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Relative Cost Efficiency of No-Till Farms

Relative Cost Efficiency of 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.

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Relative Cost Efficiency of No-Till Farms

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  1. Relative Cost Efficiencyof No-Till Farms • 2008 Ag Profitability Conference: McPherson • Michael Langemeier • January 15, 2008

  2. Outline of Presentation • Introduction • KFMA Data • Detailed Cost Comparisons • Whole Farm Analysis • Summary and Conclusions

  3. 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.

  4. KFMA Data • Identification of No-Till Farms • Participating Associations: • Northwest • North Central • South Central • Northeast (Atchison, Jackson, Leavenworth, and Nemaha)

  5. KFMA Data • Detailed Cost Comparisons (2006 data) • North Central • South Central • Whole-Farm Analysis (2002 to 2006 data) • Central Kansas

  6. 25 6 5 13 7 46 12 10 3 36 5 9 2 24 7 142 265 8 2 7 1 11 1 8 14 5 4 0 19 5 25 11 27 4 13 5 37 13 31 8 4 1 32 13 13 2 3 0 35 6 31 10 15 8 15 3 40 11 0 0 10 4 22 14 3 0 49 17 30 7 40 9 17 5 1 0 6 0 4 1 18 4 27 8 6 1 29 11 12 2 23 4 25 4 31 9 0 0 0 0 1 0 15 4 7 0 49 12 31 12 0 0 77 15 32 14 68 26 22 4 27 3 24 8 20 5 8 0 8 2 40 15 21 12 23 8 19 10 8 4 77 11 8 0 27 19 47 25 29 10 35 6 22 10 36 16 53 20 55 35 36 5 1 0 2 0 15 14 36 18 0 0 14 4 39 13 21 5 29 13 4 2 51 7 3 1 13 5 12 0 40 10 15 2 0 0 0 0 20 3 33 5 34 15 49 12 16 7 Kansas Farm Management Associations 2006 Membership Top Number = Number of Farm Units Per County Bottom Number = Number of Extra Partners or Persons in the Multi-Operator Farm Units

  7. 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

  8. Detailed Cost AnalysisTotal Crop Cost per Harvested Acre

  9. Detailed Cost AnalysisHistorical Total Crop Cost: NC KFMA

  10. Detailed Cost AnalysisCost Categories: NC KFMA

  11. Detailed Cost AnalysisCost Categories: SC KFMA

  12. Detailed Cost AnalysisMachinery Cost: NC KFMA

  13. Detailed Cost AnalysisMachinery Cost: SC KFMA

  14. Detailed Cost AnalysisCrop Cost: NC KFMA

  15. Detailed Cost AnalysisCrop Cost: SC KFMA

  16. 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.

  17. 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

  18. 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

  19. 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.

  20. 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

  21. 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

  22. Acres Farmed andCrop Intensity

  23. Crops Planted

  24. Yield ComparisonsNorth Central Kansas

  25. Value of Farm Production andNet Farm Income

  26. Farm Size Categories

  27. Number of Workers andLabor Efficiency

  28. Expense Ratios

  29. Expense Ratios • Percent of Farms with ETER < 1 • Tillage Farms 19.2% • No-Till Farms 24.5%

  30. Financial Performance

  31. 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).

  32. 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.

  33. 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

  34. Profit Margin Ratio(2002-2006 KFMA Average)

  35. Economic Total Expense Ratio(2002-2006 KFMA Average)

  36. Economies of Size

  37. 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.

  38. Contact Information • Publications and Data: • www.agmanager.info • www.kmar105.com • E-mail: • mlange@agecon.ksu.edu

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