Forage Resources & UW Extension Forage Resource Team 1 Information

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1 Cost of Production in Rotation Alfalfa and Corn Silage 2 Gary Frank INTRODUCTION There is a debate over which forage is the most profitable, corn silage or alfalfa. While this paper does not give the definitive answer, it will shed some light on the factors the affect the cost of production and the profit from producing corn silage and alfalfa. The analysis was prepared using the Agriculture Budget Calculation Software (ABCS). This program allows the user to enter the tasks involved in the production recipe along with the inputs required by each task. Example, the corn-planting task requires the inputs of corn seed and starter fertilizer. The ABCS program calculates the costs associated with using tractors and implements. The costs calculated are: energy, labor, repairs, ownership interest cost, and a depreciation charge. The number of acres a task is preformed on in a year can cause the per acre costs to vary. ANALYSIS The analysis required the creation of 7 enterprise budgets. They were: an alfalfa establishment budget, an alfalfa hay budget for the first year following establishment, an alfalfa hay budget for the second year following establishment, an alfalfa hay budget for the third year following establishment, an alfalfa hay budget for the fourth year following establishment, a corn silage budget for the year following the plowdown of the hay, and a corn silage budget for the corn after corn year(s). The alfalfa yield was reduced 0.5 tons of dry matter yield each subsequent year. The corn silage yield was 10 percent higher in the year following the plowdown than in the corn after corn year(s). The ABCS program has a feature that calculates whole farm incomes and costs based on enterprise budgets. This feature requires the selection of a fixed acreage for comparison among rotations. The acreage selected was 210 crop acres. An acreage sufficient to support dairy cows. The equipment complement selected was estimated to be originally purchased for $155,980 with $77,9900 cost basis value remaining. This equipment complement would cost $220,800 if purchased new today. 2 Published in the proceeding of the 1994 Wisconsin Forage Council Annual Meeting, January 25, 1994.

2 Six rotations, whole farm budgets, were studied within the 210 acre constraint. The rotation shorthand used the notation of "E" for the alfalfa establishment year, "A" for the alfalfa hay year(s), and "C" for the corn silage year(s). The rotations selected were: EAAAACCC, EAAAACC, EAAACC, EAACC, EAAC (see Figure 4), and EAC or 8, 7, 6, 5, 4, and 3 year rotations. The base prices were: oatlage, $50/ton of dry matter(tdm); corn silage, $60/tdm; and haylage, $90/tdm. The base yields were: establishment crop, 2.0 tdm oatlage and 1.0 tdm haylage; hay crop, 4.25 tdm (decreasing 0.5 tdm each year as the stand aged); and corn crop, 5.0 tdm (10 percent larger in the year following plowdown). Rotation Table 1 Income, Costs, and Profit ($) per Acre for Selected Rotations Gross Income Direct Costs Fixed Costs Total Costs Profit EAAAACCC EAAAACC EAAACC EAACC EAAC EAC The EAAC rotation is the most profitable. The 3 year rotations of EAC was the least profitable, followed closely by the 8 years rotation of EAAAACCC. The 5, 6, and 7-year rotations were all relatively close, profit wise. A producer may require more than the highest profit per acre from a rotation. They may want a certain mix of production in order to feed their herd. Table 2 shows the production in tdm that would be produced on the 210 acres with the various rotations. The highest profit rotation (EAAC) produces 105 tdm oatlage, tdm haylage, and tdm corn silage.

3 Table 2 Tons of Dry Mater Production and Acres in each crop per Year by Selected Rotations Rotation Oatlage Haylage Corn Silage EAAAACCC 52.5 (25.25) (105) (78.25) EAAAACC 60.0 (30) (120) (60) EAAACC 70.0 (35) (105) (70) EAACC 84.0 (42) (84) (84) EAAC (52.5) (105) (52.5) EAC (70) (70) (70) Return on Assets The return on assets in the most profitable (EAAC) rotation was 4.47 percent when both land and equipment is valued at their highest cost (see Table 3). Reducing the value of the equipment to its purchase price increases the return on assets to 5.64 percent. Reducing the value of equipment to its remaining cost basis yields a return on assets of 7.30 percent with land at its fair market value. Entering land into the formula at its cost basis value yields a return on assets of percent. This last method of calculating the return on assets is the method used by non-farm businesses. Equipment Valued at Table 3 Rotation EAAC's (the most profitable) Percent Return on Assets by Alternative Methods of Valuing Land and Equipment Including Land at Fair Market Value Including Land at Cost Basis Value Excluding Land and Land Interest Charge Purchase Price New Price Cost Basis Value Some individuals do not include land in the calculation of return to assets, because the income from the long run average increasing value of land is not included in the profits from this enterprise. The results of this method are shown in column 4 on Tables 4 and 5.

4 Equipment Valued at Table 4 Rotation EAC's (the least profitable) Percent Return on Assets by Alternative Methods of Valuing Land and Equipment Including Land at Fair Market Value Including Land at Cost Basis Value Excluding Land and Land Interest Charge Purchase Price New Price Cost Basis Value The return on assets (new price and fair market value) is 3.69 percent for the least profitable rotation (EAC). Remember the 8-year rotation had profits similar to this 3-year rotation. When calculated as relative measure, the return to assets for the most profitable rotation is over 20 percent higher that the return to assets in the least profitable rotation. The absolute change in return on assets is 0.78 percent ( ). However, even these small absolute differences compound to large differences in net worth over the lifetime of a farmer. SENSITIVITY Profit is determined by the price times the yield minus the cost of production. Table 5 looks at how sensitive the profit per acre is to the starting hay yield in tdm/a and the rate of hay yield decline per year in tdm/a. Table 5 Rotation Profit per Acre ($) for Selected Rotations by Selected Starting Hay Yield and Rate of Yield Decline 5.25 and and and and and 0.5 EAAAACCC EAAAACC EAAACC EAACC EAAC EAC

5 Table 6 looks at how sensitive the profit per acre is to difference between the price of corn silage and haylage. The base price of corn silage was $60/tdm. Table 6 Profit per Acre for Selected Rotations by Selected Differences Between the Corn Silage and Haylage Prices Rotation $20 $30 $40 $50 $60 EAAAACCC EAAAACC EAAACC EAACC EAAC EAC CONCLUSIONS AND SUMMARY The 4-year rotation (EAAC) was the most profitable at $15.84 per acre using the base values. The 4 year rotation continued to be the most profitable for most of the changes in the base haylage yield and rate of decline in the base haylage yield as the stand aged. The only scenario considered where the 4 year rotation was not the most profitable was with a base alfalfa hay yield of 3.25 tdm haylage and a 0.50 tdm per year rate of haylage yield decline. In that scenario, the 5- year rotation (EAACC) was the most profitable. The 4 year rotation was the most profitable for all price the differences, between corn silage and haylage, considered. However, the amount of profit per acre increased substantially as the price difference between corn silage and haylage increased. Rapid decline in the base hay yields per acre (1.0 tdm) cause both the 7 and 8 year rotations to be less profitable than the 3-year rotation. However, the 4-year rotation is still the most profitable with this decline. Maximizing short run economic profit could cause environmental problems. This study does not look at the environmental problems (erosion, soil compaction, water quality, etc.) that may or may not be caused by the selected rotations. This study looks at the economic effects only.