Economics of Alfalfa Economics of Alfalfa RotationsRotations

Ken BarnettKen Barnett

UW-ExtensionUW-Extension

January 26, 2005January 26, 2005

• Alfalfa is a major profit center on Alfalfa is a major profit center on most dairy farms.most dairy farms.

• Annual yield has the largest impact Annual yield has the largest impact on its profitability.on its profitability.

• As the stand ages, the yield declines As the stand ages, the yield declines due to environmental stresses, wheel due to environmental stresses, wheel traffic, and diseases.traffic, and diseases.

• Alfalfa yield decline with advancing Alfalfa yield decline with advancing age means that farmers should age means that farmers should consider turning over stands faster to consider turning over stands faster to stay in a high yield range.stay in a high yield range.

• This presentation will shed some This presentation will shed some light on the factors that affect the light on the factors that affect the economics of production and the economics of production and the profit from producing corn silage and profit from producing corn silage and alfalfa in rotations of various years.alfalfa in rotations of various years.

• The economic analysis was prepared The economic analysis was prepared using the Agriculture Budget using the Agriculture Budget Calculation Software (ABCS). Calculation Software (ABCS).

• This program allows the user to enter This program allows the user to enter the tasks involved in the production the tasks involved in the production along with the inputs required by along with the inputs required by each task. Example, the corn-each task. Example, the corn-planting task requires the inputs of planting task requires the inputs of corn seed and starter fertilizer.corn seed and starter fertilizer.

• The ABCS program calculates the The ABCS program calculates the costs associated with using tractors costs associated with using tractors and implements. The costs and implements. The costs calculated are: energy, labor, repairs, calculated are: energy, labor, repairs, ownership interest cost, and a ownership interest cost, and a depreciation charge. depreciation charge.

The economic analysis required the The economic analysis required the creationcreation

of seven enterprise budgets. They of seven enterprise budgets. They were:were:

•an alfalfa establishment budgetan alfalfa establishment budget

•an alfalfa hay budget for the first yearan alfalfa hay budget for the first year

following establishmentfollowing establishment

•an alfalfa hay budget for the second an alfalfa hay budget for the second

year following establishmentyear following establishment

• an alfalfa hay budget for the third yearan alfalfa hay budget for the third yearfollowing establishment following establishment

• an alfalfa hay budget for the fourth an alfalfa hay budget for the fourth yearyearfollowing establishment following establishment

• a corn silage budget for the yeara corn silage budget for the yearfollowing the plowdown of the hay following the plowdown of the hay

• a corn silage budget for the corn aftera corn silage budget for the corn after corn year(s)corn year(s)

• The ABCS program has a feature that The ABCS program has a feature that calculates whole farm incomes and calculates whole farm incomes and costs based on enterprise budgets. costs based on enterprise budgets.

• The acreage selected was 210 crop The acreage selected was 210 crop acres, sufficient to support 60 – 75 acres, sufficient to support 60 – 75 dairy cows. dairy cows.

• Six rotations (whole farm budgets) Six rotations (whole farm budgets) were studied within the 210 acre were studied within the 210 acre constraint. constraint.

• The rotation shorthand used the The rotation shorthand used the notation of "E" for the alfalfa notation of "E" for the alfalfa establishment year, "A" for the establishment year, "A" for the alfalfa hay year(s), and "C" for the alfalfa hay year(s), and "C" for the corn silage year(s). corn silage year(s).

The 6 rotations selected were: The 6 rotations selected were:

• EAAAACCC (8-year)EAAAACCC (8-year)

• EAAAACC (7-year)EAAAACC (7-year)

• EAAACC (6-year)EAAACC (6-year)

• EAACC (5-year)EAACC (5-year)

• EAAC (4-year)EAAC (4-year)

• EAC (3-year)EAC (3-year)

The base prices were -- The base prices were --

• oatlage - $71.50/ton of dry matter oatlage - $71.50/ton of dry matter (tdm) (tdm)

• corn silage - $57.60/tdm corn silage - $57.60/tdm

• hay - $114.94/tdmhay - $114.94/tdm

• haylage - $114.94/tdmhaylage - $114.94/tdm

The base yields were -- The base yields were --

• establishment crop, 2.0 tdm oatlage establishment crop, 2.0 tdm oatlage

and 1.0 tdm haylage and 1.0 tdm haylage

• hay crop, 4.25 tdm (decreasing 0.5 tdmhay crop, 4.25 tdm (decreasing 0.5 tdm

each year as the stand aged) each year as the stand aged)

• corn crop, 5.0 tdm (10 percent larger incorn crop, 5.0 tdm (10 percent larger in

the year following plowdown)the year following plowdown)

RotationRotationGross Gross

IncomeIncomeDirect Direct CostsCosts

Fixed Fixed CostsCosts

Total Total CostsCosts ProfitProfit

EAAAACCEAAAACCCC 350.24350.24 168.72168.72 121.84121.84 290.57290.57 59.6759.67

EAAAACCEAAAACC 359.13359.13 158.32158.32 121.95121.95 280.27280.27 78.8678.86

EAAACCEAAACC 364.90364.90 167.23167.23 122.46122.46 289.69289.69 75.2175.21

EAACCEAACC 361.49361.49 179.70179.70 123.19123.19 302.89302.89 58.6058.60

EAACEAAC 379.87379.87 164.25164.25 123.70123.70 287.95287.95 91.9191.91

EACEAC 360.01360.01 184.04184.04 125.32125.32 309.36309.36 50.6550.65

Income, Costs, and Profit ($) per Acre for Selected RotationsIncome, Costs, and Profit ($) per Acre for Selected Rotations

The 4-year rotation is the most profitable. The 4-year rotation is the most profitable. The 3-year rotation is the least The 3-year rotation is the least

profitable.profitable.

• The 4-year rotation of EAAC was the The 4-year rotation of EAAC was the most profitable. most profitable.

• The 3-year rotation of EAC was the The 3-year rotation of EAC was the least profitable, followed by the 5-least profitable, followed by the 5-year rotation of EAACC and 8-year year rotation of EAACC and 8-year rotation of EAAAACCC. rotation of EAAAACCC.

• The 6-, and 7-year rotations were The 6-, and 7-year rotations were relatively close, profit wise.relatively close, profit wise.

RotationRotation OatlageOatlage HayHay Corn SilageCorn Silage

EAAAACCEAAAACCCC 50.5 (25.25)50.5 (25.25) 392.8 (105)392.8 (105) 404.3 (78.25)404.3 (78.25)

EAAAACCEAAAACC 60.0 (30)60.0 (30) 450.0 (120)450.0 (120) 315.0 (60)315.0 (60)

EAAACCEAAACC 70.0 (35)70.0 (35) 428.8 (105)428.8 (105) 367.5 (70)367.5 (70)

EAACCEAACC 84.0 (42)84.0 (42) 378.0 (84)378.0 (84) 441.0 (84)441.0 (84)

EAACEAAC 105.0 (52.5)105.0 (52.5) 472.5 (105)472.5 (105) 288.8 (52.5)288.8 (52.5)

EACEAC 140.0 (70)140.0 (70) 367.5 (70)367.5 (70) 385.0 (70)385.0 (70)

Tons of Dry Mater Production and Acres in Tons of Dry Mater Production and Acres in each Crop per Year by Selected Rotationseach Crop per Year by Selected Rotations

From 825 tdm/A for EAAAACC to 903 tdm/A From 825 tdm/A for EAAAACC to 903 tdm/A for EAACC produced per year.for EAACC produced per year.

Rotation EAAC (the most profitable)Rotation EAAC (the most profitable)Percent Return on Assets by Percent Return on Assets by

AlternativeAlternativeMethods of Valuing Land and Methods of Valuing Land and

EquipmentEquipment

The equipment complement selected had a new The equipment complement selected had a new value of $689,234 with $456,458 cost basis value value of $689,234 with $456,458 cost basis value remaining. remaining.

  Equipment Valued Equipment Valued atat

Including Land at Including Land at FairFair

Market ValueMarket Value

Including Land Including Land atat

Cost Basis ValueCost Basis Value

Excluding Land Excluding Land andand

Land Interest Land Interest ChargeCharge

New PriceNew Price 3.753.75 4.894.89 5.325.32

Cost Basis ValueCost Basis Value 4.094.09 5.765.76 6.826.82

Rotation EAC (the least profitable)Rotation EAC (the least profitable)Percent Return on Assets by Percent Return on Assets by

AlternativeAlternativeMethods of Valuing Land and Methods of Valuing Land and

EquipmentEquipment

  Equipment Valued Equipment Valued atat

Including Land at Including Land at FairFair

Market ValueMarket Value

Including Land Including Land atat

Cost Basis ValueCost Basis Value

Excluding Land Excluding Land andand

Land Interest Land Interest ChargeCharge

New PriceNew Price 2.712.71 3.533.53 3.543.54

Cost Basis ValueCost Basis Value 2.912.91 4.104.10 4.394.39

• When calculated as relative measure, When calculated as relative measure, the return to assets for the most the return to assets for the most profitable rotation is over 38 percent profitable rotation is over 38 percent higher that the return to assets in higher that the return to assets in the least profitable rotation.the least profitable rotation.

RotationRotation 5.25 and 0.55.25 and 0.55.25 and 5.25 and

1.01.04.25 and 4.25 and

0.50.54.25 and 4.25 and

1.01.03.25 and 3.25 and

0.50.5

EAAAACCEAAAACCCC 117.14117.14 74.0474.04 59.6759.67 16.5716.57 2.202.20

EAAAACCEAAAACC 144.54144.54 95.2895.28 79.9079.90 29.6029.60 13.1813.18

EAAACCEAAACC 132.68132.68 103.94103.94 75.2175.21 46.4746.47 17.7417.74

EAACCEAACC 104.58104.58 93.0893.08 58.6058.60 47.1147.11 12.6312.63

EAACEAAC 149.38149.38 135.02135.02 91.9191.91 77.5577.55 34.4434.44

EACEAC 88.9688.96 88.9688.96 50.6550.65 50.6550.65 12.3412.34

Profit per Acre ($) for Selected RotationsProfit per Acre ($) for Selected Rotationsby Selected Starting Hay Yield and Rate of Yield by Selected Starting Hay Yield and Rate of Yield

DeclineDecline

The 4-year rotation is the most profitable. The 4-year rotation is the most profitable. The 3- and 8-year rotations are the The 3- and 8-year rotations are the

least profitable.least profitable.

RotationRotation $20 $20 $30 $30 $40 $40 $50 $50 $60 $60

EAAAACCEAAAACCCC -5.68-5.68 11.8211.82 29.3229.32 46.8246.82 64.3264.32

EAAAACCEAAAACC 4.174.17 24.1724.17 44.1744.17 64.1764.17 84.1784.17

EAAACCEAAACC 5.195.19 23.9423.94 42.6942.69 61.4461.44 80.1980.19

EAACCEAACC -1.14-1.14 14.8614.86 30.8630.86 46.8646.86 62.8662.86

EAACEAAC 17.2317.23 37.2337.23 57.2357.23 77.2377.23 97.2397.23

EACEAC -2.25-2.25 11.9211.92 26.0826.08 40.2540.25 54.4254.42

Profit per Acre for Selected RotationsProfit per Acre for Selected Rotationsby Selected Differences Between theby Selected Differences Between the

Base Corn Silage Price and Changing Hay Base Corn Silage Price and Changing Hay PricesPrices

The 4-year rotation is the most profitable. The 4-year rotation is the most profitable. The 3- and 8-year rotations are the The 3- and 8-year rotations are the

least profitable.least profitable.

Conclusions and SummaryConclusions and Summary

• The 4-year rotation (EAAC) was the The 4-year rotation (EAAC) was the most profitable at $91.91 per acre most profitable at $91.91 per acre using the base values.using the base values.

• The 4-year rotation continued to be The 4-year rotation continued to be the most profitable for all of the the most profitable for all of the changes in the base hay yield and changes in the base hay yield and rate of decline in the base hay yield rate of decline in the base hay yield as the stand aged. as the stand aged.

• The 4-year rotation was the most The 4-year rotation was the most profitable for all of the price profitable for all of the price differences, between corn silage and differences, between corn silage and hay, considered. hay, considered.

• The amount of profit per acre for all The amount of profit per acre for all rotations increased substantially as rotations increased substantially as the price difference between corn the price difference between corn silage and hay increased.silage and hay increased.

• Rapid declines in the base hay yields Rapid declines in the base hay yields per acre (1.0 tdm) cause the 8-year per acre (1.0 tdm) cause the 8-year rotation to be less profitable than the rotation to be less profitable than the 3-year rotation. 3-year rotation.