Journal 2010

2010 Journal of the ASFMRA

2010 Letter from the Editor / Editorial Committee [June 04, 2010]

We received two dozen manuscript submissions for the 2010 Journal of the ASFMRA – making 2009 and 2010 both record years for the largest number of papers submitted for our review and consideration. As a result, this year’s Journal contains twenty-three articles that cover a wide variety of topics, theories and methodologies with something for everyone. Keep reading there are many new things for you to consider in the following papers. [more]

Crop Insurance Purchase Decisions: Study of Northern Illinois Farmers [June 04, 2010]

By Matthew Ginder, Aslihan D. Spaulding, J. Randy Winter, and Kerry Tudor

When selecting crop insurance coverage, farmers must consider multiple factors. The importance associated with factors that are considered when making crop insurance decisions varies among individual farmers. As available crop insurance options increase, selecting the appropriate coverage becomes a more complicated process. The prevalence of crop insurance participation and the existence of multiple selection criteria also makes understanding participant decisions more difficult. This paper provides findings of a mail survey conducted among farmers in northern Illinois. (Vol. 73, No. 1, Pg 3-22) [more]

Consumers’ Shopping Patterns and Expenditures on Ethnic Produce: Case Study from the Eastern Coastal U.S.A. [June 04, 2010]

By Ramu Govindasamy, Richard VanVranken, William Sciarappa, Albert Ayeni, Venkata S. Puduri, Kim Pappas, James E. Simon, Frank Mangan, Mary Lamberts, and Gene McAvoy

This study was undertaken to examine the possible niche markets which East Coast farmers might be able to use to regain their advantage. Their future economic success could hinge on shifting the focus from traditional fruits and vegetables to high-value specialty ethnic produce for which there might be a growing demand. The study results indicate that there is a strong market demand and interest for ethnic produce in the East Coast. Local producers can benefit by concentrating their efforts in producing ethnic vegetables and fresh produce and making these newer products available in the local and regional markets. (Vol. 73, No. 1, Pg 36-49) [more]

Climate Effects on Rainfall Index Insurance Purchase Decisions [June 04, 2010]

By James L. Novak and Denis Nadolynyak

Rainfall Index (RI) insurance provides forage and hay producers with group risk protection against drought related losses. However, insurance premiums and risk protection are currently based on pooled weather data series and do not account for the impacts of specific climate phases, specifically the El Niño Southern Oscillation (ENSO), on local rainfall distribution. This analysis examines differences in the expected payoffs on the RI insurance under varying coverage levels based on probabilities of rainfall shortage during specific climate events at four Agricultural Experiment Stations in Alabama. Policy makers and producers are expected to benefit from the results that show the varying effects of climate on expected payouts from this insurance.(Vol. 73, No. 1, Pg 23-35)[more]

Economic Evaluation of Soybean Fungicide Seed Treatments[June 04, 2010]

By Michael Popp, Ph.D., John Rupe, Ph.D., and Craig Rothrock, Ph.D.

The effect of nine different fungicide seed treatments for soybeans were tested from 2004 to 2007 at Keiser, Stuttgart, and Hope, Arkansas. While seedling emergence was effective across all treatments, only three treatments showed statistically significant differences in partial returns, defined as gross revenue minus seed and seed treatment costs. Comparisons of the regret a producer would experience as a result of non-optimal seed treatment suggested that broad spectrum seed treatment could enhance profitability by an average of $32 per acre with similar treatment recommendations across a range of seeding rates, output prices and study conditions. (Vol. 73, No. 1, Pg 50-62) [more…]

Impact of Hired Foreign Labor on Milk Production and Herd Size in the United States[June 04, 2010]

By Dwi Susanto, C. Parr Rosson, Flynn J. Adcock, and David P. Anderson

Foreign labor has become increasingly important component of U.S. agriculture. Disruption in the supply of agricultural labor has been argued to significantly affect agricultural production. This study analyzes the impacts of foreign labor shortages on the dairy industry using national survey data. The results suggest that a 30 percent hired foreign labor shortage will result in 10.1 billion pound decline in total U.S. milk production. This is equivalent to a loss of 458.9 thousand dairy cows. One of the key implications of this study is the need for immigration or labor policies that help maintain consistent labor availability and stability of the dairy farm workforce.(Vol. 73, No. 1, Pg 63-73) [more]

A Case Study of Fall versus Spring Calving for the Rocky Mountain West  [June 04, 2010]

By Brian A. Strauch, Dannele E. Peck, and Larry J. Held

Feeder cattle prices are generally lower in the fall, when the volume of calves for sale is highest. Most ranches in the Rocky Mountains calve in March or April, which results in the sale of weaned calves in October, when feeder cattle prices tend to be lowest. This study was initiated with the idea that a rancher might improve profitability by switching to fall calving, which would enable them to sell calves in April at a higher price. In this study, fall calving generated both higher and less variable profit, but mainly because of cost savings. (Vol. 73, No. 1, Pg 74-84) [more]

Harvest Scheduling as a Timber Appraisal Tool [June 04, 2010]

By Christopher N. Singleton and Thomas J. Straka

Appraisers often value a forest that contains many different timber stands that can vary due to factors such as age, stocking, species, and site index. Many assumptions are possible on how the various stands will be harvested and what subsequent cash flows might be generated. We describe harvest scheduling methodology that is widely used to obtain the net present value of such a forest under optimal conditions. We illustrate how a popular software package can be used by appraisers to obtain optimal discounted cash flows using harvest scheduling and resulting timber stand values. (Vol. 73, No. 1, Pg 85-98) [more]

Is Growing Livestock Inventories a Sustainable Initiative Given Phosphorus Crop Removal Regulations [June 04, 2010]

By Tyler B. Mark, Joshua D. Detre, Ph.D., Michael D. Boehlje, Ph.D., Allan W. Gray, Ph.D.

As environmental regulations continue to tighten and shift from nitrogen to phosphorus-based application standards for manure, phosphorus removal will become increasingly important for any state considering a livestock growth initiative. A framework was developed that can determine a state’s phosphorus removal capacity based upon production of livestock and crops and varying phosphorus removal standards. The state level results indicate that Indiana, along with Arizona, Illinois, Iowa, Kansas, and Texas, are well positioned to undertake a livestock growth initiative given that each state has excess phosphorous removal capacity. (Vol. 73, No. 1, Pg 99-113) [more…]

Effect of IRC Code 1031 on Texas Agricultural Land Price [June 04, 2010]

By Beom Su Park, James W. Richardson, Ph.D., and Charles J. Gilliland, Ph.D.

In this paper, we examine the effect of Section 1031 tax deferred payment on Texas agricultural land price. To analyze the effects, we estimate the market equilibrium price function using the dynamic panel model and Texas agricultural land sales for 1965-2007. We argue that Section 1031 increases both demand and supply of agricultural land by its tax reducing effect. Our empirical estimation shows that Section 1031 decreases the market price which means the supply curve shifted to the right more than the demand curve. (Vol. 73, No. 1, Pg 114-129) [more…]

Factors Affecting the Adoption of Genetically Modified Crops by Young and Beginning U.S. Farmers and Ranchers [June 04, 2010]

By Joshua D. Detre, Ph.D., Ashok K. Mishra, Ph.D., and Arun Adhikari

The comprehensive set of programs in the 2008 Farm Bill designed to support Young and Beginning Farmers and Ranchers (YBFR), combined with a substantial amount of resources allocated to each of these programs, can be viewed as an investment in ensuring the future sustainability of the U.S. agriculture system. Understanding the factors that influence YBFR to adopt technology will become increasingly important if YBFR are to succeed. Of particular interest is why YBFR adopt Bt corn, Bt cotton, and HT soybeans. (Vol. 73, No. 1, Pg 130-144) [more…]

Comparison of Hedging Cost with Other Variable Input Costs [June 04, 2010]

By John Michael Riley and John D. Anderson

In recent years, U.S. crop producers have experienced a dramatic rise in commodity prices. Chicago Board of Trade (CBOT) corn has increased from $2.11 per bushel in 2005 to $7.50 per bushel in July of 2008. A bushel of soybeans in 2005 was valued at $6.08 on the CBOT whereas in July of 2008 it was $16.08 per bushel. For the past three years cotton prices on the Intercontinental Exchange (ICE) have ranged from $0.51 per pound in 2005 to $0.71 per pound in 2008. CBOT wheat prices rose from about $3.24 per bushel in 2005 to as high as $12.45 per bushel in July 2008 (similar price movement was seen on Kansas City wheat futures). The prices of these commodities have since fallen from these historic levels but the volatility has remained high. (Vol. 73, No. 1, Pg 145-153) [more…]

Large-Scale Producers’ Perceptions of, and Managerial Responses to, Increased Volatility [June 04, 2010]

By Corinne Alexander and George F. Patrick

Since 2007 producers have seen a large increase in the level and volatility of output prices and input costs (Auerlich, Hoffman, and Plato; Irwin and Good; Huang ; and Thiesse). Relatively little is known about producers’ perceptions of this increased volatility or their management responses. This article reports the results of surveys of large-scale Corn Belt producers participating in the 2008 and 2009 Top Farmer Crop Workshops (TFCW) held at Purdue University. Participants in the TFCW are not a statistically representative sample of producers. Workshop participants are larger, all gross over $100,000 in farm income, have more years of schooling, and are younger than farmers in general. (Vol. 73, No. 1, Pg 154-165) [more]

Examining Share Lease Arrangements for Grain Operations in theTexas Panhandle Under Changing Market Conditions [June 04, 2010]

By Nicole Gueck, Steven Klose, DeDe Jones, and Jay Yates

Rental arrangements are an important component of agricultural land tenure in Texas as they are in much of the United States. The Texas High Plains region (NASS District 1) produces the vast majority of Texas grain. Crop share and other lease arrangements are a typical practice in this area. The most recent Census of Agriculture (2007) indicates that approximately 41 percent of the 130 million acres of Texas farmland is operated by full owners (who own all of the land they farm), 46 percent are operated by part owners (who own part of the land they farm), and 13 percent are operated by tenants (who rent all of the land they farm). (Vol. 73, No. 1, Pg 166-180) [more]

A View Toward Sound Policy Initiatives Regarding Agricultural Alternative Fuels [June 04, 2010]

By Vincent M. Dubiansky, ARA

Scientific understanding regarding causes of climate change is maturing. Earlier indications that atmospheric CO2 is the primary cause have been challenged by recent studies. Evidence against anthropogenic global warming is mounting. Subsidized alternative fuel initiatives may run out of support once political opinion aligns with scientific realities. First steps toward policy statements within professional organizations that reflect our current understanding of forces driving climate change are called for. We as farm or timberland managers, investors, lenders, appraisers or consultants in these fields should update our understanding. Agriculture’s potential contribution toward cost effective alternative fuel sources and energy independence is discussed. (Vol. 73, No. 1, Pg 181-192) [more]

Conveying the Role of Professional Farm Managers to Potential Clientele [June 04, 2010]

By Terry Griffin, Ph.D. and George E. Baird, IV, AFM

Many farmland owners opt to work directly with farmer-tenants while others choose to hire a professional farm manager to assist in the management of their land. As absentee landownership increases and more landowners become less associated with farming, professional farm managers have increased opportunity to communicate their role to potential clientele. Some landowners have an opportunity to make the most of their situation by enlisting the services of a professional farm manager, but only if they know what can be expected from a professional farm manager. We discuss some of the benefits and disadvantages to landowners and tenants of professional farm management and how professional farm managers can convey these ideas to potential clients and assist landowners to choose the best farm manager for their farm.(Vol. 73, No. 1, Pg 193-198) [more]

Farm Enterprise Analysis: Has It Lost Its Usefulness? [June 04, 2010]

By Alan Miller, Freddie L. Barnard, Norman Brown, Brenda Duckworth, Barbara Wheeling, and R. L. “Dick” Whittman

Farm enterprise analysis is a term that has traditionally been used to describe the process of determining costs associated with farm business enterprises and enterprise profitability. A key challenge to those who would know their costs has been the lack of guidance on cost accounting principles and the application of those principles to agriculture. However, that recently changed with the publication of the Farm Financial Standards Council’s Management Accounting Principles for Agricultural Producers, which has led to questions about the usefulness of enterprise analysis. The differences between the two approaches to determining costs for farm business enterprises are discussed as they relate to the usefulness of the output to managers for decision making.(Vol. 73, No. 1, Pg 199-206) [more]

Measurement Issues in Assessing Farm Profitability through Cash Tax Returns [June 04, 2010]

By Freddie L. Barnard, Paul N. Ellinger, and Christine Wilson

It is widely accepted that net farm income reported on an accrual adjusted income statement is a more appropriate profitability measure than net farm income reported on Schedule F of the federal tax return, which is prepared using cash basis accounting. However, a common practice among agricultural lenders is to use Schedule F net farm income, which uses the cash basis of accounting, as a proxy for accrualadjusted net farm income. A study of 1,045 individual Illinois farms’ records from 2002 through 2006 found the median absolute annual percentage difference between a three-year average cash and a three-year average accrual-adjusted net farm incomes is 57 percent for farms of stable size; 43 percent for farms with annual gross revenue increasing at rates of less than 5 percent, 50 percent at rates of 5-10 percent, and 58 percent at rates over 10 percent; and 61 percent for farms with a debt-to-asset ratio greater than 40 percent.(Vol. 73, No. 1, Pg 207-217) [more]

Expected Payments and Considerations for the New ACRE Program [June 04, 2010]

By Nicholas D. Paulson and Gary D. Schnitkey

The 2008 Farm Bill provided an option for receiving commodity program payments through existing programs or a new revenue-based alternative – the Average Crop Revenue Election (ACRE) program. ACRE is a state-level revenue program which, if elected, replaces the price-based countercyclical program. Enrollment requires the forfeiture of 20 percent of a producer’s direct payments and reduces loan rates by 30 percent. This article provides estimates of long-term expected ACRE payments for corn, soybean, and wheat acres across a variety of states. Within the cornbelt, expected ACRE payments are similar across regions for each of the crops considered, and will likely exceed the required reduction in direct payments. Outside of the cornbelt, expected ACRE payments vary considerably.(Vol. 73, No. 1, Pg 218-229) [more]

A Partial Budget Approach to Estimating Cash Rents [June 04, 2010]

By Gregg Ibendahl

Because of the extra risk, tenants who cash lease land should earn more money than those tenants with share leases. A competitive land market and the need to support bigger and newer machinery can easily lead tenants to pay more than they should for a cash lease. Share leases tend to avoid the overpayment problem as the share percentage is usually relatively fixed. Since share leases are not always available, this paper presents a way for tenants to determine if a cash lease rate is reasonable for the area by using a partial budget approach that compares lease types.(Vol. 73, No. 1, Pg 230-234) [more]

An Evaluation of Purebred Bull Pricing: Implications for Beef Herd Management [June 04, 2010]

By Rebecca Atkinson, Dwight R. Sanders, Karen Jones, and Ira J. Altman

The selection of herd bulls is important in determining profitability of commercial ranchers and cow-calf operators as well as purebred producers. In this research, the key attributes of bulls – based on visual, performance, and ultrasound data – are valued using a traditional hedonic pricing model. The data are collected from the annual bull test trial and sale at Southern Illinois University Carbondale. The results suggest that buyers at the SIUC Beef Evaluation Station are willing to pay more for bull characteristics associated with calving ease and weaning weights. For instance bulls with a combination of both lower birth weight Expected Progeny Differences (EPDs) and high yearling weight EPDs than average can command premiums of over $1,150 per head or 67 percent above the average sale price. Farm managers can use this information in the selection of herd bulls while purebred operators can attempt to select for the most valuable traits.(Vol. 73, No. 1, Pg 235-243) [more]

Long Term Comparison of Alternative Range Livestock Management Strategies Across Extended Droughts and Cyclical Prices [June 04, 2010]

By John P. Ritten, Christopher T. Bastian, Steven I. Paisley, and Michael A. Smith

Variable precipitation, more importantly drought, impacts profitability for livestock management. Financial outcomes from management decisions related to forage shortages can be exacerbated by price variability. This research examines alternative management strategies to determine the potential profitability and riskiness over a long-term horizon and across various drought event scenarios. Results indicate that late calving can be a promising strategy, but it also can result in higher variability in profits as compared to some of the other strategies analyzed. Retaining ownership of steer calves over the winter, with the option to sell if forage supplies become scarce, outperforms both partial liquidation and summer feeding, and it results in less profit variability than late calving or early weaning.(Vol. 73, No. 1, Pg 244-253) [more]

How to Estimate Custom Machinery Rates [June 04, 2010]

By Gregg Ibendahl and Greg Halich

Specialization in agriculture, along with larger farm sizes and bigger equipment, has resulted in more custom machinery work being conducted on farms. Often, there is limited data about the current custom rate. The Mississippi State Budget Generator (MSBG) is a tool that uses a cost approach to allocating machinery cost on a per acre basis and can be used in situations where custom rates are not well known. When compared to actual custom work surveys, the MSBG provides rates that are lower than the survey results. One explanation is that the MSBG does not include any built-in profit.(Vol. 73, No. 1, Pg 254-258) [more]