An Economic Analysis of Grazing, Haying and Cropping Marginal Highly Erodible Crop Land in Southcentral North Dakota

By Paul E. Nyren, Bob D. Patton, Brian S. Kreft and Cole Gustafson



 The Conservation Reserve Program (CRP) began in 1985 with the first sign up authorized by that year's Farm Bill. The 1995 Farm Bill not only reauthorized the CRP program but placed more emphasis on wildlife habitat making the Prairie Pothole Region of North Dakota a high priority area. The emphasis on protecting waterfowl habitat in the region has meant an increase in CRP acres during the last contract periods. This study was originally designed to assist Coteau area producers in making the difficult decision of whether to hay, graze or crop CRP land when the contracts expired. Many of these acres have now been re-enrolled in the program which means that these decisions have been postponed for the duration of the new contract. However, information gained from this study also pertains to land being reseeded to introduced perennial grasses and used for haying or grazing. The project compares the following enterprises:

1. Annual crop farming
2. Grazing CRP land
3. Haying CRP land.

In 1998, this research was modified to study CRP acreages for use as early season pastures in a complementary grazing system (see next article Grazing and Haying CRP Lands for more details).

 Annual Crop Farming

Eighty acres of previously cropped land located on the CGREC are used for the annual crop. Costs of farming and forage harvesting operations are custom rates from extension circular Custom Farm Work Rates (EC 499). Other costs are best estimates. All costs were figured and tabulated in the year they occurred (table 1). Potential value of the land to the owner is included in the analysis and is the rental value as published annually in North Dakota Agricultural Statistics. Since the cropping part of the study is located in Kidder County and the grazing and haying on CRP land is nearby in Stutsman County, the cropland rental rates were averaged for the two counties and used as the cropland cost. The returns to each of the enterprises reflect the costs of the land, i.e. the return to the crop rotation in 1998 was -$7.42 per acre which includes a land cost of $26.95/acre (table 2). It will come as no surprise to see that returns from the cash crop farming are as dependent upon Mother Nature and the vagaries of the market as they are on good farm management. It is also important to remember that in this analysis, custom rates are being charged against returns for the annual crop and haying enterprises. The profit side of custom work and the somewhat inflated land rental values will modify the net returns per acre considerably.
 Table 1. Costs/Acre for Small Grain and Annual Forage Crops
    Sweetclover
1992
Oats
1993
Wheat
1994
Barley
1995
Wheat
1996
Oats
1997
Oat Hay
1998
  7-YR
Average
Seed $3.36 $2.01 $8.12 $5.25 $10.65 $2.60 $3.75 $5.11
Fertilizer $0.00 $6.45 $3.55 $20.21 $6.62 $9.60 $8.36 $7.83
Herbicide $0.00 $7.13 $9.16 $34.07 $15.81 $8.30 $8.03 $11.79
Herbicide Application $0.00 $2.50 $2.48 $5.70 $2.85 $2.94 $3.50 $2.85
Deep Chisel $2.14 $5.00 $4.28 $4.93 $4.93 $5.08 $5.42 $4.54
Field Cultivation $2.08 $5.00 $4.17 $5.44 $4.13 $4.25 $0.00 $3.58
Seeding $2.62 $5.00 $5.24 $5.24 $6.00 $6.18 $8.67 $5.56
Swathing $4.23 $4.00 $4.23 $4.23 $4.37 $4.50 $5.46 $4.43
Mowing $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Land Costs $26.90 $26.20 $27.45 $26.05 $27.25 $27.75 $26.95 $26.94
Piling & Packing/stacking $2.09 $0.00 $0.00 $0.00 $0.00 $0.00 $3.99 $0.87
Harvesting/baling $8.77 $12.00 $12.59 $12.59 $13.72 $14.13 $15.69 $12.78
Hauling $4.95 $5.09 $1.80 $3.55 $2.37 $3.28 $2.19 $3.32
Rock Picking $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Small Grain Costs $57.15 $80.38 $83.07 $127.26 $98.70 $88.61 $92.01 $89.60



Table 2. Returns/Acre for Small Grain and Annual Forage Crops
  1992 1993 1994 1995 1996 1997 1998
Acres 40 40 40 40 40 40 80
Crop Sweet
clover
(ton)
Oat
Grain
(bu)
Wheat
Grain
(bu)
Barley
Grain
(bu)
Wheat
Grain
(bu)
Oat
Grain
(bu)
Oat
Hay
(ton)
Yield-bu. or Tons/A 2.03 57.81 19.78 39.00 26.00 36.00 1.88
Price/bu. or /Ton $21.10 $1.16 $2.75 $1.80 $4.00 $1.50 $45.00
Deficiency Payment $0.00 $0.15 $0.50 $0.00 $0.00 $0.00 $0.00
Gross Return/A $42.73 $75.73 $64.29 $70.20 $104.00 $54.00 $84.60
Total Cost/A $57.15 $80.38 $83.07 $127.26 $98.70 $88.61 $92.02
Returns Small Grain -$14.42 -$4.65 -$18.79 -$57.06 $5.30 -$34.61 -$7.42

   Grazing CRP Land

Three hundred and seventy acres of privately owned CRP land located 4 miles southeast of the Center are used for grazing. This land was seeded in 1985 to a mixture of tall wheatgrass, intermediate wheatgrass, sweetclover and alfalfa, and is now subdivided into a season-long treatment and a twice-over rotation treatment. The economic returns from both grazing systems are combined in this study.

For the purpose of this study, the livestock and CRP land enterprises are combined. Economic principles would suggest that each be separated, but because we are evaluating a system of grazing CRP land we have combined them into one enterprise. The land rental value would be $11.20 or $26.95 per acre depending on whether the land was pastured or cropped in 1998. In calculating the costs associated with the grazing enterprise the cropland rental rate of $26.95 per acre was used, since this land was cropped prior to being enrolled in CRP and the alternative use would be to return it to cropland.

The value of the livestock inventory at the beginning and end of each calendar year is included in table 3. This inventory includes animals purchased during the year which could be sold and converted to cash at any time. It was assumed that the herd of 87 bred females was purchased on January 1, 1992. An additional 48 head of bred heifers were purchased in 1998 increasing the herd to 135 (see details in previous article). Since there were no replacement females in the CRP herd in 1993, it was necessary to purchase 17 replacements. In 1994-1997, seventeen heifers saved from the 1992-1995 calf crops were bred and ready to calve and became the replacements. Twenty-seven heifers were kept for replacements in 1998.

The livestock inventory affects the returns to the operation because the value of the females on hand fluctuates during the year. As table 3 shows, the herd was valued at $105,397.25 at the beginning of 1998 but was worth $111,554.77 on December 31, 1998. This change in the livestock value was recorded as $6,157.52 in table 3 under inventory change. Also recorded in table 5 is the net return excluding inventory change. Since most cattle producers do not consider the change in value of their livestock as a net gain or loss, this line is a more practical reflection of the true return to the operation.




Table 3. Livestock Inventory
  1992 1993 1994 1995 1996 1997 1998 7-YR.
Average
Beginning Inventory $0.00 $72,418.50 $89,072.33 $79,530.76 $70,432.08 $69,356.10 $71,797.25 $64,658.15
No. Purchased 87 17 0 0 0 0 48 22
Cost/Hd $850.00 $875.00 $0.00 $0.00 $0.00 $0.00 $700.00 $805.43
Purchase Value $73,950.00 $14,875.00 $0.00 $0.00 $0.00 $0.00 $33,600.00 $17,489.29
Beginning Inventory (includes $5,400 for Bulls in 1992) $79,350.00 $87,293.50 $89,072.33 $79,530.76 $70,432.08 $69,356.10 $105,397.25 $82,918.86
 
No. Steers Born* 46 41 55 49 42 40 69 49
No. Heifers Born* 41 46 32 38 45 48 66 45
Steers Sold 46 41 55 49 42 40 69 49
Heifers Sold 24 29 15 21 28 31 39 27
No. Kept for Replacement 17 17 17 17 17 17 27 18
Value/Replacement $580.50 $592.49 $628.28 $534.24 $423.30 $479.25 $483.51 $527.92
Value/Bred Heifer $0.00 $900.00 $750.00 $650.00 $630.00 $650.00 $600.00 $597.14
No. Culls Sold 17 17 17 17 17 17 17 17
Value/Cow $825.00 $850.00 $750.00 $650.00 $675.00 $700.00 $650.00 $721.56
No. Cows Kept 70 70 70 70 70 70 118 77
 
End Inventory Bulls $4,800.00 $4,200.00 $3,600.00 $4,800.00 $4,200.00 $3,600.00 $11,600.00 $5,257.14
End. Inv. Heifer Calves $9,868.50 $10,072.33 $10,680.76 $9,082.08 $7,196.10 $8,147.25 $13,054.77 $9,728.83
End. Inv. Bred Heifers $0.00 $15,300.00 $12,750.00 $11,050.00 $10,710.00 $11,050.00 $10,200.00 $10,151.43
End. Inventory cows $57,750.00 $59,500.00 $52,500.00 $45,500.00 $47,250.00 $49,000.00 $76,700.00 $55,457.14
Ending Inventory $72,418.50 $89,072.33 $79,530.76 $70,432.08 $69,356.10 $71,797.25 $111,554.77 $80,594.54
Inventory change -$6931.50 $1,778.83 -$9,541.57 -$9,098.68 -$1,075.98 $2,441.15 $6,157.52 -$2,324.32
* In 1997 one set of twin calves were included in the study

Table 4 is a listing of the costs associated with operating the livestock herd during the year. The cost of replacements is the cost of maintaining the replacement heifers from the time of weaning until they join the herd. This includes pasture costs during the summer and feed costs for the time they are kept separate from the main cow herd.

Table 4. Costs Per Cow and Per Acre
Year 1992 1993 1994 1995 1996 1997 1998
Number of Acres 370 370 370 370 370 370 370
No. of Head 87 87 87 87 87 87 135
Fuel & Elec. $36.90 $37.64 $37.70 $37.90 $39.04 $40.21 $40.21
Dep. bldg. & Equip. $14.56 $14.85 $14.90 $14.90 $14.95 $14.95 $15.40
Feed $114.72 $86.04 $101.64 $73.80 $68.88 $110.70 $99.36
Salt & Mineral $9.00 $9.05 $9.08 $9.12 $9.39 $9.67 $9.96
Replacements $16.15 $34.13 $31.07 $30.13 $30.60 $17.31 $12.50
Bulls $11.43 $9.90 $10.55 $9.84 $10.30 $12.61 $11.04
Veterinary $5.25 $5.30 $5.40 $5.45 $5.61 $5.78 $5.95
Marketing $4.00 $4.00 $4.00 $4.00 $4.00 $4.00 $4.10
Labor $16.78 $16.85 $16.85 $16.85 $16.85 $16.85 $16.90
Land Costs $114.40 $111.43 $116.74 $110.79 $115.89 $118.02 $118.03
Death Loss $9.12 $10.03 $10.24 $9.14 $8.10 $7.97 $7.81
Total Cost/Cow $352.31 $339.22 $358.16 $321.92 $323.60 $358.07 $341.26
Total Costs/Acre $82.84 $79.76 $84.22 $75.69 $76.09 $84.19 $124.51
Total Herd Costs $30,650.80 $29,512.54 $31,160.25 $28,007.04 $28,153.60 $31,152.09 $46,070.36

Table 5 shows the value of animals sold during the seven years of the trial. Each year it was assumed that 17 heifer calves were retained as replacements and 17 cows sold as culls. The value of the animals was calculated at the time of weaning in consultation with a local cattle buyer who is familiar with the herd. Each year an opportunity cost was deducted from the returns from livestock sales. This is the amount of interest that could have been earned if the livestock had been sold and the money invested in a 12-month certificate of deposit at 4.5% interest. While economists use inventory change as a part of the net return, most producers do not consider these changes as a part of their net income. Table 5 shows the net return excluding inventory change to reflect the more commonly used figures. Returns for the seven year study varied from a high of $26.94 per acre in 1993 to a low of -$15.77 per acre in 1996 with a seven-year average return of $5.84 per acre.
Table 5.  Livestock Returns
  1992 1993 1994 1995 1996 1997 1998 7-Year
.Average
No. of Acres 370 370 370 370 370 370 370 370
No. Heifers 24 29 15 21 28 31 39 27
Avg Wt. 497 526.8 575.5 524 443 515 535 517
Price/Lb. $0.90 $0.85 $0.73 $0.62 $0.62 $0.77 $0.71 $0.74
Return-Heifers* $10,198.44 $12,336.34 $5,986.64 $6,481.36 $7,305.96 $11,678.40 $14,073.44 $9,722.94
                 
No. Steers 46 41 55 49 42 40 69 49
Avg. Wt. 539.5 577.0 622.0 562 466 576 560 558
Price/Lb. $0.95 $0.90 $0.78 $0.65 $0.66 $0.85 $0.76 $0.79
Return-Steers* $22,397.34 $20,226.74 $25,349.61 $17,004.72 $12,271.64 $18,604.80 $27,898.08 $20,536.13
                 
No. Culls 17 17 17 17 17 17 17 17
Avg. Wt. 1280 1372 1336 1346 1212 1352 1236 1305
Price/Lb. $0.45 $0.45 $0.46 $0.30 $0.32 $0.35 $0.29 $0.37
Return Culls* $9,302.40 $9,971.01 $9,921.43 $6,521.37 $6,263.62 $7,642.18 $5,788.81 $7,915.83
Total Returns $41,898.18 $42,534.08 $41,257.68 $30,007.44 $25,841.22 $37,925.38 $47,760.33 $38,174.90
                 
Inventory Change $6,931.50 $1,778.83 $9,541.57 $9,098.68 $1,075.98 $2,441.15 $6,157.52 $2,324.32
Opportunity Costs $3,967.50 $3,055.27 $4,453.62 $3,976.54 $3,521.60 $3,675.87 $4,742.88 $3,913.33
Total Herd Costs $30,650.80 $29,512.54 $31,160.25 $28,007.04 $28,153.60 $31,152.09 $46,070.36 $32,100.95
Total Cow Costs/A (table 4.)

$82.84
$79.76 $84.22 $75.69 $76.09 $84.19 $124.51 $86.76
Net Returns/A Including
Inventory Change


$0.94
$31.74 $10.53 $29.93 $18.68 $14.97 $8.39 $0.44
Net Returns/A Excluding
Inventory Change


$19.68
$26.94 $15.25 -$5.34 -$15.77 $8.37 -$8.25 $5.84
* =Less 5% shrink

 Haying CRP Land

Ninety acres of CRP land adjacent to the grazing systems are cut for the hay crop. These were also seeded in 1985 to the same species used in the grazing study. Costs and returns for haying CRP land are shown in table 6. In 1992 the 90 acres of CRP hayland produced 403 bales averaging 1100 pounds. The quantity produced was the result of haying a field that had not been cut since 1985. The quantity was high but the quality was low, resulting in a lower return than for average grass-alfalfa hay for that year. In 1993 the quality was better since much of the old material had been removed. However, the value of the hay in the wet year of 1993 was about the same. In 1994 both quantity and quality increased and returns were appreciably higher than in 1993. Due to above-average precipitation in 1995, production increased to 288 bales averaging 1400 lbs/bale. Hay production in 1996 decreased to 236 bales each weighing 1300 lbs. Due to the abundance of hay on the market that year, hay prices dropped to $28/ton. Hay production again decreased in 1997 with only 152 1320-pound bales produced. Due to the dry conditions in 1997 hay prices increased to $45.00/ton, and helped increase returns to $5.17/acre. Hay production in 1998 yielded 155 bales each weighing an average of 1,594 lbs. At $40.00 per ton, the net returns for 1998 were $8.32 per acre, and a 7-year average return of $4.04 per acre.
Table 6. Costs and Returns for CRP Hay
  1992 1993 1994 1995 1996 1997 1998 7-YR.
Average
Acres of Hay 90 90 90 90 90 90 90 90
Avg. Bale Wt. (Lbs.) 1100 1500 1325 1400 1300 1320 1594 1363
No. of Bales 403 209 220 288 236 152 155 238
Land Costs/Acre $26.90 $26.20 $27.45 $26.05 $27.25 $27.75 $26.95 $26.94
Mowing/Acre $4.23 $5.00 $4.23 $4.89 $4.90 $4.95 $7.22 $5.06
Baling/Bale $4.60 $5.00 $5.02 $5.25 $5.25 $5.30 $5.23 $5.09
Stacking-Hauling/Acre $8.85 $4.59 $4.83 $6.32 $5.18 $3.34 $3.40 $5.22
Total Costs $5,451.73 $4,265.93 $4,390.27 $4,865.62 $4,598.78 $4,048.91 $4,192.19 $4,544.77
Costs/Acre $60.57 $47.40 $48.78 $54.06 $51.10 $44.99 $46.58 $50.50
CRP Hay Value/T. $25.00 $25.00 $35.00 $30.00 $28.00 $45.00 $40.00 $32.57
Gross Returns $5,541.25 $3,918.75 $5,101.25 $6,048.00 $4,295.20 $4,514.40 $4,941.40 $4,908.61
Net Return/A. $0.99 -$3.86 $7.90 $13.14 -$3.37 $5.17 $8.32 $4.04


Conclusions

Table 7 summarizes the net return to each management system or enterprise. This is the amount of profit or loss after the value of the land is deducted. Also listed is a return to land and management for producers who do not want to consider renting their land. The cost of labor on the cropping and haying systems was not deducted because it could not be separated from the custom work rate; therefore, this cost was not subtracted from the livestock returns either. As already observed, returns from all systems are as dependent upon weather and current prices as they are on good farm/ranch management.

Table 7. Annual and Seven-Year Average per Acre Returns to Land and Management for each
Enterprise/system on the CRP Study.

  1992 1993 1994 1995 1996 1997 1998 7-Year
Average

Net Return to System
Cash Crop -$14.42 -$4.65 -$18.79 -$57.06 $5.30 -$34.61 -$7.42 -$18.87
Grazing $0.94 $31.74 -$10.53 -$29.93 -$18.68 $14.97 $8.39 -$0.44
Haying $0.99 -$3.86 $7.90 $13.14 -$3.37 $5.17 $8.32 $4.04

Return to Land and Management
         
Cash Crop $12.48 $21.55 $8.67 -$31.01 $32.55 -$6.86 $19.53 $8.13
Grazing $33.50 $63.65 $22.63 $1.83 $14.34 $48.48 $35.34 $31.40
Haying $27.89 $22.34 $35.35 $39.19 $23.88 $32.92 $35.27 $30.98

Cost figures shown in tables 1, 4, and 6 for custom work, land rental and cow maintenance are from Ag Statistics, Ag Extension publications, or are best estimates. In any given operation, the poorest cropland was enrolled in the CRP. When making decisions for future use of these acres, it is important to remember that this land will always be marginal in quality; therefore, each producer should substitute his costs of operation to arrive at his potential net profit or loss. Government payments should not be included in this estimate.

Should you cash rent your land? On land valued at $289/acre, cash rent of $26.95 per acre is a 9.3% return on investment. This would indicate that land rental rates are too high in relationship to the land's ability to return a profit. Results of this study to date show grazing and hay production to be the most profitable options on marginal land. Consideration should also be given to additional uses such as wildlife easements or fee hunting.

Paul E. Nyren, Director
North Dakota State University
Central Grasslands Research Center
4824 48th Ave. SE
Streeter, ND 58483
Phone: 701-424-3606
E-mail: grasland@ndsuext.nodak.edu


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