Setting economic goals and tracking progress regularly are attributes that successful farm operations have in common. Economics has been called the dismal science, often with good reason. It is especially dismal when things are not going well. Even though economics may not be exciting to you, it is vital to your operation. If you are not willing to develop the discipline needed to keep some basic records and use them to analyze the strengths and weaknesses of your operation, you should give serious consideration to going to work for someone who is willing to control and manage their business. The function of economics is to evaluate your records and allow you to analyze the strengths and weaknesses of your operation in order to meet your objectives.
|As a general rule of thumb, livestock enterprises can be arranged in the following order, descending in net profit per acre.|
|High Return Potential||High Daily Management|
|Year-Round Dairy Using Pasture|
|Sheep - Low Cost Pasture Lambing|
|Finishing Steers on Pasture|
|Retaining Beef Calves|
|Low Return Potential||Reduced Daily Management|
If you intend to make a reasonable living and dedicate the labor of one or more persons to the farm operation, you should plan to net at least $30,000 for each full-time person's labor. If you choose beef cow-calf for your enterprise and you think you can net $50 per cow, you will need to run 600 mama cows on 1200-1800 acres to net $30,000. It will take a large amount of capital to finance this enterprise even if you do not own the land. If you choose a seasonal dairy and net $400 per cow, then you need 75 cows on 150-200 acres. There can be quite a difference in size and scale of operation to generate $30,000.
There is the possibility of mixing and matching several of the enterprises to more fully utilize your labor, pasture and facilities. Diversity in your operation also reduces price risk in commodities. Dairy farmers are already in the beef business, to what extent they choose to make it a significant part of their operation is up to them. Sheep and cattle are a natural combination of enterprises giving the operator the following products to sell: wool, lamb, feeder calves, and cull cows. The ewes will graze many weed species that cattle will not touch. Sheep will also graze closely around cattle manure and urine spots. The parasites of one livestock specie will not infect the other species. Sheep in a grazing system are valuable for the income they produce and their ability to clean up an area, greatly reducing or eliminating the need to clip pastures.
Goal setting is an important aspect of a successful farm enterprise. We have traditionally set goals and bragging rights on production aspects that don't relate to economic profitability; in fact they may be counter productive to profits. Weaning weights, pounds of milk per lactation, and percent lamb crop all relate to production, not profit. Pounds of milk, beef, lamb and wool per acre tell us more about productivity per acre than weaning weights or milk per lactation. The concept of producing heavier weaning weights of feeder calves is excellent as long as your costs don't dramatically change. The key economic indicators are: what does it cost to produce a pound of your product and how many dollars of profit per acre are you generating?
A University of Wisconsin study by Frank, Klemme, Rajbhandary and Tranel, titled "Economics of Alternative Dairy Grazing Scenarios" showed a number of reasons for adopting a dairy grazing system. These reasons include, labor savings, quality of life and economics. Pasture based dairy systems with decreased machinery investment had comparable returns to the confinement systems in the study, even with a ten percent reduction in production.
Fixed cost investments for buildings and machinery should be carefully evaluated before being made. The low cost livestock producers of the world in New Zealand have their investments in livestock, fence and water systems. Barns and machinery are kept to a minimum. Hay and silage harvesting is done by contractors to reduce equipment ownership costs, and they select livestock that can survive and thrive in their climate without barns. This leaves extra income for nice homes, boats, holiday homes, vacations, or income to expand the operation.
Many U.S. managers have good information on their investment per production unit (milk cow, beef cow or ewe). They are concerned about the portion of the investment that tends to depreciate, rather than appreciate in value. Low-cost producers avoid owning assets that rust, rot or depreciate.
Well managed grazing operations can produce returns per acre equal to or greater than row crop income, without government subsidies. Your net return per acre will depend on your debt load, value of your land, intensity of management and value and pounds of product sold per acre. While a beef cow may produce 100 pounds of calf per acre, and it takes 5 acres to keep one cow, this produces gross income of $60 per acre if calves are worth 60 cents per pound. If you are able to keep a cow on 1.5 acres, using a more intensive system, a 500 pound weaned calf will produce 333 pounds of calf per acre and $200 gross income. Additional fence and water development costs will have to be covered but it is apparent that becoming more intensive has the potential to increase net return due to lower fixed costs in land.
As can be seen from the chart, very good gross returns per acre are possible with seasonal dairy production, while a low intensity, beef cow-calf operation, will likely result in a net loss when all of costs are included. How you structure your operation, debt load, land charges and investment in buildings and equipment will have a major impact on your bottom line. Low debt and overhead levels will enhance the profitability of your operation.
|Enterprise||stocking rate||Ibs. of product per acre||VALUE per cwt.||GROSS per acre|
|cow-calf-low intensity||5 acres||100 calf||$60||$60|
|cow-calf-intensive||2 acres||250 calf||$60||$150|
|stocker calf-low intensity||1 acre||270 gain||$35||$95|
|stocker calf-intensive||0.5 acre||540 gain||$35||$189|
|sheep-low intensity||0.5 acre||225 lamb||$50||$113|
|sheep-high intensity||0.2 acre||560 lamb||$50||$280|
|dairy-intensive seasonal||2.0 acre||6750 milk||$8||$540|
The environmental benefits of Management-Intensive Grazing (MIG) include reduced soil erosion, improved air and water quality, better plant diversity, vigor and production, and improved fish and wildlife habitat. Improving grazing management results in more complete vegetative cover and improved soil structure, that allows a higher percentage of the rainfall to infiltrate the soil where it can be used for plant growth rather than running off where it can result in soil erosion and sedimentation problems. Many ecological processes accelerate including decomposition of manure. Nutrients can then be recycled several times during the growing season. This improves overall soil quality.
Water quality improves as the pasture vegetation becomes more dense and the soil condition improves. A University of Wisconsin study showed that pastures are the best "crop" for reducing runoff, erosion, and phosphorous pollution over any other land use. A similar study done by USDA-Agricultural Research Service, North Appalachian Experimental Watershed at Coshocton, Ohio revealed that both surface and ground water quality in a pastured watershed was just as good or better than water leaving an adjacent pristine wooded watershed. Pasture soils are a terrific biological filter to recover nutrients passing through the soil. Grass roots are active nearly year-round and thus can recover nutrients efficiently from pasture soils that may be lost from other crops. Pasture systems reduce the time livestock spend in confinement, thus reducing the concentrated manure control problems. Manure is more evenly distributed with MIG than with feedlots, where there are potential manure odor control concerns, or on un-managed pastures where animals concentrate manure near shade or watering sites.
Pasture, because of its permanent and diverse plant cover, provides increased shelter and food for wildlife as well as the grazing animal. Properly managed pastures can provide nesting habitat by delaying mowing and leaving adequate plant reserves for rapid growth. Most ground nesting birds and rabbits prefer the MIG system over a traditional pasture system. Research is showing that grazing animals can be used to manage the vegetation on stream banks to enhance fish populations. Studies done in Minnesota and Wisconsin have resulted in MIG becoming the recommended practice to manage stream banks on farms to control overgrowth and enhance fisheries. Fish numbers were 2 to 3 times higher where cattle grazed in a MIG system than where cattle were totally excluded from the stream.
Management-Intensive Grazing provides management to preserve the important preferred forage species by improving plant nutrient distribution, plant health, and plant vigor.
Seldom are more than four or five species needed in most pasture and hay land seedings. Prepackaged "shotgun mixtures" of many grasses and legumes usually have no advantage over simpler mixtures that are carefully designed by the producer to match specific grasses and legumes to the soil, climate, and management conditions in the particular field to be planted.
The Ohio Agronomy Guide has detailed information on selecting forage species. They are available from OSU Extension offices for a nominal fee.
Time of Maturity. The species in a mixture should mature at about the same time in order to obtain palatable forage of good quality. If one species is to mature later than the other, it should be the grass component, so that the legume can be grazed at the proper stage of development.
Management Considerations. Grazing management can affect the compatibility of species in a mixture. Short growing species are generally more tolerant of frequent grazing than tall-growing species. Thus, tall-growing species are better suited to hay production and rotational grazing with adequate rest periods, while short-growing species such as Kentucky bluegrass and white clover are better suited for frequently or continuously grazed permanent pastures.
Class of Livestock to Use the Forage. Some forages such as the warm season grasses provide adequate nutrients for beef animals, but are not of high enough quality for producing dairy animals. Match the forage quality to the class of livestock. Consider having several forages mixtures in different pasture areas to provide animal harvested feed in as many months as possible to reduce your stored feed costs