Download Grazing Economics Will this stuff Pay?? - UGA CAES

GRAZING ECONOMICS:
YEAH, BUT WILL IT
MAKE MONEY?
Dr. Curt Lacy
Agricultural Economists
University of Georgia
Do this describe you?
Will Intensive Management Grazing Pay??





It depends!!
Additional revenue
Reduced cost
Additional expense
Reduced income
Speaking of costs
Variable Costs

Aka direct costs 
changing these
impacts level of
production.
 Fertilizer
 Seed
 Feed
 Vet
Fixed Costs
Indirect costs 
changing these has no
impact on production
 Aka
 Depreciation/interest
or principal and
interest payments
(prorated establishment
costs)
 Taxes
 insurance
Partial Budgeting Form for Analyzing Grazing Profitability
Additional Costs
Additional Revenue
Additional fencing costs
Increased conception
Increased fertilizer costs
Increased weaning weights
Increased labor costs
Higher stocking rate
Additional Cow investment
EQIP/CSP???
Reduced Revenue
Reduced Costs
Reduced stocking rate
Lower fertilizer costs
Reduced weaning weights
Reduced equipment costs
Reduced feed needs
Total additional costs
+reduced revenue = A
Total additional revenue
+reduced costs = B
Total Profit = B-A
Two Examples
1.
2.
Going from continuous to rotational grazing
Incorporating clovers
Continuous to Rotational Grazing
•
•
•
•
•
Continuous
200 acres of fescuebermuda pasture
3 pastures of 60,70, and
70 acres
Currently 2 acres per cow
Cows currently consume
1.50 tons of
hay/cow/year
90% calf crop with 500#
calf @$100/Cwt.
•
•
•
•
•
Rotational
Add 2 cross fences per
pasture of 4-strand hightensile fence
1.45 acres per cow
Purchase 38 cows @
$900 each
Cows consume 1.04 tons
of hay/cow/year
Hay cost = $75/ton
Continuous to Rotational Grazing – Adding Cows
Additional Costs
Depreciation and interest on 38 additional
cows @ $900 each 8% interest for 6
years = $4,902
Depreciation and interest on 1 additional bull
@ $1,800 @ 8% interest for 3 years =
$419
Additional variable costs for 38 cows =
$14,250
Fencing - additional annual cost = $1,000
Total additional costs = $20,571
Reduced Revenue
Additional Revenue
38 additional cows with 90% calf crop,
weaning 500 pound calves @
$100/Cwt. = $17,100
Total additional revenue = $17,100
Reduced Costs
Net difference in hay costs
100 cows consuming 1.50 t/yr of hay @
$75/t = $11,250 (continuous)
138 cows consuming 1.04 t/yr of hay @
$75/t = $10,764 (rotational)
Reduced costs = $486
Total additional costs
+reduced revenue =$20,571
Total additional revenue
+reduced costs = $17,596
Total Profit = ($2,975)
Continuous to Rotational Grazing – No additional cows
Additional Costs
Additional Revenue
Fencing - additional annual cost = $1000
Total additional costs = $1000
Reduced Revenue
Reduced Costs
Net difference in hay costs
100 cows consuming 1.50 t/yr of hay @
$75/t = $11,250 (continuous)
100 cows consuming 1.04 t/yr of hay @
$75/t = $7,800 (rotational)
Reduced costs = $
Total additional costs
+reduced revenue =$1000
Total additional revenue
+reduced costs = $3,450
Total Profit = $2,450
Replace 100 Acres of Commercial N with Clover
•
•
•
•
Current Situation
120# N/acre
N cost $0.55/lbs.
2 acres/cow
90% calf crop with
500# calf
@$100/Cwt.
•
•
•
•
•
Clover
3#/acre of Durana @
$5.25/# - good for 3
years
Additional 10# P/acre
required @ $.40/#
Additional 10# K/acre
required @ $0.45/#
2.13 acres per cow
Weaning weights
increased 20#
100 Acres in Clover
Additional Costs
3#/acre of Durana or Patriot @$5.25/pound
good for 3 years = $525/year
Additional 10# phosphorous/acre per year
@$0.40/# = $400
Additional 10# potash/acre per year
@$0.45/# = $450
Additional Revenue
Additional 20 pounds on calves from 43
cows @ 90% calf crop sold for
$100/cwt. = $774
Total additional costs = $1,375
Reduced Revenue
Stocking rate reduced by 15%  7
cows@ 90% calf crop, 500 pound calf
@ $100/Cwt. = $3,150
Total additional costs
+reduced revenue =$4,525
Reduced Costs
Savings on 2 applications of 60#/acre of
commercial nitrogen @
$0.55/pound = $6,600
7 fewer cows @ $375/cow = $2,625
Total additional revenue
+reduced costs = $9,999
Total Profit = $5,474
Impacts of Fertilizer Cost & Usage on
Profitability
Lbs. of N/acre
80
100
120
150
$
$
$
$
$
Price per Pound for Nitrogen
0.35 $
0.50 $
0.75 $
1.00
949.00 $ 2,149.00 $ 4,149.00 $ 6,149.00
1,649.00 $ 3,149.00 $ 5,649.00 $ 8,149.00
2,349.00 $ 4,149.00 $ 7,149.00 $ 10,149.00
3,399.00 $ 5,649.00 $ 9,399.00 $ 13,149.00
What if Pounds Weaned do Not Increase?
Lbs. of N/acre
80
100
120
150
$
$
$
$
$
Price per Pound for Nitrogen
0.35 $
0.50 $
0.75
150.00 $ 1,350.00 $ 3,350.00
850.00 $ 2,350.00 $ 4,850.00
1,550.00 $ 3,350.00 $ 6,350.00
2,600.00 $ 4,850.00 $ 8,600.00
$
1.00
$ 5,350.00
$ 7,350.00
$ 9,350.00
$ 12,350.00
Important Considerations





Include only changes
Make sure expected
production increases
are relevant to your
scenario
Take into account the
start up period
Don’t base calf prices
on today’s prices
Think it through!!
Two questions
1.
2.
What happens if we
“grow” into more
cows?
How do I handle
shared assets and
liabilities?
Growing into more cows
1.
2.
3.
4.
5.
Same process as with partial budget.
Develop an “average” cash flow projection sheet
for years after you reach herd objective
Develop projected annual cash flows for 5-7 years
with and without additional cows leading up to the
year where you are fully online.
Sum the annual cash flows for the two scenarios.
Make you decision based on potential net income
and your risk tolerance.
Shared Assets/Liabilities


Common question when considering co-grazing.
Also comes up when land is used for more than one
enterprise or purpose.
 Tractor
used for crops, cattle and hay
 Combination equipment shed/livestock facility

Same principle applied to allocating overhead
expenses.
Allocating assets/liabilities-the
contribution approach
Determine the total cost
1.
1.
2.
Can you identify specific costs that can be allocated to specific
enterprises?
2.
1.
Extra expenses for goat or sheep
If not, allocate expenses by percentage of income.
3.
1.
4.
Fixed
Variable
If co-grazing cows and sheep and cows generate 60% of income then charge
cows 60% of expenses.
Apply enterprise contribution percentage to appropriate variable and
fixed costs.
*** If one enterprise will not cover its
variable costs, it can’t reduce fixed or
total costs
WWW.SECATTLEADVISOR.COM