysisCentral Kansas
Comparison of Whole-Farm Characteristics Total Acres Crop Acres Crop Intensity (Harvested Acres/Crop
Acres) Percent of Crop Acres Planted to Wheat,
Feed Grains, and Oilseeds
Whole-Farm AnalysisCentral Kansas
Comparison of Whole-Farm Characteristics Value of Farm Production Net Farm Income Labor Cost as a Percent of Value of Farm
Production Value of Farm Production per Worker Expense Ratios Operating Profit Margin Asset Turnover Ratio
Whole-Farm AnalysisDefinitions
Value of Farm Production Value of farm production (VFP) equals the sum
of livestock, crop, and other income computed on an accrual basis minus accrual feed purchased. VFP provides a measurement of value added and if often used as a measure of farm size.
Net Farm Income Return to operator’s labor, management, and
equity (net worth) computed on an accrual basis.
Whole-Farm AnalysisDefinitions
Expense Ratios Total Expense Ratio
Total Expense / Value of Farm Production Adjusted Total Expense Ratio
(Total Expense + Opportunity Charge on Operator and Family Labor) / Value of Farm Production
Economic Total Expense Ratio (Total Expense + Opportunity Charge on Operator and
Family Labor + Opportunity Charge on Owned Assets) / Value of Farm Production
Whole-Farm AnalysisDefinitions
Operating Profit Margin Ratio (Net Farm Income + Interest – Opportunity
Charge on Operator and Family Labor) / Value of Farm Production
Asset Turnover Ratio Value of Farm Production / Average Total
Assets
Acres Farmed andCrop Intensity
Tillage No-Till
Total Acres 1,626 2,062
Crop Acres 1,208 1,645
Crop Intensity 100.1% 104.4%
Crops Planted
51%
22%
13%
40%
31%25%
0%
10%
20%
30%
40%
50%
60%
Wheat Feed Grains Oilseeds
Crop
Perc
ent
TillNo-Till
Yield ComparisonsNorth Central Kansas
Tillage No-Till
Wheat Yield 46.8 45.3
Grain Sorghum Yield
63.5 71.9
Soybean Yield 24.4 26.1
Corn Yield 73.7 73.0
Value of Farm Production andNet Farm Income
Tillage No-Till
Value of Farm Production
273,706 370,847
Net Farm Income
47,422 64,519
Farm Size Categories
18%
40%
30%
12%
2%
36%
41%
20%
0%
10%
20%
30%
40%
50%
< 100 100 to 250 250 to 500 > 500
Value of Farm Production (thousands of dollars)
Perc
ent of Farm
s
TillNo-Till
Number of Workers andLabor Efficiency
Tillage No-Till
Number of Workers
1.38 1.56
Labor Cost as a Percent of Value of Farm Production
19.28% 16.54%
Value of Farm Production per Worker
$198,338 $237,875
Expense Ratios
0.83
0.98
1.16
0.830.95
1.09
0.00
0.25
0.50
0.75
1.00
1.25
1.50
TER ATER ETER
Expense Ratio
Ratio Till
No-Till
Expense Ratios
Percent of Farms with ETER < 1 Tillage Farms 19.2% No-Till Farms 24.5%
Financial Performance
Tillage No-Till
Asset Turnover Ratio
30.54% 38.33%
Profit Margin 8.47% 11.14%
% of FarmsBottom Quartile
28.33% 7.45%
% of FarmsTop Quartile
23.75% 30.85%
Size Versus Adoption of No-Till?
Correlation Coefficients ETER and Total Acres -0.143 ETER and Value of Farm Production -0.292 ETER and Number of Workers -0.119 ETER and No-Till -0.110
Both size and NT adoption are significantly correlated with the economic total expense ratio (ETER).
Economies of Size
Significant economies of size exist among KFMA farms. The profit margin for large farms is
substantially higher. The economic total expense ratio, one of
best indicators of economies of size, is substantially lower for large farms.
Performance Benchmarks KFMA Farms with Continuous Data
1,160 Farms 2002 to 2006 5-Year Averages:
VFP = $259,095 Expense Ratios:
Total Expense Ratio = 0.803 Adjusted Total Expense Ratio = 0.967 Economic Total Expense Ratio = 1.156
Operating Profit Margin = 0.0940 Asset Turnover Ratio = 0.2942
Profit Margin Ratio(2002-2006 KFMA Average)
0.0940
-0.2114
0.04410.1174
0.1595
-0.400
-0.200
0.000
0.200
0.400
All < 100 100 to 250 250 to 500 > 500
Value of Farm Production (thousands of dollars)
Ratio
Economic Total Expense Ratio(2002-2006 KFMA Average)
1.16
1.75
1.24
1.111.04
0.75
1.00
1.25
1.50
1.75
2.00
All < 100 100 to 250 250 to 500 > 500
Value of Farm Production
Ratio
Economies of Size
Economic Total Expense Ratio
0.001.002.003.004.00
0 500 1,000 1,500 2,000
Value of Farm Production ($1,000)
Ind
ex
Summary and Conclusions Cost per harvested acre is relatively lower for farms
that have adopted a no-till system. In addition to having a relatively lower cost per
harvested acre, on average, the no-till farms exhibited a lower economic total expense ratio, improved labor efficiency indices, and higher operating profit margin and asset turnover ratios.
However, it is important to note that some of the no-till farms were in the bottom operating profit margin quartile and that some of the mixed tillage farms were in the top operating profit margin quartile.
Contact Information
Publications and Data: www.agmanager.info www.kmar105.com
E-mail: mlange@agecon.ksu.edu