Journal 2009

2009 Letter from the Editorial Committee 

Approximately twenty papers were submitted to the ASFMRA Editorial Committee for consideration of publication in our 2009 Journal. This collection of papers provided our Committee with a wide assortment of topics to review and evaluate for your reading pleasure. 

What Drives Land Prices in Your Market? The Use of Multiple Regression Analysis to Confirm the Significance of Determinative Real Estate Value Elements

By Martin Wild, Ph.D., ARA, RPRA

Multiple regression analysis (MRA) has proven to be a useful tool to predict selling prices in a mass appraisal context. The significance of determinative value elements – identified by more conventional methods such as sale verification or pairings – can objectively be confirmed or rejected by the practicing appraiser employing MRA. This is demonstrated with the analysis of a small set of sales of rural lots in
southeast Alaska.

Economic Advantage of No-Tilling Winter Forages for Stocker Grazing

By Jon T. Biermacher, Chuck Coffey, Billy Cook, Dan Childs, Jim Johnson and Devlon Ford

The stocker cattle grazing enterprise in the Southern Plains regions of the United States is an important economic activity. The objective of the study was to determine the difference in the expected net return of a no-till forage establishment system relative to the intensive clean-till establishment system typically used in the region. Results show a reduction in fuel, lube, repairs and labor expenses, and fixed machinery costs of the conventional till system outweigh the expenses associated with herbicide and herbicide application of the no-till system. Over the eight-year duration of the study, the no-till system realized an average of 11 greater days of grazing compared to the conventional-till system. The expected net return of the no-till establishment system was $36.44 per acre greater than the conventional till system; however, this economic
advantage is sensitive to relative differences in cattle performance between systems. It is also sensitive to the price of herbicide and price of diesel fuel.

Acquiring and Applying Days Suitable for Fieldwork for your State

By Terry Griffin, Ph.D.

Knowledge of the number of days suitable for conducting fieldwork is instrumental to farm management decision making especially for
machinery, acreage acquisition and crop allocation decision making. Although each year is unique, understanding historic trends in the number of days that fieldwork can be conducted is useful for farm management decision makers. The steps necessary to obtain historic data from USDA, assemble the data into a usable database and apply the information to a series of farm management decision making problems under planting and harvesting situations are demonstrated.

Enterprise Cost Assignment and Land Tenure Implications in Crop Rotation Systems: A Rice/Crawfish Rotation Case Study

By Michael E. Salassi, Michael A. Deliberto and Eric P. Webster

Crop rotation systems are a commonly used production practice with primary benefits including the suppression of soil pathogens and crop pests as well as the reduction of soil nutrient depletion. Realized economic benefits are observed as increased revenue resulting from higher yields, or as reduced pesticide or fertilization expenses. In some instances, the inclusion of one crop in a rotation system may impose costs on another crop. A rice/crawfish rotation is utilized as a case study in this article to illustrate this relationship and to present implications for enterprise cost assignment and land tenure adjustments in situations where this relationship might occur.

Appraising Damaged Timber

By Thomas J. Straka

Estimation of the value of damaged timber stands can be complicated. The foundation for any valuation calculations involving damaged timber is land expectation value (LEV). A timber damage model using LEV is described in detail. The concept is economically sound as it ignores sunk costs and considers land opportunity cost and the impact on future rotations. The method described is an income approach. The results can also be applied to a replacement cost model. The two approaches will produce consistent results. FORVAL is a free computer software model that uses the same methodology and will produce the same results.

Substituting Medic, an Annual Legume, in Place of Summer Fallow for Winter Wheat Production

By Brian R. Lewton, James M. Krall, Bret W. Hess and Larry J. Held

An Australian “ley” farming type of system, which integrates medic pasture with livestock in place of conventional summer fallow, is a promising technology having the potential to provide important benefits for improving winter wheat production in the Central High Plains of the United States. Medic is an annual legume that regenerates yearly from a soil seed bank, and in the pasture phase of the cropping sequence, it provides hay or grazing for livestock. Farming systems with medics form the foundation for flexible and sustainable semiarid wheat farming systems in Australia. This article reports the performance of a specific medic specie (Medicagorigidula), which can replace fallow for more profitable winter wheat production in the U.S. Central High Plains.

Carbon Sequestration: a Potential Source of Income for Farmers

By Luis A. Ribera, Bruce A. McCarl and Joaquín Zenteno

Concerns regarding climate changes due to human activities have largely increased in the past few years. Scientists believe that atmospheric build-up of greenhouse gas (GHG) lead to climate change. The agricultural industry could play a role in the reduction of atmospheric GHGs by sequestering carbon through crop production, rangeland and afforestation offsets. However, there is a limited economic opportunity for landowners to participate in the carbon market as carbon prices have ranged over the years between $2 to $5 per tonne and currently is around $6 leading to returns on the order of $1-5 per acre.

Returns to Tillage Systems under Changing Input and Output Market Conditions

By Jeffery R. Williams, Dustin L. Pendell, Richard V. Llewelyn, Dallas E. Peterson and Richard G. Nelson

Costs and net returns for conventional tillage (CT), reducedtillage (RT) and no-tillage (NT) are evaluated for five cropping systems: continuous soybean, a soybean-grain sorghum rotation, a soybean-wheat rotation, continuous grain sorghum and continuous wheat, over a period of increasing input and output prices, 2006-2008. NT had the highest net return for all of the systems with soybeans each year. NT also had the lowest energy use for all systems. The net returns of NT increased relative to CT and RT from 2006 to 2008 for all of the systems with soybeans. However, this increase in net returns was a result of increasing commodity prices rather than a slower increase in costs for NT.

Cash is King · But Profitability is the Kingdom!

By Brian C. Briggeman and Michael D. Boehlje

Farm managers are currently in an agricultural environment of high risk and major changes in the farm business model (e.g., increases in leasing arrangements and outsourcing services). Cash is certainly important during these times, but it is even more important to make long-run decisions that generate earnings or profits. These profits should buffer the farm from the large amount of present and future risk and enable it to operate well into the future. Given today’s agricultural environment it may not be an overstatement that “cash is king, but profitability is the kingdom!”

Why Has the Price of Pasture Increased Relative to the Price of Cropland?

By Pamela Guiling, Damona Doye and B. Wade Brorsen

Historically, cropland rental rates have been substantially higher than rental rates for pasture. Currently however, the gap between selling prices of cropland and pasture in Oklahoma has shrunk in western Oklahoma and pasture now sells for more than cropland in eastern Oklahoma. Regression results show that primarily two factors explain this shrinkage. One is that the explosion in the deer population has increased the value of controlling deer hunting rights; the other is that increases in income have created a demand for land for noncommercial farms and ex-urban development. The income approach has become less useful to land appraisers, which may be due to difficulty in measuring returns from hunting rights and hobby farming.

Measuring Sustained Competitive Advantage for a Sample of Kansas Farms

By Elizabeth Yeager and Michael Langemeier

This paper examined sustained competitive advantage for a sample of 377 Kansas Farm Management Association farms with continuous data from 1988-2007. Technical, allocative, scale and overall efficiency indices were calculated for each farm and year. Approximately 30 percent of the farms exhibited significantly above average overall efficiency levels. These farms had a competitive advantage. Conversely, approximately 28 percent of the farms exhibited significantly below average overall efficiency levels or had a competitive disadvantage. The farms with a competitive advantage were significantly larger in terms of value of farm production and acreage, had significantly lower expense ratios and significantly higher profit margins.

Simulation Analysis of Double-Cropping Vegetables and Field Crops

By Archie Flanders, Nathan B. Smith, Esendugue Greg Fonsah, and John C. McKissick

Georgia field crop production entails agronomic considerations that lead to a typical system that includes cotton, peanuts and corn as rotation crops. Financial analysis of Georgia field crops indicates the importance of government programs to support farm income. Current legislation permits double-cropping of Georgia fruits and vegetables on base commodity program acreage with no reduction in direct and counter-cyclical payments. Fresh cabbage has seasonal markets in which Georgia is the major U.S. supplier during the April-June and October-December harvesting months. Results indicate increased net returns of $377/ac. by doublecropping cabbage in a system with field crops.

Using USDA Production Forecasts: Adjusting for Smoothing

By Dwight R. Sanders, Ira J. Altman, Mark R. Manfredo and Rachel Anderson

Agribusinesses, producers and farm managers rely heavily on forecasts made by the U.S. Department of Agriculture and other government agencies in forming expectations that drive management decisions. While agency forecasts are a valuable and low cost source of forecast information, it is commonly thought that these agencies may unintentionally make gradual adjustments to their forecasts. In other words, agency forecasts may be “smoothed” such that they slowly evolve toward a rational forecast. In this paper, we investigate forecast smoothing in the USDA’s cotton production forecasts and demonstrate how forecasting practitioners and farm managers should correct the forecasts.

Economic Analysis of Zero-Grade Rice and Land Tenure

By Jeffrey A. Hignight, K. Bradley Watkins and Merle M. Anders

Fields precision leveled to a zero grade require significantly less applied water and provide significant savings in annual production expenses relative to contour levee rice fields. However, zero-grade is a land improvement and requires a large initial capital investment. This study uses a Net Present Value (NPV) approach to evaluate the monetary benefits of zero-grade rice production for tenants and landlords under
alternative rental arrangements. Results indicate both parties can gain positive monetary benefits under most lease structures in the long run but may experience short run monetary losses if yields decline during the initial years after the land improvement.

Range Livestock Strategies Given Extended Drought and Different Price Cycles

By Christopher T. Bastian, Padmaja Ponnamaneni, Siân Mooney, John P. Ritten, W. Marshall Frasier, Steven I. Paisley, Michael A. Smith and Wendy J. Umberger

Portions of the U. S. have recently or are currently experiencing extended periods of drought. Producers considering the purchase of breeding stock to rebuild herds while forage supplies recover could be doing so at
or near the top of the current cattle price cycle. This research investigates purchasing additional hay and partial liquidation as management strategies under various scenarios of drought and price cycles. Results indicate that purchasing hay may be a more risky strategy than partial liquidation, and it only provides positive returns over a 12-year planning horizon when extended drought occurs during a trough-to-trough price cycle.

Economics of Reduced-Till, No-Till and Opportunity Cropping in Western Kansas

By Robert O. Burton, Jr., Ray P. Smith and Alan J. Schlegel

Reduced-till (RT) is compared to no-till (NT) on a western Kansas farm using elevated crop residue levels and higher intensity opportunity cropping. Per acre expenses, net revenue and risk are determined with and without opportunity cropping. NT opportunity cropping is more profitable than RT eco-fallow using corn; however, risks and expenses are greater. Higher intensity NT cropping, with intensity decreased when soil moisture at planting is inadequate, increased net revenue and risk.

When Does Variable Rate Technology for Agricultural Sprayers Pay? A Case Study for Cotton Production in Tennessee

By Daniel F. Mooney, James A. Larson, Roland K. Roberts and Burton C. English

Producers interested in precision agriculture lack information on the profitability of variable rate technology (VRT) systems for agricultural sprayers. A partial budgeting framework was developed to evaluate the level of input savings required to pay for investments in VRT. To illustrate this framework, a case study for cotton production in Tennessee is provided. Ownership and information costs were determined for two commercially available VRT systems and compared to extension recommended input application levels. Map-based VRT systems required input savings of 11 percent to be profitable. Sensor-based systems required input savings from 5 to 11 percent to be profitable depending on imagery resolution.

Valuing Dried Distillers Grains with Solubles for Use in Swine Diets

By Todd Hubbs, Bhawna Bista, Paul V. Preckel and Brian Richert

The emergence of Dried Distillers Grains with Solubles (DDGS) as a viable feedstuff for swine producers coincides with escalating feed stuff prices, increased DDGS production and changes in processing resulting
in increases in available nutrients in DDGS. Evaluation of the nutritional and market characteristics of DDGS is useful for both ethanol and swine producers in establishing the value of this coproduct of ethanol production. This paper uses a minimum-cost feed formulation linear programming model to determine the value of DDGS in swine diets.

Computerized Technology Adoption Among Farms in the U.S. Dairy Industry

By Jeffrey Gillespie, Tyler Mark, Carmen Sandretto and Richard Nehring

This article examines the rate of adoption of four computerized technologies in U.S. dairy production: an on-farm computer to manage dairy records, accessing the internet for dairy information, computerized milking systems and computerized feed delivery systems. Data from the USDA-Agricultural Resource Management Survey were used for the analysis. Computers for managing records were used by most farmers, but adoption rates for the remaining technologies were much lower. Adoption rates differed by demographics, financial status, farm size and adoption of other technologies. Farm profitability differed by adoption status.

The Economic Impact of Rising Input Prices on California Agriculture

By Dr. Karen Klonsky

The recent rises in production costs pose new challenges to farmers. However, price increases are not proportionate across input categories with the most dramatic increases in energy and energy intensive inputs such as fertilizer. Consequently, the relative impact of rising input costs on different subsectors of agriculture depends on the input-intensity of the production system. Operating costs were examined for five crops in
California, prunes, winegrapes, processing tomatoes, alfalfa hay and dry beans over the period 2001 to 2008. For all commodities, the increase in operating costs was greater from 2007 to 2008 than the average annual increase from 2001 to 2007. The increase in costs was greatest for alfalfa and processing tomatoes with relatively high levels of fuel and fertilizer inputs, and lowest for wine grape production which is labor intensive.