Journal 2005

Dear ASFMRA Members and Friends of Agriculture: Congratulations, we have another winner! You have just opened the newest edition of the Journal of the ASFMRA with the most up-to-date collection of agricultural consulting, farm management, and rural appraisal topics in the world. In the following pages you will find cutting-edge manuscripts documenting research, field studies, practices, and methodologies proposed by the leading academic, appraisal, consulting, and management leaders of agriculture. This edition of the Journal continues to provide our membership and the agri-business community with topics on newly evolved issues and concepts for your review and consideration.

How Midwestern Farmers Rate Risk Management Practices 

By Eric Micheels and Peter J. Barry

This article utilizes a farmer survey to analyze the relationships between farm business structure and the importance farmers place on risk management practices. The strongest relationships occur between farm size and risk management, while rating differences across age of operator, tenure, and use of debt are less pronounced. 

Are Large Farms More or Less Environmentally Friendly?

By Daniel Bernardo, Terry Kastens, and Kranti Mulik

Adoption rates of nutrient and pesticide best management practices are investigated across farm types. Using a survey of corn and grain sorghum producers from Kansas, larger family farms are more likely to adopt best management practices aimed at reducing nitrate and pesticide runoff than smaller producers. Managers’ perspectives about water quality and environmental stewardship do not differ significantly across farm types.

Contract Hog Production: A Case Study of Financial Arrangements 

By R. Brent Ross and Peter J. Barry

A case study is presented about the financing arrangements, contract terms, and business relationships of a set of contract hog producers whose loans from community banks have been guaranteed by the Illinois Farm Development Authority. The results reflect the maturity and stability of contract hog production, although agribusiness and farmer integrators largely fill different market niches and contract with different types of producers.

Breached Bio-Security at the Farm Gate: A Minnesota Dairy Case Study of Criminal Activity 

By Dr. Cole R. Gustafson and David M. Saxowsky

Considerable public attention has recently focused on agrosecurity, especially from the perspective of national security and aggregate production. This article reviews a series of biosecurity breaches stemming from criminal activity affecting a Minnesota dairy. Present and future economic losses sustained by the dairy operation exceed $272,598 and will last until operation ceases. 

Two Philosophies of Value 

By Don B. Swenson, MAI, Consultant/Appraiser

What is your view of the appraisal concept we call “value” and/or “market value?” Do you view this concept as a real thing that can be discovered in the marketplace? In other words, is this concept an objective reality that one can estimate or derive with relative certainty from real data and facts? Or is this concept strictly a mental name or label… for a numerical result that we derive from our subjective consciousness? How should this concept be viewed by our profession in today’s world? That is the issue of this article. It is an issue of philosophy and the nature of reality as we perceive it. And the issue affects how we develop our reports and present our conclusions to our clients. 

A Comparative Analysis of Soybean Production Between the United States, Brazil, and Argentina 

By Michael C. Sutton, Nicole Klein, and Gary Taylor

The soybean industry has been very dynamic since the 1970s. During that decade, China and the United States dominated the market for soybeans, while Brazil and Argentina were essentially start-ups in the industry. By 1987-88 Brazil was producing 18 million metric tons (mmt) of soybeans and exporting 2.7mmt, while the US exported 17.8mmt. By 2002-03, Brazil had increased soybean production to 51mmt and exports to 20.5mmt and was regarded as one of the world’s leading soybean producers and exporters. The U.S., while still a dominant producer of soy, had much slower growth and only exported 2.5mmt more beans than Brazil during that same period (Flaskerud). Argentina’s growth has essentially mirrored that of Brazil’s, albeit on a somewhat smaller scale. Like Brazil, Argentina was a relatively small player in the soybean market during the 1970s, but was firmly established as the third leading worldwide producer of soybeans by 1998-99. In fact, Argentina’s growth has been so rapid as of late that in 2001 they produced 27 million tons, more than twice as many soybeans as they produced in 1991 (11.1 million tons) (Schnepf, et al., 2001a). 

Using Farm-Level Data to Improve Marketing and Planning: An Illustration with Live Hogs

By Dwight R. Sanders, Gary A. Apgar, and Mark R. Manfredo

Actual live hog sales data from the Swine Center at Southern Illinois University at Carbondale are used to examine marketing practices and develop a forecasting and budgeting tool. The data show that carcassbased hog sales receive a price premium of $4.35 per live hundredweight. Likewise, hogs marketed at the optimal live weight, 244 pounds, receive a $0.26 per hundredweight premium. The data are also used to develop a futures-based hedging and forecasting model. Price forecasts are used to generate revenue estimates to assist with business planning. The results demonstrate a number of ways producers and agribusinesses can use sales data to improve their marketing and business planning. 

A Case Study of a Market Advisory Service’s Performance in Marketing Hard Red Winter Wheat in Kansas 

By Tod S. Kalous, Kevin C. Dhuyvetter, and Terry L. Kastens

Crop marketing, and specifically the efficiency of markets, is a topic of much interest and debate in the agricultural industry. This case study examines the effectiveness of a marketing advisory service (MAS) in pricing hard red winter wheat in Kansas. The post-harvest recommendations of this particular MAS followed by a wheat producer in northwest Kansas over a 32- year time period were analyzed. Results indicate that the net price received following the MAS’s recommendations were statistically no better than simply selling at harvest given commercial storage costs and bank interest rates. With lower storage costs, the MAS did receive a premium of 13¢ per bushel compared to harvest sales. A cash marketer storing and selling grain at the same time as the MAS marketer, but without forward contracting, would have been 10¢ per bushel worse off than the MAS marketer. This MAS gain was due to its ability to secure a stronger basis level and pick up short term price movement gains. However, these strengths of the MAS were offset by its fees and by the fact that they tended to store wheat too long.

An Investment Analysis Of A Southern Mixed Enterprise Farm: Broilers and Silvopasture 

By Walt Prevatt, Jamie Yeager, George Young, Gene Simpson, and Hal Pepper

This investment analysis evaluates a 320-acre mixed enterprise farm involved in producing broilers, hay, and pine trees over a 30-year planning horizon. A net present value analysis was conducted to determine the feasibility of this investment. A sensitivity analysis was also performed to identify and measure the impact of sensitive parameters in the investment analysis. 

Cost of Conventional Tillage and No-till Continuous Wheat Production for Four Farm Sizes 

By Francis M. Epplin, Curtis J. Stock, Darrel D. Kletke, and Thomas F. Peeper

The objective of this study was to determine production costs for both conventional tillage and no-till for continuous monoculture wheat production in the southern Great Plains. The reduction in the price of glyphosate after the original patent expired has improved the relative economics of no-till for continuous winter wheat. However, if differences in the opportunity cost of labor are ignored, for some farm sizes, total operating plus machinery fixed costs are greater for the no-till system. 

Forecasting Agricultural Land Values in the Midwest States 

By Glenn A. Helmers, Saleem Shaik, and Bruce B. Johnson

From a practical stand point, the precision and robustness of forecasting agricultural land values are evaluated in two outof- sample time periods. Empirical application to five Midwestern states in the U.S. indicates the annually updated model performed well. 

Price Risk Management Strategies for Sunflowers 

By George Flaskerud

Price risk management strategies are analyzed for NuSunTM oil sunflower producers. Correlations indicate that changes in NuSun prices are the most closely correlated with canola futures. Soybean oil futures were a distant, secondbest correlation. A cross-hedge ratio of .99 hundredweight of November canola futures was derived for October. With December soybean oil futures, the cross-hedge ratio was .33 hundredweight. On the basis of net price received, seven strategies ranked better than harvest sales only. Soybean oil futures performed somewhat better across all strategies, but with somewhat higher variability on average. The analysis was based on 1997-2004 data. 

Economic Return to Adoption of Mechanical Thinning: The Case of New Mexico Chile

By Jay Lillywhite, Ph.D., Jerry Hawkes, Ph.D., James Libbin, Ph.D., and Ryan Herbon

Facing expanding foreign competition and increasingly more stringent labor and environmental laws, today’s vegetable producer faces a challenging business environment. One way in which vegetable producers have attempted to stay competitive is through the adoption of new technologies. This paper examines the economic returns available to chile pepper producers willing to adopt mechanical thinning as a substitute for either contracted hand thinning or transplanting. 

Estimated Returns to Iowa Farmland 

By Dr. Michael Duffy and Ann Holste

This paper estimates the average return to Iowa farmland is approximately 3.9 percent. For the farmer with owned land, the returns are approximately five percent using an average price scenario. Government programs are estimated to have significant impacts on Iowa farmland values. 

The Impact of Combined Grass and Wetland Easements on Agricultural Land Values in South Dakota

By Steven D. Shultz and Duane Pool

The impact of U.S. Fish and Wildlife Service grass and wetland easements on agricultural land values across three counties in the Prairie Pothole Region of South Dakota were determined by comparing the sale prices of 38 easement encumbered properties sold between 1994 and 2000 across 9 counties in South Dakota, with hypothetical fee simple sale prices calculated using land values from comparable sales without easements. On average grass/wetland easements reduced sale prices by 6.6 percent. Alternatively, 60 percent of properties had reduced sale prices attributed to easements. However, almost 95 percent of sellers were more than sufficiently compensated for reduced sale prices by earlier USFWS easement payments and average net impacts to sellers of easement encumbered land was a positive 30 percent.

Implications of Carbon Sequestration for Landowners 

By Tanveer A. Butt and Bruce A. McCarl

Carbon sequestration on agricultural lands might become an important instrument of the U.S. policy for reduction of atmospheric carbon, which is believed to be a major contributing factor to recent climatic change. Herein, we examine the near term income enhancing prospects of carbon sequestration for landowners. Based on a review of current U.S. policies, sequestration cost, and recent developments in the carbon market, we show that presently the prospects may be limited.