Economic Analysis of the Wisconsin Integrated Cropping Systems Trial 1992-2000

Don Schuster[1]

Introduction

The 1999 and 2000 economic analysis for the Wisconsin Integrated Cropping Systems Trials (WICST) will be added to the previous years of data going back to 1992. It will again summarize results from the Lakeland Agricultural Complex (LAC) and Arlington Agricultural Research Station (ARS). It will compare the three cash grain cropping systems, CS1, CS2 and CS3, and the two forage based systems, CS4 and CS5. The pasture system CS6 remains an important biological check in the trial but the size of the plots makes economic analysis difficult.

Rainfall patterns in 1999 and 2000 affected planting calendar at both the LAC and ARS sites. However, the 2000 growing season proved to be particularly challenging for LAC where May plus June rainfall was over 200% of the long-term average.

Commodity prices in 1999 and 2000 were the lowest in the history of the trial. Average prices used in the analysis for 1999 were $1.57 for corn at both sites, $5.01 and $4.32 for soybeans at ARS and LAC, respectively, and $1.69 and $2.25 for wheat at ARS and LAC, respectively. In 2000, the corn price climbed $0.11/bu. Soybeans fell by $0.68/bu at ARS but were $0.01 higher at LAC. Winter wheat price increased by $0.08/bu at ARS but lost $0.39/bu at LAC.

Methods

The economic analysis is based on the concept of gross margins. This concept deducts the variable cost of production (seed, fertilizer, chemical, drying cost, fuel, and repairs) from the gross revenue generated per acre. This gross revenue is based on the actual yield, its quality (in the case of alfalfa), and price for the product when harvested. This gross margin figures equals the dollars available to cover the overhead costs of capital, land, labor and management. The way to interpret the adequacy of the gross margin figure is to estimate the amount of dollars needed per acre to cover those overhead costs. We would estimate that a cash grain farmer would need approximately $35-$40 per acre to cover labor and management, $80 to $140 for rent, and approximately $40-$60 to cover the depreciation and interest cost associated with machinery and drying facilities owned on the farm. This adds up to approximately $200 to $250 per acre to be covered by gross margins.

Loan deficiency payments (LDP’s) were calculated for the first time in 1999. LDP’s are payments that a farmer can receive from the USDA, when a floor price for a commodity is reached. LDP’s have not been much of a factor throughout the trial but with two years of low commodity prices, it was decided to look at their effect to the gross margins.

Results are reported separately for each site due to different soil type and environment. Cash grain systems are separated from forage systems due to different assumptions and scenarios such as land base which is set at 1200 acres for cash grain farms and 150 a for forage-based farms.

Results

Cash Grain Systems

1999. Gross margins for all three grain systems were below the trial average at each site (Figs. 2 and 3). Cropping system 2 had the highest gross margins this year at ARS with $161/a. Cropping system 2 at ARS performed well above CS1 and CS3 consistently throughout the trial (Fig. 1) with long-term average of $194/a. Likewise, in most years at LAC, CS2 performed the best of the three grain systems averaging $164/a (Fig. 2). However, in 1999, CS3 had the highest gross margin at LAC due to above-average soybean and wheat yields and low inputs. Generally, gross margins have been lowest for CS1 over the course of the trial at both sites, which reflect high external inputs, and mediocre corn yields. At LAC the gross margin for CS1 has been negative three times since 1992, with poor corn yield related to corn rootworm infestations.

2000. Again, gross margins were highest for CS2 at both sites (Figs. 1 and 2). Yields were generally at or above average for corn at ARS, but CS3’s soybean yield were below average due to very heavy weed pressure. In addition, wheat yields were low perhaps due to a late planting date. Corn yield on CS1 at ARS was respectable at 162 bu/acre, the forth highest in trial history. However, higher seed, anhydrous ammonia and fuel cost brought CS1 gross margin down to $73/acre, the lowest in trial history. The corn yields at LAC for all three grain systems were below average. For the first time, gross margins were negative for CS3 at LAC of -$0.68/acre, well below the trial average of $134/a, due to low soybean, wheat and corn yields[2]. Poor corn yield, replanting cost, and high drying cost reduced profit on CS3.

LDP. To take full advantage of USDA programs, higher yields are given the most return. When including LDP’s, only ARS’s CS2 had gross margins high enough to cover overhead cost at $213/a in 1999 and $236/a in 2000. The lowest gross margins were at LAC in 1999 on CS1, which had a gross margin of -$4/a even with the LDP. In the year 2000, wheat LDP’s were the highest in history and most of the time, there was no LDP on wheat. The adding of the LDP’s did not alter the outcome of the rankings for the cropping systems but it does move the gross margins closer to the trial average.

Forage Systems

Arlington. Over the period 1993-2000, the forage rotations have generated similar gross margins per acre, averaging $230/acre (Fig. 3). However, in 2000, gross margins of CS4 were at a trial high of $274/acre, $40/acre higher than CS5, reflecting the higher forage quality and better corn yield on CS4. Comparing the long-term gross margin of CS4 to CS5 showed only a small difference of $6 per acre or $900 per year on a 150-acre farm. This result is a bit surprising in that the established alfalfa sequence in CS5 is only one year and requires more frequent seeding. However, the 4-cut alfalfa management system being used for CS4 at both sites may have limited profits because of winterkill and the need to maintain a longer stand in CS4, including the use of pesticides and other chemicals.

Lakeland. The two forage systems at LAC have had similar gross margins (averaging $154/a) throughout the course of the trial (CS4 = $159/a and CS5 = $149/a) with the exception of 2 years where CS4 had substantially higher gross margins than CS5 due to exceptional corn yields on CS4 in those years (Fig. 4). However CS5 has been modified by adding soybeans to the rotation for the first time in 1999. Lakeland’s cropping system 4 and 5 are now in the second year of transition. Lakeland’s CS4 has switched from a 4-year crop rotation to a 3 crop rotation (c-sb-w/rc with manure) and CS5 has gone from a 3-year crop rotation to a 4-year crop rotation (c-sb-o/a-a with manure). Because of the transition, comparison to previous years has little value at LAC. However, as can be seen in Figure 4, neither system had gross margins above the $200/a break-even level over the past two years. Corn yields were also hurt by the wet condition at LAC resulting in 100 bu/acre in CS4 and 58 bu/acre in CS5, both well below the trial average.

Changes for WISCT 2000 Economic Analysis

The economic analysis for 2000 saw only two changes from the previous years and both dealt with corn moisture. In the past a cost of $0.02/bu per moisture point was use in the calculations for drying corn. Because of the high cost of natural gas, this rate was increased to $0.03/bu per moisture point.

Lastly, actual corn moisture was used for LAC. This was done because Janesville research plots didn’t have a comparable variety as the one in LAC.

Future analysis should consider new assumptions that reflect current scenarios. For example, farm size would likely be increased for both grain and forage systems. Similarly, equipment sets may need adjustments or custom hiring should be considered as a management option.

Summary

Comparison of the cash grain systems shows CS2 to be the dominant systems in terms of highest gross margins followed CS3. Yet, only with the LDP, does CS2 reach the minimum level of $200/acre to cover fixed costs.

As we have seen in the past, the forage systems had higher gross margins than the cash grain systems. In fact, the forage crops at ARS (CS4 and CS5) were the only cropping systems that did better than the $200/acre needed to cover fixed cost in 1999 and 2000.

The more integrated systems, which include both grain and forage and manure, seem to be the most economically sound. The low input forage system, CS5, is very comparable to the high input system (CS4) in terms of gross margins. It produces more variable forage quality in the seeding year, which can be allocated livestock with different nutritional needs. Environmentally conscious producers can use this CS5 system and may get the same results as their conventional counterparts.

Figure 1. Gross Margins – CS1, CS2 and CS3, Arlington Agricultural Research Station -1992-00.

Figure 2. Gross Margins – CS1, CS2 and CS3, Lakeland Agricultural Complex - 1992-00

Figure 3. Gross Margins – CS4 and CS5, Arlington Agricultural Research Station 1993-2000.

Figure 4. Gross Margins – CS4 and CS5, Lakeland Agricultural Complex 1993-2000.

End notes

[1] Outreach Specialist – Center for Integrated Agricultural Systems at the University of Wisconsin-Madison. Email: schuster@aae.wisc.edu

[2] Corn was harvested in November at 31.79 bu/acre and 49.6% moisture. The corn quality was very poor, had a black color and sour smell.

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