Journal 2004

2004 Letter from the Editor/Editorial Committee [August 15, 2004]

Turfgrass – Sod Production: An Economic Evaluation

By John L. Adrian, Jennifer J. Cain, Patricia A. Duffy, Elizabeth A. Guertal, and J. Walter Prevatt

Notable economies of size were found both in establishment and continued operation of turfgrasssod farms in Alabama. Over a seven-year time horizon, bermudagrass was the most profitable grass to produce on each farm size analyzed. Both zoysiagrass and centipedegrass also had positive economic returns over the time horizon. 

Farmland Ownership Transitions 

By Charles B. Dodson

Individuals with less than 15 years of life expectancy own nearly 30 percent of all farmland in the U.S. This is expected to result in millions of acres of farmland being sold or transferred in upcoming years. Immediate impacts on farmland markets are expected to be minimal, as these transfers will be spread over a long period. Over the long run, it is expected that farmers will increase their share of farmland while landlords’ ownership decreases. The increased number of farmland transfers is not expected to have any notable impact on the size distribution of farms. Will the greater availability 

Attitudes and Characteristics of U.S. Hog Producers Under Alternative Business Arrangements 

By Christopher G. Davis, Ph.D. and Jeffrey M. Gillespie, Ph.D.

This study compares four business arrangements using variables such as farm characteristics, producer attitudes, farm financial, and producer characteristics. Data were obtained from a national survey of hog farmers conducted during the summer and fall of 2000. Results reveal that these factors differ significantly among business arrangements. 

Is Soft Red Winter Wheat Production Competitive with a Corn-Soybean Rotation? 

By Phillip R. Eberle, Jody McDaniel, Jeff Beaulieu, and Bryan G. Young

Soft red winter wheat (SRWW) production in Illinois as well as the U.S. has been on the decline. Trends in wheat yields have not kept up with corn and soybean yield trends. Price and cost of production for SRWW has not improved relative to corn and soybeans. Despite these disadvantages, SRWW alone or double cropped with soybeans is competitive with a corn-soybean rotation under certain conditions. 

Growth-Enhancing Capital and Operating Plans of Small and Large Grain Farms 

By Cesar L. Escalante and Peter J. Barry

The heterogeneity of structural conditions of small and large farms influences these farms’ choices of business growth strategies especially under increasing income risk conditions. This study’s econometric results suggest that farms in general minimize family withdrawals and use farm revenue enhancement strategies. Smaller farms, however, also rely on non-farm sources of income for supplementary cash receipts and implement strategies designed to improve the productivity of their farm assets. Larger farms, on the other hand, tend to be more inclined to implement growth strategies that regulate their leverage position and affect their existing farmland control arrangements.

Agricultural Worker Trends and Issues in the Mountain West 

By Dawn Thilmany

The relative growth in employment and the Hispanic population were greater than overall population growth in the Mountain West, and even agricultural workers, wages, and employer numbers increased, countering U.S. trends. These trends, together with labor market studies showing agriculture as a primary first employer of Hispanic immigrants, would suggest that some of the population and economic growth in the Mountain West region has been due to increased agricultural and farmrelated employment. This article focuses on exploring these employment and demographic trends, as well as discussion of related management and political issues. 

Relative Profitability and Risk of Kansas Farms and S&P 500 

By Holly M. Bigge and Michael R. Langemeier

This study examined the relative profitability and risk of a sample of Kansas farms and the S&P 500 index. The CAPM model was used to estimate relative profitability and risk for 318 individual farms. Results indicated that the average farm in the sample was earning 8.1 percent less than the S&P 500 over the 1982 to 2001 period. For most of the farms in the sample, the risk faced by individual farms was not related to the risk in the S&P 500 index. This suggests that there are opportunities for farm operations to diversify their farm operation risk by investing in the stock market. 

Product Differentiation and Target Marketing by Agricultural Producers 

By Jon C. Phillips and H. Christopher Peterson

This article tests the idea that two groups of agricultural producers exist, based on cost leadership and differentiation strategies. Based on a written survey and telephone interviews of agricultural producers, a new strategy classification framework for producers is introduced. This framework has five categories: commodity producers, reverting commodity producers, transitional producers, product production specialists, and product producer-marketers. Strategic recommendations for agricultural producers are given. 

Thoughts on Implications of Brazilian Soybean Production on Selected States 

By George Flaskerud

Soybean production in Brazil has grown rapidly in recent years. This article examines the potential impact of Brazilian soybean production on North Dakota and other U.S. producers. Brazil, followed by Argentina, is the leading soybean producer in South America. All South American soybean production surpassed the United States during 2002- 03. In Brazil, production and yields have grown the fastest in Mato Grosso (Center-West) and other expansion states that have savannah-like flatland (Cerrado land). Soybean costs of production for 2003 harvest are considerably lower in Mato Grosso than in North Dakota and Iowa even when freight costs to Rotterdam are considered, giving Brazil a strong competitive position in the world market. A tripling of soybean production in Brazil is possible. But, it appears that world demand can accommodate the current pace of growth in Brazil at prices profitable to at least North Dakota producers. 

Does Modern Portfolio Theory Apply to Agricultural Land Ownership? Concepts for Farmers and Farm Managers

By James D. Libbin, Jeremy D. Kohler, and Jerry M. Hawkes

Farmers often have cash flow problems, although many build substantial wealth with the appreciation on their most valuable asset, land. Many agricultural products often consider diversification differently than the typical financial investor may. Agricultural producers usually only consider diversification approaches only within the farm itself, although there may be considerable benefits from truly financially diversifying beyond the farm enterprise. This article provides a theoretical link between financial market concepts and the desire of farmers, farm owners, and farm managers to maximize total income and minimize aggregate income risk. 

Financial and Real Estate Investments in Mixed-Asset Agricultural Portfolios

By James D. Libbin, Jeremy D. Kohler, and Jerry M. Hawkes

The concepts of diversified portfolios common to financial market investors are applied to a farm setting. This study evaluates the effect on farm portfolio values of using available cash generated from the farm to diversify financially. The financial strategies included alternative debt management strategies, cash investments, and equity investments. Models of 10 representative New Mexico farms were used in this study. Historical cost and return estimates were used to determine annual net cash income for each farm model from 1989 through 2001. Excess cash, beyond operating and family living requirements, was used to purchase shares of a money market fund, a mutual fund, and several publiclytraded agricultural companies. Many of the farm models could not generate sufficient cash flow at any level of debt without outside income; therefore, these farms could not consider any financial investment strategies. For those farms that could cash flow, debt management and financial investments had favorable effects on portfolio values. Although portfolio values were increased from the various financial investments, there was no indication of major diversification benefits. 

Computer Adoption and Use by Ohio Farmers 

By Marvin T. Batte

Farmers are continuing to expand their use of computers. Computer adoption by Ohio farmers currently stands at 44 percent. Financial accounting remains the most often used task of farm computers. The Internet has become an important tool for farmers, one which they evaluate highly.

The Impact of Political and Economic Culture on Farmland Values in Western Canada 

By Marvin J. Painter, Ph. D.

Since the early 1970s, average farmland values have been consistently and significantly higher in Alberta compared with Saskatchewan and Manitoba even though average net farm income per acre is lowest in Alberta. The main conclusion is that Alberta’s higher farmland value is supported by the valuation fundamentals; however, there are a number of other factors, including political and economic culture, which may influence farmland values. 

Value of Water Conservation Improvements on Arkansas Rice Farms 

By Kenneth B. Young, Eric J. Wailes, Jennie H. Popp, and James Smartt

The net present value (NPV) of net returns to rice and soybean land in eastern Arkansas is estimated to range from $283 to $3,300 per acre in alternative resource situations. Investment in water conservation improvements to increase irrigation efficiency and to conserve rainfall runoff greatly enhances land values in the face of a declining ground water supply. The MARORA model is used to estimate the NPV of net returns to land under alternative ground water supply conditions with and without on-farm water conservation improvements including reservoirs/tail-water recovery systems, underground pipe conveyance systems, and land leveling. 

Using Farm Financial Standards Council Recommendations in the Profitability Linkage Model: The ROA Dilemma

By Freddie L. Barnard and Michael Boehlje

The DuPont profitability linkage model is used to analyze business profitability. However, if ratio calculations recommended by the Farm Financial Standards Council (FFSC) are used in the model, adjustments are needed. The adjustments are needed due to the different treatments of interest in the calculation of the Return on Assets (ROA) by the FFSC and the business school’s application of the DuPont profitability linkage model. Two alternatives are presented to resolve the “ROA Dilemma.” 

Equity and Risk Associated with Share and Cash Leasing: A Nebraska and South Dakota Case Study 

By John D. Cole, Larry L. Janssen, and Bruce B. Johnson

Twelve hundred farm operators were surveyed concerning their cropland leasing practices. Analysis performed on selected leasing arrangements revealed a risk premium for sharing arrangements, though this premium is returns to risk, not land. Cropland leases were found to be generally equitable though adjustments may be needed on an individual basis. 

Attributes of U.S. Farms by Number of Generations the Farm Has Been in a Family 

By Carl Zulauf

Thirty-nine percent of farmers surveyed in 26 states during the spring of 2001 classified their farm as being in the family for three or more generations. Thirty-six percent classified the farm as first generation. On average, third-andhigher generation farms are larger, provide more of the family’s income, and depend more on farm program crops than first and second generation farms. These differences suggest that providers of farm management services may generate new opportunities by segmenting into different market niches farms that differ by generation in farming.

Effects of Feeder Cattle Grades on Performance and Net Return 

By Hub B. Baggett IV, Clement E. Ward, and M. Dan Childs

Buyers pay premiums/discounts for feeder cattle according to differences in frame size and muscle thickness. Little research has addressed the economic effects associated with these feeder cattle attributes. In this study, frame size and muscle thickness had limited significant effects on stocker, feedlot, and carcass performance and virtually no significant effects on stocker, feeding, and stockerfeeding net returns.