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Production Economics Tools for Farm Management

Production Economics Tools for Farm Management. AAE 320 Paul D. Mitchell. Learning Goal. Many tools for farmers exist, review some of them to Show how they work Show that the production economics principles we learned underlies them

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Production Economics Tools for Farm Management

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  1. Production Economics Tools for Farm Management AAE 320 Paul D. Mitchell

  2. Learning Goal • Many tools for farmers exist, review some of them to • Show how they work • Show that the production economics principles we learned underlies them • Mostly done in class on computer: you should “play” with these tools on your own • Single Input Versions (first) • Multiple Input Versions (later) • See links on AAE 320 home page

  3. Crops and Dairy • Corn is the focus because so much of the grain market and input market is there • Seeding density for corn (non-computer) • Corn and N fertilizer (spreadsheet, web, app) • Dairy important in Wisconsin • Corn Feeding Strategies: single input (corn), holding alfalfa fixed (spreadsheet) • Income Over Feed Supplement Costs: multiple input (spreadsheet)

  4. Corn Seeding Density • Guidelines for Managing Corn Seed Cost (Lauer and Stanger) • Calculate the price ratio: seed:corn as $/1,000 seeds to $/buWHY? • Current is $240/bag or 240/80,000 x 1,000 = $3/1,000 seeds and $6/bu, so 3/6 = 0.5 • Figure 2: 36,000 seeds/ac for non-Bt corn and 38,000 seeds/ac for Bt corn

  5. Corn and N Fertilizer • Nitrogen $ Rate of Return Calculator • Choose your soil type and previous crop • Enter fertilizer price ($/ton) and %N and corn price ($/bu), spreadsheet determines the N Price to Corn Price Ratio: WHY? • Optimum highlighted in BLUE for different price ratios, enter corn and N rate bases

  6. Dairy: Corn Feeding Strategies • Enter milk & corn price, calculates price ratio: WHY??? • Hold other feeds fixed, how much corn to feed? • Estimates DMI (dry matter intake?) based on % alfalfa (hay) and % corn in ration and week of lactation • Pick your ration and lactation week on this table • “Marginal Milk Production to Corn (lbs milk/lbs corn)” = Marginal Product based on experiments • Tessman et al. (1991) & analysis Earleywine (2001)

  7. Dairy: Corn Feeding Strategies • “Marginal Value of Milk to Corn ($)” = (p x MP)/r What is this? • Economic optimum: p x MP = r, so rearrange to (p x MP)/r = 1.0 • Economic optimum is the 1.0 dotted line, above means VMP > r, below means VMP < r • Example: $16/cwt milk and $4/bu corn, 15th week: what’s the optimum? • 53% alfalfa and 30.5% corn

  8. Income Over Feed Supplement Costs • More complex, need to know about dairy nutrition to better understand spreadsheet • Set dry matter intake (DMI) and forage component of diet you are using • Set limits on protein intake • Documentation: shows is profit max problem, with quadratic production function in protein intake

  9. Summary • Examples of Tools for Corn and Dairy: • Single input cases in tables/figures for seed corn costs • Excel sheets for Nitrogen fertilizer on corn and corn feed for cows • Complex multi-input case for Dairy

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