THE ECONOMICS OF BEEF COW HERDS IN MICHiGAN The“: guy {:50 Degree o§ M. S. MICHIGAN STATE UNIVERSE“t Lynn J. Maish £955 THESIS ' L [B R {‘1' .' \f/ Michigan Sta tc University THE ECONOMICS OF BEEF COW HERDS IN MICHIGAN BY Lynn J. Maish AN ABSTRACT OF A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of MASTER OF SCIENCE Department of Agricultural Economics 1965 ABSTRACT THE ECONOMICS OF BEEF COW HERDS IN MICHIGAN by Lynn J. Maish The purpose of this study was to examine the prof- itability of the beef cow-calf program under various con- ditions likely to be found in Michigan. Questions to be answered included the following: What are the effects of various locations, land values and productivities; systems of management; levels of production efficiency; and sizes of herds upon profits? How do the income potentials of the beef cow enterprise compare with alternative enter- prises? Under what conditions do beef cow herds best fit in Michigan? Tentative conclusions concerning the future role of the beef cow enterprise in Michigan may be made after these questions are answered. This study involved the preparation of several budgets for beef cow enterprises under various hypotheti— cal conditions, which were considered to be representative of the types of situations found in Michigan. Input-output l Lynn J. Maish data for the budgets were largely synthesized from second— ary sources. The full time ZOO-cow enterprise in northern Mich- igan required from 880 to more than 1200 acres of land, and total investments of more than $120,000. With good or above average management these Operations resulted in labor incomes of from $1,500 to $3,000, which seemed to be competitive with other alternatives in the northern areas of the State. CrOp yields, weaning weights, and calving percentages had significant effects on incomes. Profits were highly correlated with changes in cattleqprices. Land values also had a strong effect on labor in- comes. The large beef cow enterprise tended to be profit- able only when land was moderate to low in price. Large capital requirements, a low rate of capital turnover, and vulnerability to price changes are major problems facing farmers considering the addition of a large beef cow en- terprise. The ZOO-cow enterprise on less productive soils in southern MiChigan was less profitable than most of those for northern Michigan. A program using a corn sil- age ration resulted in a labor income of nearly zero. 2 Lynn J. Maish Large beef cow herds are apparently less profitable than alternative enterprises under many southern Michigan sit- uations. Small herds of 25-cows on part time farms produced negative labor incomes in both northern and southern Mich- igan. However, returns were as high as likely alternatives in northern Michigan, when the operator's labor was valued at a very low level. The southern Michigan beef cow enter— prises were not quite as profitable as possible alternatives, as for example, the income from renting theihrm out. The use of productive corn land to grow pasture and feed for the beef cow herd was highly unprofitable. The replacement of a 22-cow dairy enterprise with a 50-cow beef herd reduced labor requirements by nearly 2000 hours. If the released labor had an earning power of $.67 to $1.15 per hour (depending on the ration fed the beef herd) in some alternative use the shift could be made with no loss in income. The alternative of cornstalk silage appeared to be more profitable than regular corn silage as feed for beef cows. However, heavy labor requirements during the har- vesting season may be a major drawback for cornstalk silage. 3 Lynn J. Maish A 50—cow year—around drylot operation using corn- stalk silage was unprofitable when all costs were charged to the beef enterprise. However, if adequate physical fa— cilities and machinery for the operation are available for the enterprise with no opportunity cost and only the re- pairs on these items were charged to the beef herd, then a modest return ($.63 per hour) accrued to the labor of the Operator. The beef cow herd seems best adapted where an abund- ance of forage is available, alternative enterprises are limited, and land values are low. Such conditions are found in some areas of Michigan, particularly in northern areas where dairy markets are limited. A moderate increase in beef cow numbers is likely to occur in Michigan in the next few years. Price levels and production patterns on the national level will be important determinents of the role of beef cow herds in Michigan‘s future. THE ECONOMICS OF BEEF COW HERDS IN MICHIGAN BY Lynn J. Maish A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of MASTER OF SCIENCE Department of Agricultural Economics 1965 ACKNOWLEDGMENTS The author wishes to thank all those who provided advice and assistance for this study. Special acknowledg- ments should go to Professor C. R. Hoglund for the gener- ous assistance and guidance that he provided to the author. The author would also like to express his appreciation to the several members of the Departments of Agricultural Economics, Animal Husbandry and Crop Science at Michigan State University who provided much of the data and ideas for this thesis. Likewise, for the several farmers and County Extension Agents who also provided information and insights. Thanks should also be given to Dr. L. L. Boger for the provision of a graduate assistantship which made this study possible. And last, but not least, the author would like to thank all the typists who helped in the prep- aration of this thesis. ii TABLE OF CONTENTS Page ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . ii Chapter I. INTRODUCTION. . . . . . . . . . . . . . . . . . 1 II. REVIEW OF LITERATURE. . . . . . . . . . . . . . . 10 The Ration For the Beef Cow Herd. . . . . . . 10 Labor Requirements. . . . . . . . . . . . . . 12 Capital Requirements. . . . . . . . . . . . . 14 Effects of Calving Percentage, Weaning Weight and other Factors on Profitability. . . . . 16 Conclusions as to the Profitability of the Beef Cow Herd Under Various Conditions. . . 19 III. METHOD OF STUDY . . . . . . . . . . . . . . . . 25 IV. THE LARGE FULL-TIME BEEF COW ENTERPRISE . . . . 28 Assumptions . . . . . . . . . . . . . . . . . 30 The ZOO-Cow Herd in Northern and Upper Peninsula Michigan. . . . . . . . . . . . . 34 CrOpping program and acreage requirements. 34 Capital and labor requirements . . . . . . 35 Income potential . . . . . . . . . . . . . 37 Effects of managerial performance on income . . . . . . . . . . . . . . . . . 39 Effect of cattle price levels on income. . 43 Effect of land values on income and capitalized land value . . . . . . . . . 46 The ZOO-Cow Herd in Southern Michigan . . . . 50 CrOpping program and acreage requirements. 50 Capital and labor requirements . . . . . . 52 Income potential . . . . . . . . . . . . . 53 iii Table of Contents/continued VI. VII. Problems and Prospects of Full-Time Beef Cow Enterprises . . . . . . . . . . . . . . . . Problems in the acquisition of capital . . Prospects for success. . . . . . . . . . . THE SMALL PART-TIME BEEF COW ENTERPRISE . . . . The 25-Cow Part-time Beef Cow Enterprise. . . . CrOpping program and acreage requirements. . Capital and labor requirements . . . . . . . Income potential . . . . . . . ... . . . . . The 25—Cow Part-time Herd in Southern Michigan. CrOpping program and acreage requirements. . Capital and labor requirements . . . . . . . Income potential . . . . . . . . . . . . . . Problems and Prospects for the Small Part-time Beef Cow Enterprise . . . . . . . . . . . . . THE BEEF COW HERD AS A SECONDARY ENTERPRISE . . The 50-Cow Herd on Land Suitable for Corn . . . CrOpping program and acreage requirements. . Capital and labor requirements . . . . . . . Income potential . . . . . . . . . . . . . . The 50-Cow Beef Herd in Replacement of a 22-Cow Dairy Herd. . . . . . . . . . . . . . . . . . CrOpping program and acreage requirements. . Capital and labor requirements . . . . . . . Income potential . . . . . . . . . . . . . . The 50-Cow Herd Kept Year Around on Drylot. . . CrOpping program and acreage requirements. . Capital and labor requirements . . . . . . . Income potential . . . . . . . . . . . . . . Problems and PrOSpects for the Secondary Beef Cow Enterprise. . . . . . . . . . . . . . . . SUMMARY AND CONCLUSIONS . . . . . . . . . . . . Summary . . . . . . . . . . . . . . . . . . . . Conclusions . . . . . . . . . . . . . . . . . . TABLES. . . . . . . . . . . . . . . . . . . . . BIBLIOGRAPHY. . . . . . . . . . . . . . . . . . iv Page 55 55 59 64 66 66 67 68 74 74 75 76 78 81 83 83 84 85 87 88 88 90 92 93 94 95 96 99 99 102 103 132 LIST OF TABLES Number la. CrOp Acreages and Yields, ZOO-Cow Enterprise . lb. 1c. 1d. le. 1f. CrOp Acreages and Yields, 25-Cow Enterprise. CrOp Acreages and Yields, 50-Cow Enterprise. Estimated Total Required Investments, ZOO-Cow Enterprise . . . . . . . . . . . . . . . . Estimated Total Required Investments, 25-Cow Enterprise . . . . . . . . . . . . . . . . Estimated Total Required Investments, 50-Cow Enterprise . . . . . . . . . . . . . . . . Fertilizer Requirements. .‘. . . . . . . . . Daily Feed Requirements, Beef Cow and Calf . Daily Feed Requirements, Replacement Heifer. Estimated Value of Unimproved CrOpland and Perma— nent Pasture Land; and PrOperty Tax Rates. Labor Requirements . . . . . . . . . . . . . Estimated Prices for Products and Inputs . . General Livestock and Custom Hire Expenses . . . Budgeted Annual Costs and Returns, 200—Cow Enter- prise, Upper Peninsula Michigan. . . . . . Budgeted Annual Costs and Returns, 200-Cow Enter- prise, Northern Lower Midhigan . . . . . . V Page 103 104 105 107 108 108 109 110 111 112 113 114 115 116 117 List of Tables/continued 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. '24. 25. Budgeted Annual Costs and Returns, 200-Cow Enterprise, Northern Michigan. . . . . . . . . Change in Labor Income Resulting from Price Changes--200—Cow Enterprise. . . . . . . . . . Labor Incomes under Varying Levels of Prices-— 200-Cow Enterprise . . . . . . . . . . . . . . Effect of Land Values on Labor Incomes . . . . . Capitalized Land Values, Land with Improvements (moderately productive soil) . . . . . . . . . Capitalized Land Values, Land without Improve- ments (moderately productive soil) . . . . . . Capitalized Land Values (less productive soil) . Budgeted Annual Costs and Returns, ZOO-Cow Enterprise, Southern Michigan. . . . . . . . . Budgeted Annual Costs and Returns, 25—Cow Enter— prise, Upper Peninsula . . . . . . . . . . . . Budgeted Annual Costs and Returns, 25-Cow Enter- prise, Northern Lower Michigan . . . . . . . . Budgeted Annual Costs and Returns, 25-Cow Enter- prise, Southern Michigan . . . . . . . . . . Budgeted Annual Costs and Returns, 25-Cow Enter- prise, Southern Michigan, Corn Silage Program. Costs and Returns for Renting Out the 25—Cow Farm . . . . . . . . . . . . . . . Change in Income from Putting a 50-Cow Beef Herd on Moderately Productive Corn Land . . . . . . Change in Income from Replacing a 22-Cow Dairy Herd with 50 Beef Cows . . . . . . . . . Budgeted Costs and Returns for a 50-Cow Beef Herd on Drylot Using a Cornstalk Silage Ration vi Page 118 119 120 121 121 122 122 123 124 125 126 127 128 129 130 131 LIST OF CHARTS Chart Page 1. Number of Beef Cows and Percentage of U. S. Total per Region, 1954 and 1964 . . . . . . . 8 2. Beef Cows and Heifers, 2 years old and over in Michigan. . . . . . . . . . . . . . . . . . . 9 vii CHAPTER I INTRODUCTION Forages and forage consuming livestock add signif- icantly to Michigan's agricultural economy. A large per— centage of the farm land in the state is adapted primarily to the production of forages. In 1959, about 33 percent of Michigan's crOpland was used for hay and pasture, an additional 5 percent of the total farm land was in open permanent pasture and a sizable prOportion of the farm woodlands, which constitute approximately 19 percent of the state's farm land, also provided pasture.l The north- ern areas of the state have a relatively larger percentage of farm land adapted primarily to forage production than do the southern parts. Forage crOps have little use other than as feed for livestock. Therefore, ruminants have been important to Michigan's agriculture as a means to market its abundance l . . . Michigan Agriculture County Data and State Trends, Misc. Series Circular E—22, April 1962, Cooperative Exten- sion Service, Michigan State University. 1 of forage. The major utilizer of forages in the state is the dairy enterprise. The nature of the dairy enterprise has been changing considerably in recent years. The total number of dairy cows in Michigan decreased from 889,000 in 1956 to 673,000 in 1965.2 While the total number of dairy cows has decreased, the number per farm has increased due to a decline in the number of farms with small herds and to the expansion of other herds.3 Dairy herds are not well adapted to many farms due to declining markets, insufficient capital for bulk tanks and other investments required for profitable milk production, and labor limitations. It has been estimated that by 1980 there will be only 9,200 dairy herds (as compared to 51,766 herds in 1959) and about 450,000 dairy cows in the state. It has also been estimated that 1.25 million fewer acres will be required to produce feed and pasture for Michigan's dairy herd by 19809’ Adjustments in the dairy enterprise have been more dramatic in some parts of the state than in others. During the period from 1959 to 1964 milk cow numbers decreased by 24 percent in the Upper Peninsula, 21 percent in the northern area of the Lower 2 . . . . . . . Michigan Agricultural Statistics, Michigan CrOp and Livestock Reporting Service. 3 . . . . . Hoglund, C. R., Midhiqan Dairy Farming, SpeCial Bul- letin 440, 1962, Agricultural Experiment Station, Michigan State University. 4 . . Dairy--Phase II Report, Progect '80, May 8, 1965, Michigan State University. peninsula (crop reporting districts 2 and 3), and by 15 percent in the central and southern areas of the state (crOp reporting districts 4 through 9).5 The declining importance of dairying and the chang- ing nature of the dairy enterprise make it imperative to examine the potentialities of alternative forage consuming livestock enterprises which could replace the dairy herd on some farms. The need for such alternative enterprises may be the greatest in the Upper Peninsula and the northern parts of the state where the dairy enterprise is shrinking the most, but where the necessity to grow forage crOps is the greatest. The beef cow-calf enterprise, being a utilizer of large amounts of forage, is thus of interest as a poss— ible alternative to replace the dairy enterprise in some situations. The beef cow herd may also be a possible en- terprise for many non-dairy farms as well. Additional sources Of interest in the feeder calf production enterprise may come from the growth and import- ance of part-time farming and the growth of the cattle feed- ing industry in Michigan. Beef cow herds with their very low and flexible labor requirements may be better adapted 5 . . . . . . Michigan Agricultural Statistics, Op. Cit. to part-time farming than are most other livestock enter- prises. Numbers of cattle on feed (on the first Of January) have increased from 109,000 in 1957 to 160,000 in 1965.6 Expansion in beef cow numbers in the state have not kept pace with the expansion in cattle on feed in the last 10 years. From 1956 to 1965 beef cow numbers increased from 96,000 to 125,000, a 30 percent increase, while numbers of cattle on feed rose by 50 percent from 107,000 to 160,000.7 Approximately 96,730 head of feeder cattle were shipped into Michigan from other states in 1964.8 The livestock committee of Michigan State University's Project '80 has predicted that 400,000 head of cattle will be on feed in the state by 1980 (on January 1) and that a total of about 600,000 head of cattle will be fed out per year at that time. The number of beef cows was predicted to rise to 350,000 by 1980. And in-shipments of feeder cattle were estimated to total about . 9 . . 290,000 head in 1980. As Michigan cattle feeders rely 61bid. 7Ibid. 8 . Shipments Of Stocker and Feeder Cattle, January 27, 1965, SRS, U.S.D.A. 9 . Beef, SWine, Sheep and Horses—-Phase II Report, Project '80, May 15, 1965, Michigan State University. heavily on out-of-state sources of feeder cattle, they must compete with feeders from the Cornbelt states through which most of the cattle must travel on their way from the source of origin to Michigan feedlots. Developments in the beef industry on a national basis and in other areas of the country will have important effects on the potential for beef cow herds in Michigan. The beef industry is a growing one. Beef cow numbers have increased more rapidly in the east south central areas of the country than in any other area. The prOportion of the nation's cow herd in the mountain range states has declined (see Chart No. 1). An increasing proportion of the cattle raised in the traditional range states is being fed in the western states. If present trends continue, cattle feeders in the Cornbelt and surrounding areas may Obtain more and more of their cattle from the South and/or from local areas. Given these conditions, if the beef feeding enterprise con- tinues to grow in Michigan, it may require more locally pro— duced feeder calves in the future. But feeder calf produc- tion in Michigan will increase only if they can be profitably produced in this state in comparison with alternative enter- prises and if the costs of producing calves in Michigan are competitive with the costs of producing feeders in other areas. Beef cow numbers have grown substantially in Michi- gan since 1950, with the biggest increase occurring in the early 1950’s (see Chart No. 2). The probable effect Of the release of resources suitable for feeder calf production from dairying on certain types Of farms and in certain areas such as the U.P. and northern Michigan, and of the probable increase in demand for feeder calves from a growing cattle feeding industry in the state on beef cow numbers in the fu- ture can be more intelligently assessed once the nature and profitability of the beef cow enterprise, as it exists in Michigan, is better understood. The purpose of this study is to examine the profita- bility of the beef cow—calf program under various conditions likely to be found in Michigan. Questions to be answered in- clude the following: What are the effects Of various loca- tions, land values, and productivities; systems of management; levels of production efficiency; and sizes of herds upon profits? How does the beef cow enterprise compare with al- ternative enterprises? Under what conditions do beef cow herds best fit in Michigan? Tentative conclusions concern- ing the future role Of the beef cow enterprise in Michigan may be made after these questions are answered. A series of budgets representing various types of beef cow enterprises in different parts of the state under varying levels of management have been prepared and analyzed in an effort to answer these questions. The next chapter outlines some of the important characteristics of the beef cow enterprise as extracted from a review of literature. 34.9.9: 6.30m wqapnomom echo ..m:m.m 7.” .33an £6.50an F333 one M0335..." "condom enhance Heywooo flamenco Hoepooo oepnoH»¢_ oepqoape oeueoom neopoeoz_ npuoz woos. opuoz poem Epsom puma. spoon poem spoon oppoz H smoa emma :mma some mod some same some lnma Emma emoa smofl some some smma i . 0:0 Afom om 30+ 0 *m. e e e e o.eH H.m n oooa e e 3. o.m 92 n: , e m - e e :.>m e.em also m.em e e e a 1 000m L @700 H ooon noon HO 1 honfidz .. 002. 1 ooom caucuses“. :mma one some .eoemom non Hopoa .m .6 Mo omopooonom one ozoo noon no Menage --.H phage Chart 2.--Beef Cows and Heifers, 2 years old and over in Michigan. Thousands 120 - 90 ‘ 60 ._ 30 ‘ ! C C ' I, I V 1940 19h5 1950 1955 1960 1965 Source: Livestock and Poultry Inventory, January 1, S.R.S., U.S.D.A. CHAPTER II REVIEW OF LITERATURE The data and assumptions used in the construction of the budgets for this study were largely derived from the results of other research. A careful review of animal hus- bandry studies of beef cow nutrition and management practices, and economic studies of beef COW’herd costs and returns under various conditions furnished guidelines for budgeting and evaluating beef cow-calf programs. The Ration for the Beef Cow Herd Feed and pasture are the biggest cost items in the production of feeder calves. In a study Of beef cow herd costs and returns in southern Indiana hay, silage, and con— centrates were found to constitute 36.0 percent of the total costs while pasture costs accounted for an additional 26.5 percent of the total costs.1 A western Ohio study found 1 . ' Masten, John E. T., "An AnalySis of Costs, Returns, and Resources Used by the Beef Breeding Herd in Southern Indiana," unpublished M.S. thesis, 1958, Purdue University. 10 11 that harvested feeds accounted for 38.4 percent and pasture 28.2 percent of total costs.2 Due to its magnitude, varia- tions in feed cost are key determinants of profits. Janssen discovered that net returns over variable costs per cow de- creased from $23.92, when feed costs were under $40, to a minus $6.94, when feed costs per cow were above $70.3 Beef cows can utilize large quantities of low-quality forage. Grain is usually not required in the ration.4 Many farmers feed more and better feed than is necessary to meet the nutritional requirements of the beef cow. Henquinet's study Of beef cow herds in northern Wisconsin discovered a strong tendency to overfeed. The farmers in this study who fed a winter ration of hay alone were found to be feeding at the rate of 27.2 pounds per day per cow when only 20 pounds would have been adequate to meet the beef cow's nu- tritional requirements. This meant that based on a 180-day winter feeding period the actual winter feed costs were $41.58, when they could have been only $30.60 if the recom- mended ration of 20 pounds Of hay per day had been fed. The 2Shaudys and Sitterly, Costs and Returns of the Beef Breeding Enterprise in Western Ohio, Research Circular 73, Ohio Agricultural Experiment Station, August 1959, p. 3. 3Janssen, M. R., Beef Cow Herd Costs and Returns in Southern Indiana, Research Bulletin No. 725, Purdue Univers- ity, August 1961, p. 6. 4Snapp and Neuman, Beef Cattle, 5th edition, John Wiley and Sons, Inc., 1960, p. 202. 12 farmers who fed grain in addition to hay were found to have even higher feed costs with no apparent advantages from the grain feeding.5 In addition to feeding only the required amounts of forage during the winter season, feed costs can be reduced by making maximum use of pasture so as to shorten the winter feeding season. High profit beef herds had higher pasture costs but lower costs for feed other than pasture (and lower total feed costs) than did lower profit herds in a Minne- sota study.6 The use of forage by-products from grain produc- tion such as small grain stubble and cornstalk pastures, corn- stalk silage, and corn cobs may also result in lower feed costs? In most instances, the creep—feeding Of calves does not pay if the calves are sold as feeder calves; however not all experimental results agree on this subject.8 Labor Requirements The labor requirements for beef breeding herds are 5 . Henquinet, Wm. D., "Beef Cow Herd DevelOpment 0p- portunities in Northern Wisconsin," unpublished M. S. thesis, 1964, University of Wisconsin. 6 Wells and Nodland, "Beef Cow Herd Costs and Returns," Minnesota Farm Business Notes, University of Minn., June 1963. Garst, David, "Cows and Calves on a Feed Grain Farm," paper presented at the Indiana Grassland Council, July 1964. 8Snapp and Neuman, Op. cit., p. 164. 13 quite low. Recent studies have indicated that labor require- ments may be considerably less than the standard guidelines used in many farm planning manuals. Based on the data given in two typical farm planning guides the labor requirement per cow for a beef breeding herd would be 32.2 hours assum— ing one bull per 25 cows, heifer calves equal to 25 percent of the cows retained, bred heifers equal to 20 percent of the cows retained, and no labor attributed to calves sold at weaning.9 The 1963 records of the Missouri Beef Cow Re— search Panel show an average of 5.95 hours per cow required by the beef herd including bulls and replacement heifers.lo Wells' study in Minnesota found that labor requirements per cow were 18.5 hours for small herds (8-25 cows), 11.5 hours for medium sized herds (26-49 cows) and 8.9 hours for large herds (50—119 cows).ll Labor requirements per cow, exclud- ing labor required by replacements and bulls, were approxi— mately 11.5 hours in a 1946-51 study conducted in northeast- ern Michigan. Average herd size in the above study was 29 Wheeler, R. G., Planning Your Michigan Farm, Exten- sion Bulletin 379, Michigan State University, November 1963, p. 109; and Brake, et a1., Michigan Farm Management Handbook, A. E. No. 929, Michigan State University, September 1963. 0 Lanpher and Hagan, Beef Cattle Labor Requirements, Special Report 45, University of Mo., October 1964. ll . Wells, A. R., unpublished data from 1962 records of 48 beef cow herds in Minnesota, see Wells and Nodland, OE. cit. 14 cows.12 Similar results were obtained in other studies of beef cow herd costs and returns. Labor needs are the greatest during the winter feed— ing period with the peak requirements occurring at calving time, usually late winter or early spring. Labor require- ments during the summer grazing period are very low; making up perhaps only 25 to 30 percent of the total labor require- ments. Capital Requirements The beef cow enterprise is of an extensive nature in that it requires relatively large amounts of capital investment per dollar of return and per unit Of labor util- ized. Gross returns per dollar invested in livestock, feed, buildings and equipment may be only about 30 cents for beef cows compared with approximately $1.75 for hogs and $1.0515 2 . - . 1 Wright, K. T., Beef Costs and Returns in North- eastern Michigan, 1951, A. E. No. 526, Michigan State Col- lege, March 1953. 3 . . For example, see Shaudy's and Sitterly, Op. c1t., p. 4; and Janssen, M. R., Op. cit., p. 4. 14 . Lanpher and Hagan, Op. c1t., p. 6. 15 . . Beef Cow Herd Management, ExtenSion Circular 497, Purdue University, p. 8. 15 for dairy cattle. Average investment per cow in livestock, buildings and equipment was $309 for small herds (6-23 cows) and $279 for large herds (over 45 cows) in southern Indiana study.16 The main source of difference in investment between small and large herds was investment in buildings per cow. Building costs varied widely among farms in the above study. Some herds had access to elaborate and expensive buildings, while others had no buildings at all. The herds that used no buildings had calving percentages and weaning weights similar to those of herds with buildings.l7 Henqui- net's study in northern Wisconsin did not indicate any sig- nificant advantage for either calving inside or outside. Producers with cows calving outside did so later in the spring than those who calved inside for fear Of heavy calf losses from cold weather, but some producers were found whose cows calved outside in early March with good results.18 Investments and attendant costs for beef cow herds may be lowered without sacrifice of production by keeping invest— ments in buildings at a minimum. l6Janssen, op. cit., p. 8. 17Ibid., p. 7. l . . 8Henquinet, Op. c1t., p. 45. 16 An economic analysis of beef cow farms in Virginia indicated that high total investment per cow was the one factor most often associated with low returns to labor and management. Total investment in livestock, real estate, machinery, equipment, feed, etc. per cow was $927 for the low return herds and $738 for the high return herds in the Virginia study.19 Henquinet also found that high profit herds had lower investments per cow than did low profit 2 herds. 0 Effects of Calving PercentageLpWeaning7Weight, and Other Fatztors on Profitability Since the only source of income from the beef cow herd is the feeder calf, calving percentage, weaning wieght, and quality of calves produced are of great economic import- ance. It costs about the same amount to support a cow that raises a calf as it does to support a cow that doesn't raise a calf. Records of Minnesota beef cow herds indicated that feed cost per cow for cow herds with calf crOps below 80 19 . . . Kline, R. G., Economic Ana1y51s of Beef Cow and Calf Farms and Manufacturing Milk Dairy Farms, Washington and Smyth Counties, Virginia, Bulletin 529, Virginia Poly- technic Institute, September 1961. 0 . . Henquinet, Op. c1t., pp. 36, 37. 17 percent was nearly the same (slightly higher) as for herds with calf crops above 90 percent. Returns over feed cost per cow decreased rapidly as the percent calf crOp fell below 80 percent.21 An 85 percent calf crop was required to break even under 1956-1959 price conditions and weaning weights in southern Indiana. The main reasons for low per- centage of calf crOp noted in some southern Indiamaherds were: a) lack of attention by the producer at calving time, b) unsuitable buildings and lots, c) drowning of young calves, d) failure of cows to conceive, and e) lack Of or imprOper culling. Most calves were lost at calving time or soon afterward, therefore, successful producers placed cows due to calve in clean lots or maternity stalls where any calving difficulties could be readily Observed.22 The Minnesota study found that feed cost per cow did not increase as weaning weights increased, and that returns over feed cost per cow increased as weaning weight increased. 21Wells and Nodland, Op. cit. 22 . Janssen, Op. c1t., p. 5. 23Wells and Nodland, Op. cit. 18 Aside from a slightly higher investment in breeding stock it costs no more to produce a high-quality calf than a poor—quality one. Shaudys and Sitterly found that higher quality herds had lower costs and higher returns per 100 pounds Of beef produced than low-quality herds in their survey of southeastern Ohio beef cow herds.24 It should be noted that the quality of cattle in the above study was closely associated with thelevel of management and, there- fore, part Of the differences in profits may be attributable to differences in management and not quality of cattle. In the southern Indiana study profits were increased when calving was grouped from January to March rather than later in the spring. Early calves were large enough to more fully utilize the increased milk flow When the cows were placed on spring pastures, thereby avoiding udder troubles sometimes experienced when calving occurs later in the spring (April through June). Early calves can also get more feed from the pasture. Weaning weights wereheavier for those . 2 . . . calved earlier. 5 Herds which calved before April first 4 . . . Shaudys and Sitterly, Costs of ProduCing Beef in Southeastern Ohio, 1954, Research Circular 45, Ohio Agri- cultural Experiment Station, May 1957, p. 16. 2 5Janssen, Op. cit., p.5. 19 produced calves which averaged 500 pounds at time of sale as compared to 418 pounds for those calving after April first in northern Wisconsin. The herds which calved early had considerably higher net returns. Another factor affecting the returns per cow in the herd is the age at which heifers give birth to their first calf. An experiment in Oklahoma indicated that cows which first calved as 2-year olds produced more total weaned calf weight at a lower cost per pound over their lifetime than did cows which first calved as 3—year olds. However, heifers first calving as 2-year olds are much more likely to require assistance at calving time and are more subject to injury . . 2 during calv1ng than are 3-year olds. 7 Conclusions as to the Profitability of the Beef Cow Herd Under Various Conditions Most cost studies have indicated that commercial beef cow herds on the average yield fairly low returns. However, returns to individual herds vary over a wide range. Data from the Michigan mail—in account farms for the years 2 . . 6Henquinet, Op. c1t., p. 45. 7 . Snapp and Neuman, Op. c1t., p. 99. 20 1960 through 1963 indicate that farms with beef cow herds as the major enterprise had the lowest average return on investment and labor income of all the types of farms anal- yzed over the four years. The four-year average return on investment for beef cow herds was 1.4 percent as compared to 5.4 percent for all farms. The average labor incomes were a minus $606 for beef cow farms versus $2,939 for all farms. It should be noted that the sample of beef cow farms was quite small, being only 12 out of 772 total farms in 1963, and therefore may not be representative.28 Labor in- come and rate earned on investment for the 12 beef cow farms in 1963 ranged from a high of $9,663 and 16.6 percent, re- spectively, to a low of a minus $10,648 labor income and a minus 5.5 percent return on investment.29 Budgets develOped from data from a detailed survey of 42 beef cow Operations in late 1963 and early 1964 in northern Wisconsin showed an average return to management of minus $23.04 per cow. Returns to management per cow in- creased as herd size increased. Small herds averaging 12 28 . . . Kyle, L. R., Michigan Farm BuSiness Report for 1963, Research Report 30, Michigan State University. 29 Kyle, L. R., Beef Cow Farming Today, A. E. 966, Michigan State University, published 1964, p. 8. 21 cows received a minus $37.76 return to management per cow as compared to minus $15.50 for medium sized herds (33 cows) and $15.77 for large herds of an average of 80 cows.30 In a study of 102 western Ohio beef cow herds in 1957-58 net income per cow ranged from minus $44.43 for herds of 10 to 15 cows to a high of $7.20 for herds of 51 to 75 cows. The average herd returned 83 cents less than total costs per cow but $44.88 above the value of salable inputs and cash costs. The $44.88 was the return to the fixed assets such as pasture, stalk fields, labor, build- ings and equipment.31 The very small herds had higher costs for labor, buildings and equipment, Most of the advantages of size were reached when the herd had 30 or more cows. One hundred and sixteen Missouri farms with beef cow herds had an average return on investment of 6.0 per- cent and a labor income Of $4,214 in 1962. These returns are for the whole farm even though the beef cow enterprise was not the major enterprise on some of these farms. Some Of them fed out the calves which they raised. Of those who 3OHenquinet, Op. cit., p. 36. 31Shaudys and Sitterly, Op. cit., p. 6. 32Ibid., p. 7. 22 sold their calves as feeders at weaning time the group with less than 35 cows had an average labor income of $924 and return on investment of only 1.4 percent, while those with more than 35 cows received labor incomes of $2,047 and a return on investment of 5.0 percent. The southern Indiana study found that incomes varied widely during the cattle cycle as the prices of feeder cattle changed. It concluded that a beef cow herd will show a profit under average weaning weights, calving percentages and costs of production when returns are averaged over the cycle. Es- timated long-run net return over variable costs was $28.71 per cow while net return over all costs was $2.35 per cow. The variability in net returns among herds was wide. High calving percentages and weaning weights, maximum use Of pasture, and minimal winter feeding consistent with nutri- tional needs were associated with higher profits.3 The above study indicated that beef cow herds may be profitable and adaptable on three types of farms. One type is the large rolling to hilly farm that produces an abundance of pasture and harvested forage required to 33 . . . Hagan and Wiggins, Beef Cow Systems, B 823, Uni- versity of Missouri, July 1964, p. 6. 34Janssen, Op. cit.,pp. 1—4. 23 control erosion. Another was the small farm, particularly in rough land areas, where the Operator has full-time em- ployment Off the farm and, therefore, finds beef cows adap- table due to their low labor requirements. For the same reasons they also may fit on farms whose operator is old and wishes to reduce the work load. The final type of farm where beef cows may fit is the grain farm with sufficient quantities of stalk, stubble, and native pasture and other forages that would not be used if the cow'herd were not kept. Usually, when the herd is increased beyond the size necessary to utilize these cheap forages, so that cropland must be used to Specifically produce feed for the beef herd, profits will fall.35 Wiggins and Hagan reach similar conclusions regarding the situations under which beef cows may be profitable. They state that beef cows may be adaptable as a major enterprise on large farm units in areas adapted primarily to forage pro- duction, or as a major enterprise on small part-time farms. However, they report that the majority of the beef COW'herdS in Missouri are secondary or minor enterprises. These herds 35Ibid., p. 10. 24 are used to utilize crOp residues and forage crOps which must be grown on land not suited to row crOps. Resources suitable for other enterprises such as hogs, beef feeding, dairying, or crOp production, generally, are more profit- ably utilized by those enterprises than beef cows. There- fore, beef cow numbers on these farms should be restricted to the size necessary to utilize those resources not suited to other more profitable enterprises.36 6 . . . . Wiggins and Hagan, Economic Potential for Beef Cows, SB 827, University of Missouri, February 1965, pp. 7-9 0 CHAPTER III METHOD OF STUDY This study involved the preparation of budgets for some hypothetical beef cow herd enterprises. Total farm budgets showing costs 31d returns for whole farms were used for those cases in which the beef cow herd was the single major enterprise. Partial budgets showing only the costs and returns for the cow herd itself were calculated to show the effects of adding a cow herd as a sideline enterprise to a going farm business. Various budgets were developed to show the effects of location, land value and productivity, size of herd, levels of production efficiency in the crOp and beef enterprises, and type of feeding program On income. In the fall of 1964 more than two dozen farms with beef cow herds were visited in Calhoun, Ionia, Iosco, Che- boygan, Mackinac, Delta, Marquette, and Ontonagon Counties. These visits and consultation with extension personnel pro- vided insights into the types of farms on which beef cow herds are kept, common production practices, and input-output 25 26 relationships in beef cow herds in various parts of the state. NO detailed survey was made. The farm visits were primarily for the purpose Of providing background information and guide- lines for the designing of hypothetical beef cow enterprises which may be typical of those found in various parts of the state. The data used for these budgets was synthesized largely from secondary sources. A careful review of the literature reporting results from past research on costs and returns and physical input-output relationships for beef cow herds was conducted in order to develop data for budget- ing. Data generated from the review of literature was checked against the data from the farm visits and farm account data before use. To further protect against bias and errors in judgment Which could enter into such synthesized data, it was reviewed by staff members in the departments of Animal Husbandry, CrOp Science, and Agricultural Economics. Three basic types of beef cow enterprises were bud- geted and analyzed. The first type was large herds of 200 cows as the sole major enterprise on full-time farms. Acre- age requirements, costs, and returns were computed for con- ditions in the upper peninsula, northern lower peninsula, and southern Michigan under two levels of soil productivity 27 with various combinations of crOp yields, calving percent- ages, weaning weights, and winter feeding programs. The effects of varying cattle prices and land values on incomes for these large full—time beef cow farms were determined. The capitalized land value used for such enterprises was also determined. Similar budgets were develOped for small part—time farms supporting a 25-cow beef herd as the sole major enter— prise. Alternative budgets for the renting out of these farms were developed to compare the returns from the beef herd with alternative Opportunities. The third type of beef cow program budgeted was 50- cow herds added as sideline enterprises to existing farm units in replacement Of/or in addition to other alternative enterprises. All budgets were developed with the number Of cows held constant as the single limiting factor, except in the case of the 25—cow part-time farms where the acreages were also held constant at the level necessary to support the cow herd under the least efficient conditions. Differences in income due to better management of the crOpping program could thus be readily assessed. CHAPTER IV THE LARGE FULL-TIME BEEF COW ENTERPRISE Very few of Michigan's beef cow herds are of suffi- cient size to provide full-time employment for their Opera- tors. According to the 1959 census 197 out of 5,478 Michi- gan farms, which reported more than one beef cow, had 50 or more beef cows.l Hartwig states that a gross income of $20,000 to $25,000 is required to produce a net farm income of about $4,500, and that a full-time operator requires a herd of 100 to 150 cows to get a gross income of $15,000 to $20,000 per year.2 There are relatively few herds of 100 or more cows in the state. In order to analyze the profitability of the large full—time beef cow enterprise budgets were prepared for hy- pothetical farms featuring a 200-cow beef herd as the sole 11959 Census of Agriculture. Note that the number of farms with beef cow herds of various sizes is calculated by deducting the number of farms with dairy herds of a cer- tain size from the total number of farms with cows of all types in that particular size group. Since some farms have both beef and dairy cows, the total number of farms with beef cows may be understated and the size distribution may be distorted somewhat. 2Hartwig, Richard, "Can Beef Cow Enterprises Be Prof- itable," presented at 1964 Farmers’ Week, Michigan State Univ. 28 29 major enterprise. Two hundred cows were arbitrarily selec- ted as a herd size likely to be sufficient to fully employ a farm Operator and to provide a satisfactory income for a farm family. The sole fixed factor in the preparation of the budgeted farm situations was the herd size, i.e. acre- ages, etc. were based On what would be necessary to support a 200-cow herd under the relevant assumptions. The budgets prepared are complete farm budgets including all costs and returns for the complete farm businesses. The budgeted enterprises include 200-cow Operations in the Upper Peninsula and northern Lower Peninsula on mod- erately productive and less productive soils and in southern Michigan on less productive soils. The effects of varying levels of performance in the crOpping program and beef en- terprise were determined. The use of a corn silage winter- ing ration was compared with a conventional hay feeding pro- gram in the southern Michigan budgets. The effects of vary- ing cattle prices and land values upon labor income were also calculated. Finally, the capitalized value of land used for the full-time beef cow enterprise was calculated. 3O Assumptions All the budgets were based on the assumptions elab- orated here. Acreage and capital requirements were based on what would be necessary to support a 200-cow herd under the relevant assumptions. The beef cow enterprise producing weanling feeder calves to be sold in the fall of the year was the major and only livestock enterprise for the budgeted farms. CrOpping programs were designed solely for the pur- pose of feeding the beef herd. The only crOps sold were oats, which were produced as a nurse crop for establishing the alfalfa-brome hay and pasture fields, and which were in excess Of the amount required to feed the beef herd. It was assumed that the northern Michigan Operators Obtained two thirds of their pasture requirements from permanent pastures consisting of quackgrass, bluegrass, etc. and which might be up to 50 percent covered with brush. The southern Michigan Operations were assumed to obtain one third of their pasture requirements from Open permanent pastures. Pasture acreages for both permanent and improved rotation pastures exceeded the requirements (based on yields) by 10 percent in order to partially account for variation in yield from season to season. All hay and improved rotation pastures were assumed 31 to be in alfalfa-brome grass mixtures. Estimated crop yields and acreage requirements for the various alternatives are given in Table la in the Appen- dix. The estimated crOp yields are at levels slightly above average which might be indicative of what could be expected under ordinary conditions when good but not excellent manage- ment practices were followed. In addition, the Upper Penin- sula and northern Lower Peninsula alternatives, which were assumed to have the same yields, on moderately productive soils were also budgeted with higher levels of crop yields commensurate with excellent management practices. With gOOd management, alfalfa—brome hay yields were estimated at 2.4 tons per acre in moderately productive soils and 1.9 tons per acre on less productive soils. The use of excellent man- agement practices was assumed to increase hay yields to 2.9 tons per acre on soils of moderate productivity. The perma- nent pastures, which were assumed to be up to one half covered with brush, were estimated to produce from .5 to .7 tons of hay equivalent per acre. All yields are expressed in terms of yield preserved for feeding (i.e. harvesting losses, stor- age losses, and trampling losses are deducted Where apprOpri- ate from total potential yields). Fertilizerrequirements con- sistent with the estimated crOp yield levels are given in 32 Table 2 in the Appendix. Cropping programs, labor, and capital requirements were based on a conventional winter ration of hay for the brood cow herd, unless otherwise indicated. Daily feed re- quirements for the beef cow and calf and for the replacement heifer are given in Tables 3 and 4 in the Appendix. The winter ration for the brood cow was assumed to be 20 pounds of mixed hay per day or its equivalent. The wintering period was assumed to be 190 days, and the grazing season to be 175 days in northern Michigan (including the U.P.). Southern Michigan was assumed to have 195 days of grazing and a 170 day winter feeding period. Estimated land values and prOperty tax rates are given in Table 5 in the Appendix. The only difference be- tween the Northern Lower Peninsula and Upper Peninsula en- terprises as budgeted was the value of land. Therefore, differences in capital requirements, property taxes, and interest on investment exist between these two areas. Estimated labor requirements are given in Table 6. An estimated 9 hours per cxnv was required for feeding and care of the herd of 40 or more cows. The farm Operator was assumed to supply up to 250 hours of labor per month. Labor required in excess Of the Operator's was assumed to be hired 33 at $1.25 per hour. Expected prices for inputs and products for the next 5 years or so are elaborated in Table 7 in the Appendix. Steer calves of good to choice quality were estimated to bring 27 cents per pound. Steer calves of this quality when fed to good to choice grades were predicted to bring 24 to 25 cents per pound; thus cattle feeders are expected to Operate on a price margin of minus 2 to 3 cents.3 The assumption was made that all the budgeted enterprises pro- duce good to choice feeder calves which would sell for the same price (27 cents per pound for steers) regardless Of weight. Feed Requirements and receipts are based on the as- sumption that heifer calves equal to 25 percent of the cow herd are held over as replacements. Twenty percent of the cows are actually replaced, with the remaining heifers sold as long yearlings. Death losses in breeding stock were es- timated to be 2 percent. Calves weaned as a percent of breeding age females in the herd in the previous fall were estimated to be 85 percent for producers using slightly above average or good management practices and 90 percent for those using excellent management practices. Weaning Conversation with J. Ferris, Agricultural Economics Department. 34 weights of 425 pounds for steer calves were expected under good management and heavier weights were expected when im- proved managerial practices were followed. All steer calves were assumed to outweigh heifer calves by 25 pounds. The 200-cow herd in Northern and Upper Peninsula Michigan CrOpping program and acreage requirements. With good crOp management on moderately productive soils approximately 1,042 acres would be required for a 200- cow beef Operation. About 665 of these acres would be in permanent pastures which might be up to 50 percent covered with brush. If the pastures were more open, proportionately fewer acres would be required. The permanent pasture would meet about two thirds of the total pasture requirements for the herd. The additional one third of the pasture would be supplied by grazing about 200 acres of alfalfa-brome grass in the late summer and early fall after the first cutting of hay had been removed. This is a fairly common practice since permanent pastures Often dry up in late summer. An additional 86 acres of alfalfa-brome grass cut tWice would be required to produce enough hay to winter the herd. About 71 acres of oats would be grown as a nurse crOp for the new 35 seedings of alfalfa-brome grass assuming that stands last for 5 years. Twenty-seven acres of oats straw would provide bedding for the beef herd. The balance of the oats straw was assumed to go to waste, although it could provide an additional reserve of cheap feed for the beef herd. When excellent crop and pasture management practices were followed, the total acreage requirement was reduced to 883 acres. The acreage requirements increased when less pro- ductive soils were utilized. About 1,272 acres would be re- quired for the 200-cow Operation on less productive soils such as well-drained sandy loams and loamy sands when good management practices were followed. Nearly 800 acres of permanent pasture would be necessary in such a situation. Soils of very low productivity, such as extremely drouthy sands, would necessitate considerably larger acreages than indicated to support the cow herd. Capital and Labor Requirements. The crOp yields and acreage requirements were con- sidered to be essentially the sameibr the Upper Peninsula and northern Lower Peninsula. Land values, however, were somewhat higher in the Lower Peninsula than in the Upper Peninsula. Capital requirements were, therefore, somewhat 36 higher for the full-time beef cow enterprise located in the Lower Peninsula. The ZOO—cow operation on moderately pro- ductive soils with good crop yields required a total invest- ment Of about $129,000 in the Upper Peninsula compared to $142,000 in the northern part of the Lower Peninsula. With the full use of improved crOp management, acreages required were reduced and total investment drOpped to $120,000 and $131,000, reSpectively. Total investments required when less productive soils were used were similar. With good crop yields and estimated land values, the total investment with less productive soils 'was $124,000 in the Upper Penin- sula and $135,000 in the northern Lower Peninsula. The total capital requirements for these 200-cow beef units, thus, range from $120,000 to about $142,000. For comparison, this would be about the same as for a 60 to 70-cow specialized dairy farm. Labor requirements were greater on those Operations which required larger acreages due to lower levels of crOp management or to less productive soils. The 200-cow Oper- ations required roughly 1.3 man equivalents of labor. Hours of labor hired varied from 780 for the Operation with high crOp yields on moderately productive soil to 1,250 for the Operation on less productive soils. Peak labor loads occurred 37 in the months of June and July during hay harvesting. The calving season, usually from February through April, is a period of maximum work load for the Operator. No hired 1a— bor was required during the fall and winter months. Labor requirements are usually at their minimum during the fall after the hay harvesting season and.before the winter feed- ing season sets in. Income potential. Labor income for the 200-cow Operation in the upper Peninsula with moderately productive soils and typical good management was $2,990. The term "typical good management" refers to the attainment of slightly above average crop yields, weaning weights of 425 pounds for steer calves, and a calf crop of 85 percent. Due to increased property taxes and greater interest charges on investment, the same Opera- tion in the northern Lower Peninsula would produce the some- what smaller labor income of $2,246. Whether this difference is real depends on what individual farmers can purchase land for in the two areas. On less productive soils the 200-cow beef farms under typical good management would generate labor incomes of $2,099 and $1,451 in the Upper Peninsula and nor- thern Lower Peninsula, respectively. The difference in labor income between locations reflectsthe lower land values and 38 associated costs assumed for the Upper Peninsula. The op- erations on less productive soils had lower labor incomes than those on the moderately productive Soils because the reduced receipts from surplus crOps and higher expenses for seed, lime, fuel, and fences fortflmaOperations on less pro- ductive soils more than offset the reduction in interest charges on investment resulting from their smaller total investment. The complete budgets are given in Tables 8, 9, and 10. The labor incomes for the beef cow farms budgeted ranged from only one half as high to approximately equal to average labor income per farm earned by all the farms in the Michigan Mail-In Record Project for the years 1960—1963. The average labor income over the four years for the account farms was only $2,939 which is a low return to the Operator's labor and management.4 Measured in terms of total investment, the account farms, which averaged $99,418, were somewhat smaller than the budgeted 200-cow farms which required total invest- ments of from $120,000 to $142,000.5 It is of interest that the few beef cow farms in the record project had a four—year 4 ' . Kyle, L. R., Op. c1t., p. 2. 51bid., p. 3. 39 average labor income of minus $606.6 These farms were con- siderably smaller than the budgeted beef cow farms. It should be emphasized that the budget results are based on levels of performance somewhat above average such as might be expected from the use of what has been termed good but not excellent management practices. A fair but not complete degree of application of practices recommended by the agri- cultural experiment stations and extension services might be characteristic of these slightly above average or good managers. The comparison of the budget results for the large beef cow farms with the farm record results for all farms indicates that at least above average or good manage- ment is required in order for the full-time beef cow-calf program in northern Michigan to produce incomes Similar to other enterprises in various parts of the state. Effects of managerial performance on income. Higher levels of management produce larger incomes as the budgets show. An increase of five percentage points in calf crop weaned increased labor incomes by $1,032 above the level reported for the Upper Peninsula 200-cow Operation on moderately productive soils with good management. An 6Ibid., p.2. 40 increase in percent calf crOp weaned of only 5 percentage points boosted labor income up nearly 33 percent. A small decrease in percent calf crop would cause a proportionate decline in income. The attainment of a high percent calf crOp is thus of critical importance. Practices which pro- mote betEr calving percentages such as close attention and provision Of proper facilities at calving time, and close culling of non-pregnant cows, can be of vital importance to the profitability of the beef herd. Heavier weaning weights also boost incomes. A 50 pound increase in weaning weight raised labor income by $1,274 above the level earned by the Upper Peninsula Oper- ation on moderately productive soils with good management. This is slightly more than the increase in income result— ing from a 5 percent increase in calf crOp. A change in percent calf crop of five percentage points or a change in weaning weights of something slightly less than 50 pounds would have similar effects on income. Heavier weaning weights may result from earlier calving, the use of bulls capable of transmitting higher gaining ability to their progeny, and proper nutrition of the lactating cow. The budgeted change in income resulting from an increase in weaning weight is based on the assumption that better and more expensive bulls 41 were used, and, therefore, bull depreciation expenses were increased. If calving had formerly been concentrated later in the Spring, it is likely that weaning weights could be increased by earlier calving with little difference in ex- pense. It should be pointed out that these results are based on the somewhat unrealistic assumption that calf prices will remain constant as weaning weights increase. Actually, prices tend to decrease gradually as weights in— crease. In defense of the assumption of constant prices it may be claimed that the better, more expensive bulls used in this example to increase weaning weights would also in- crease the quality of the calves enough to counteract the effect Of heavier weights on prices, thereby, causing calf prices to remain constant. The use of better management practices in the crop- ping and pasture program results in higher yields and, there- fore, a reduction in acreage required to support the cow herd. An increase in crOp yields from good to excellent levels increased labor income by $1,127 for the 200-cow en- terprise in the Upper Peninsula with moderately productive soils. Higher crOp yields mean that less land is required, thereby, reducing total investment in land which decreases interest on investment and property taxes. When the better 42 crOp and pasture management practices were followed, expenses for seed, fuel, fences, and labor reduced, but expenses for fertilizer were slightly higher since the increase in fertil- izer required to produce the higher yields was prOportion- ately greater than the reduction in acreage obtained. The net result of better crOp yields were reduced expenses for the beef cow Operation. It is not surprising that efficiency in the crOp and pasture program has considerable effect on the profitability of the beef cow enterprise when it is re- alized that from 60 to 70 percent of the total costs in the production of feeder calves is attributed to the cost of feed and pasture (see Chapter II, p. 19). One of the primary functions of the beef cow may be to provide an indirect means of marketing the forage produced on the land, hence, it should be expected that increased efficiency in the production of forage (feed and pasture) would result in higher profits as reflected by increased returns from the beef cow enterprise. The budgets delineated in Tables 8, 9, and 10 show the effects of increased calf crop percentages, weaning weights, and crOp yields, individually and cumulatively, upon labor incomes. For example, the 200-cow beef enterprise in the Upper Peninsula with moderately productive soils under the conditions outlined previously for typical good management 43 had a labor income of $2,990. As indicated, a five percent- age point increase in calf crOp weaned boosted labor income by $1,032, while a 50 pound increase in weaning weights caused labor income to rise by $1,274. When calculated from a base with a 90 percent calf crOp rather than 85 per- cent as used above, an increase in crOp yields to the higher level would raise labor income by $1,127. The cumulative effect of a five point increase in percent calf crop, a 50 pound hike in weaning weights, and an increase in crOp yields to the higher level associated with excellent crop management was an increase in labor income of $3,541 (i.e. labor income more than doubled). Thus, a labor income of $6,531 was ob- tained with a 90 percent calf crop, an average weaning weight of 475 pounds for steer calves, and high crop yields. An additional 25 pound increase in weaning weights would raise labor income to $7,342. Excellent management in all phases of the beef cum» enterprise and crOp and pasture program is required to Obtain these results. Effect of cattle price levels on income. The level of prices received for the cattle sold strongly influences income levels. The budget results analyzed are all based on moderate price levels. The prices used in the budgets may be somewhat indicative of the average 44 prices which could be received over the cattle price cycle; and, to the extent that they do actually reflect the average price which could be obtained over the cycle, they are the best level of prices to use for long—range planning. Either higher or lower prices might be expected at various points in the price cycle and may be accordingly more appropriate to use for short-range planning. In order to demonstrate how profits from the beef enterprise vary as prices change, the effects upon labor in- come of prices at both a higher and a lower level than the budgeted level have been calculated (see Tables 11 and 12). The moderate prices used for the budgets on a per pound ba- sis were 27 cents for steer calves, 24-1/2 and 20-1/2 cents for heifer calves and cull yearling heifers, respectively, 16 cents for cull cows, and 18 cents for bulls sold for slaughter. The set of low prices was based on 24 cent steer calves, 21-1/2 cents heifer calves, and prOportionate prices for the other cattle. When prices decreased from the moder- ate to the low level, labor income fell by $2,823 on the ZOO-cow herds with good management (i.e. with an 85 percent calf crop and weaning weights of 425 pounds for steer calves). Those with higher levels of performance in the beef enter- prise suffered decreases in labor income proportionate with 45 their greater production of beef; however, they, of course, still had higher absolute levels of labor income than the less efficient enterprises. The absolute gap in labor in- comes between high and low performance enterprises narrows slightly as prices fall, however, at the low price level a higher level of performance may result in positive rather than a negative labor income. The decrease in labor income of $2,823 noted for herds with good management is sufficient to reduce labor income to very low or negative figures for these herds. For instance, the Upper Peninsula herd on mod- erately productive soils had a labor income of $2,990 under the moderate prices, but would earn only a $167 labor income under the low price assumptions. When moved to less produc- tive soils, the operation would earn labor income of $2,099 with moderate prices and minus $724 with low prices. An increase in cattle prices to levels commensurate with 30 cent per pound steer calves would raise labor incomes. The increase would be $2,430 when an 85 percent calf crOp and' average weaning weights of 425 pounds for steer calves were realized. Thus, a change in cattle prices of 3 cents per pound for calves and prOportional change for older stock would either nearly completely erase or would nearly double labor incomes for the enterprises with good management. The 46 beef cow enterprise with higher levels Of performance would have proportionally smaller changes in labor income, than would those with lower levels of performance. This tremendous variation in income due to changes in price levels emphasizes the critical importance of prices. A relatively small error in price expectations could cause anticipated results to be at considerable variance with the actual results, hence, careful selection of price levels for budgeting and planning is imperative. Effect of land values on income and capitalized land value. Because Of the large acreages of land required by the beef cow enterprise, land values are an important deter- minant of the level of investment necessary for the enter- prise, and they, therefore, have considerable effect upon the returns which the Operator receives for his labor and management. Table 13 shows the labor incomes Obtained under three different levels of land values by the 200-cow beef enterprise in northern Michigan (including the Upper Penin- sula) on moderately productive soils with good management. At an average land value of $62 per acre labor income is $2,246. A reduction in land value to about $46 per acre, a decrease of 25 percent, raises labor income by approximately 47 35 percent to $3,050. Other things being equal, the lower the cost of land is the more profitable the beef cow en— terprise will be. The returns to land from the beef cow enterprise are not high, hence, it is usually not profitable to use high priced land solely for the purpose of supporting a beef cow enterprise under the usual systems of management. The capitalized values of the returns to land from the 200- cow beef herd in northern Michigan are presented in Tables 14, 15, and 16. The usual capitalization formula of V = %7 where V is the capitalized land value, R is the expected return to land, and i is the expected interest rate or cap- italization rate; was used in the computations.7 The returns to land were calculated by deducting charges for the operator's labor and management and for nonland capital from net farm income. The net income figures used were based on use of good management practices. Operators with very high or ex- cellent managerial ability should receive higher returns for their labor and management as compensation for their greater ability, and as long as these individuals remain only a small 7 . . . . Murray, William G., Farm Appraisal and Valuation, Iowa State University Press, 1961, p. 238. 8Ibid., p. 19. 48 portion Of the bidders for land and/or as long as they re- main unwilling to capitalize their higher earnings into land values they will, in fact, receive greater returns for their labor and management. The computations show the capitalized value of mod— erately productive land with improvements in northern and Upper Peninsula Michigan used for the full-time beef cow enterprise is $61 per acre When a five percent capitaliza- tion rate is used and only $3,000 is deducted as a charge for thecperator's labor and management. Should the Operator desire a higher return for his labor and management the cap- italized value of the land will decrease. For instance, if the charge for the Operator's labor and management is in— creased to $5,000 then the capitalized land value drops up to $23 per acre. As computed, the value of unimproved land (i.e. land without the necessary fences, buildings, wells, etc.) is about $14 per acre less than the value of improved land for the cow herd. The value of the less productive land with improvements was $33 per acre assuming a $3,000 deduction for the Operator's management and labor. It is apparent that the beef cow enterprise cannot compete on high priced land. The results are based on good management, therefore, beef cow operators with average or poorer management 49 could afford to pay even less for land than these values. These results are consistent with the capitalized values of land used for beef cow herds in northern Wisconsin as calculated by Henquinet. The values from the Wisconsin study ranged from zero dollars per acre for small herds and herds of average profitability to about $61 per acre for 9 large herds. Based on the 1959 Census of Agriculture, the average value of farmland per acre in the northern areas of the Lower Peninsula was about $82. In the Upper Peninsula the average value was near $70 per acre.10 These averages are somewhat higher than the land values which the beef cow herds could pay for. However, it should be pointed out that the computed values of land used for the beef herd were based on aVerage or moderately productive soils and less productive soils which included a very large prOportion of brushy unimproved permanent pastures. Some land suited for beef cows may not be included in the farmland valued by the census. There no doubt is considerable land in northern Michigan suitable for beef cow herds which may be priced reasonably close to the 9 . . Henquinet, Op. c1t., p. 56. 10 . . . Wirth, M. E., "Land Prices--Should Continue Moderate Upward Trend," Michigan Farm Economics, January 1963. 50 earning capacity Of the beef cow enterprise; however, the averagesindicate that much of the farmland may be valued at or above the maximum which the beef cow enterprise could pay for. Careful selection Of land is imperative if the full-time beef cow enterprise is to be profitable. The 200-Cow Herd in Southern Michigan Cropping program and acreage requirements. A 200-cow beef enterprise in southern Michigan on less productive soils using the conventional hay and pasture program would require about 626 acres of land based on good management and the assumptions outlined at the beginning of this chapter. A third of the pasture requirements would be met by using 223 acres of Open permanent pasture consisting of such grasses as bluegrass and quackgrass. The remaining two thirds of the pasture would come from about 278 acres of alfalfa—brome grass, or similarly yielding mixtures, pastured after the first cutting of hay had been removed. This 278 acres Of first cutting hay plus an additional 28 acres of hay cut two or three times would be sufficient to feed the herd for the winter. Sufficient oats would be grown to provide a nurse crop for enough new 51 seedings to replace the hay fields every five years. About 32 acres of oats straw would be required for bedding. The remaining 40 plus acres of oats straw and stubble could pro- vide a reserve source of feed and pasture for the beef herd. (Acreage requirements are presented in Table la) These acres age requirements are based on net yields of 11.7 tons of cow silage, 3.0 tons of hay, and 59 bushels of oats per acre. Acreage requirements are reduced to 525 acres when corn silage is produced instead of hay for the winter feed supply. About 84 acres of corn silage would be needed to feed the herd. The pasture would consist of 223 acres of Open permanent pasture and about 159 acres of alfalfa-brome pasture. The acreage of oats grown would drOp to about 40 acres. Since about 32 acres of oats straw would be needed for bedding, little oats straw would be available as a re- serve source of feed as compared to the case when the hay program is used. The southern Michigan Operations required consider- ably less total acreages than did those in northern Michigan due primarily to a much smaller proportion of permanent pas- tures, which are quite low yielding, in their pasture pro- grams, and, furthermore, due to the assumption that the per- manent pastures in southern Michigan were all Open rather 52 than nearly 50 percent covered by brush, which lowers yields proportionately, as was assumed for northern Michigan. Also, crop yields in general were slightly higher in southern Michigan. Capital and labor requirements. Total capital requirements for the southern Michi- gan full—time beef cow enterprises were greater than for those in northern Michigan due to higher investments in land. The southern Michigan Operation, using hay as the winter feed source, required a total investment of about $159,000. When a corn silage program was used, the total investment fell to $144,000 due to a reduction in acreage required. The investment required for this system was based on the assumptions that the silage was stored in a bunker silo and that a self—unloading wagon was used to distribute the silage in inexpensive wooden feed bunks. More elaborate storage and feeding systems would require considerably higher investment. These investments for the southern Michigan enter— prises compare with the total investments for the northern Michigan Operations which ranged from $120,000 to $142,000. Although the southern Michigan beef cow enterprises used 00051 was: inve nort non hay req age mer ‘Urr (iu: an: Se. 111 III OJ 53 considerably less total acreage, the land value per acre was so much higher than in northern Michigan that the total investment in land was greater for the southern than for the northern Michigan enterprises. Labor requirements were quite similar for both the northern and southern Operations when using the conventional hay and pasture program. The southern Michigan Operation required about 986 hours of hired labor. When the corn sil- age winter feeding program was used, the total labor require- ments and the distribution of peak labor loads were changed. Under this system the peak work loads came in the spring during the calving season in early spring and the plowing and planting period which overlapped the end of the calving season and during the corn silage harvesting in early fall. Hired labor requirements were reduced to about 464 hours. Income potential. Labor income for the 200—cow Operation in southern Michigan was $1,741 when good crop yields, as 85 percent calf crOp, and 425 pound weaning weights were obtained. All of the comparable enterprises in northern Michigan had greater labor incomes than this, except the ZOO-COW’herd on less productive soils in the northern Lower Peninsula 54 which had a slightly lower income of $1,451. Labor incomes for the other northern Operations ranged from $2,099 to $2,990 under similar levels of performance. The southern Michigan enterprise had slightly lower expenses for fertil- izer, fuel, and fences, but had higher prOperty taxes and a higher charge for interest on investment. The enterprise with a corn silage program produced a labor income of only $71 under the assumed levels of pro— duction performances. Expenses for labor and fuel were low- er under this program, but the cost of the large quantity of purchased protein supplements required for the feeding program was the key factor in causing total expenses to be greater for this program than for the hay program. Re— ceipts from surplus crops (oats) were also smaller. The southern Michigan full-time beef cow enterprises, thus, look less attractive, in general, than do the northern Michigan Operations. Perhaps of more importance than the differences in absolute levels of income of beef cow enter-. prises between the two areas is the income level of the beef cow enterprise in each area relative to the incomes of alter- native enterprises in its area. There probably are more al- ternatives to the full-time beef cow enterprise in southern .Michigan which may be more profitable than the beef cow 55 enterprise than there are in northern Michigan. The farms suitable for beef cow herds in southern Michigan may likely be well suited to other enterprises such as beef feeding and dairy. The northern Michigan beef cow farms would be less suitable for such alternatives due to their limited ability to produce grain, their large acreages of low- quality permanent pastures, and the lack of markets. The average labor incomes for the period 1960-1963 for beef feeding and specialized dairy farms in southern Michigan enrolled in the Michigan Mail—In Account Project were $2,749 and $3,766, respectively.11 Northern Michigan specialized dairy farms averaged $2,107 of labor income for the four years.12 Thus, in terms of both absolute Levels of income and income relative to alternative enterprises the full- time beef cow enterprise looks less attractive in southern Michigan than in northern Michigan. Problems of and PrOSpects for Full-Time Beef Cow Enterprises Problems in the acquisition of capital. Relatively large investments are required for a beef cow enterprise of sufficient size to provide an adequate % llele, L. R., Op. cit., p. 2. lzIbid., p. 2. 56 income for a farm family. A total investment of $120,000 to $140,000 or more would be required for a ZOO-cow Opera- tion. The investment in livestock, machinery, feed and supplies for a 200—cow enterprise would be nearly $60,000. An additional $60,000 to $80,000 or more would be required for land and improvements. The financing Of such an investment may be trouble- some due to the slow rate of capital turnover. A 200-cow beef enterprise would require an investment Of about $130,000 but would provide an annual gross of only about $23,000 and a net farm income of about $9,000. When depreciation charges are added in, net cash income from a 200—cow herd under good management is about $12,000. From this amount family living expenses, interest, and principle payments on borrowed capi- tal must be paid. The amount equal to depreciation charges should be used only for paying off debts on depreciable as- sets, at least in the long run. This means that over the long run the family living expenses, interest, and principle payments on debts for real estate or other non-depreciable assets (including brood cows since they were not depreciated in the budgeted examples) should be paid out Of the net farm income. If family living expenses were about $4,000, which should be fairly typical of a family of three or four persons, 57 then only about $5,000 per year would be available for in- terest and principle payments on debts for real estate, and breeding stock in the long run.1'3 Investment in real estate and breeding stock for the ZOO-cow Operation is about $100,000 or more. The $5,000 available for debt servicing and repay- ment would be enough to pay only the interest on a debt of $100,000 at five percent interest. Therefore, if a sizable portion Of the capital required for the full-time beef cow enterprise were to be borrowed the length of time required to repay the loan may be extremely long. Additional difficulties in financing the Operation may occur due to the unusual nature Of the cash flow over the year and to variations in income from year to year. Nearly all of the receipts from the enterprise are received in the fall when the calves are sold. However, expenses must be paid throughout the year. Difficulties in financ- ing may arise due to this inCOngruence of incoming cash flows with outgoing cash flows. Variation of income from year to year could also contribute to difficulties in financing. As has been demon- strated earlier in the chapter, changes in cattle prices such as may occur over the cattle cycle cause rather wide 3 Brake, et. a1., Op. cit., p. I.E. l. 58 fluctuations in incomes from the beef cow herd. Even if adequate finances were available, the Operator wishing to establish a full-time beef cow enter- prise may face difficulties in locating suitable tracts of land of sufficient size to support the enterprise. From 900 to 1,200 or more acres Of land would be necessary for the northern Michigan full—time beef herd. There are rela- tively few farms of this size in the state. The 1959 Census of Agriculture found only 103 farms with 1,000 or more acres in economic subregion SRC-l, which includes most of northern Michigan and the Upper Peninsula.14 In most situations it appears that it would be necessary to combine contiguous smaller units in order to obtain sufficient acreage for the full-time beef cow herd. The Opportunities to do so at a reasonable price may be limited. If satisfactory arrangements could be made, it might be possible for established farmers to alleviate some of the problems of acquiring the additional funds and land necessary to start a full-time beef cow herd byleasing adjoining farms. A considerable proportion of land in western beef cattle Op- erations is leased. The beef cow'herd yields very low and l4 . . . 1959 Census of Agriculture for Michgan by Area, TypeL_and Economic Class, Volume E, Autostat copies of un- published worksheets. 59 variable returns to land, as has been previously discussed, and therefore could not be able to pay a very high rental rateibr land. It might be possible, however, that some sort of leasing arrangement may be the best way to cope with the problems in acquisition of capital and land. Addi- tional analysis would be required to determine the feasibil- ity of such arrangements. Prospects for success. The analysis of the budgets for full-time beef cow enterprises presented in this chapter indicate that if sat- isfactory incomes are to be obtained good management is necessary. Reasonably high percent calf crOps, weaning weights, and crop yields were necessary if profits were to be made. The 200-cow herds under good management, which obtained an 85 percent calf crop, an average weaning weight of 425 pounds for steer calves, and slightly above average crOp yields, generated labor incomes of from roughly $1,500 to $3,000 under the various conditions budgeted for northern Michigan. The southern Michigan enterprises earned labor incomes of about $1,700 for the conventional hay and pasture program and practically no labor income at all for the corn silage program. Improved performance in calf crop percentages, 6O weaning weights, or crop yields increases income substan— tially. However, most operators would be doing well to Ob- tain the minimum budgeted levels associated with good man- agement. Incomes from the beef cow herd are quite sensitive to changes in the price of feeder calves. A change in the price of feeder calves of three cents per pound with propor- tionate changes in the price for culled breeding stock could either nearly double or completely eliminate the labor in- come from the 200-cow herd under the assumptions of good management. Hence, the prospects for the beef cow enterprise to a large degree depend on what the future prices of feeder calves will be. The incomes in this analysis were based on moderate price levels of 27 cents per pound for steer calves and 24—1/2 cents per pound for heifer calves. If long run prices are expected to average much higher or lower than this level, then one might arrive at much different conclu- sions than are drawn from the results presented in this chap- ter. Investments must be minimized if a profit is to be made from the beef cow herd. Relatively low land values are required if satisfactory returns for the Operator's labor and management are to be Obtained. This is one of 61 the reasons why the northern Michigan and, especially, the Upper Peninsula beef cow operations tended to have higher labor incomes than did those in southern Michigan. The capitalized value of land used for the full-time beef cow enterprise is below average, hence, caution must be Observed in the purchase of land for the beef cow enterprise. There may, however, be substantial quantities of land in some areas of northern and Upper Peninsda Michigan which is priced at levels not too far from what the beef cow enterprise could pay for if good management were used and if the Operator was willing to settle for very modest returns for his labor and management. With good management the 200-cow enterprises produced labor incomes of $7 to $15 per cow. This rate of return is quite similar to the reported results of studies of beef cow costs and returns in other areas. Southern Indiana data in- dicate a labor income of roughly $9.50 per cow for the aver- age herd, but only about one dollar per cow for large herds (due to smaller calf crop percentages and lighter weaning 'weights).15 The median group of beef cow farms in a Virginia study produced labor incomes of about $16 per cow in 1957.16 15 . Janssen, Op. c1t., p. 4. l6 . . . Kline, pp. c1t., p. 42. 62 The budgeted Michigan beef cow enterprises also appear to be competitive with other areas in terms of total investment required per cow. The northern Michigan 200-cow herds required total investments of from $600 to $700 per cow. Total investment per cow on the group of Virginia beef cow farms mentioned was $760.17 It should be pointed out that these were very small farms and hence likely to have higher total investments per cow than would larger Opera- tions. Even if the full—time beef cow enterprise can earn profits which are competitive with beef cow'herds in other parts of the country, the key determinent as to whether they are feasible under Michigan conditions is the relationship between the earnings of the beef cow enterprise and those of alternative enterprises. In this respect as has been discussed earlier in this chapter the larger beef cow herd in southern Michigan appears to be considerably less profit- able than possible alternative enterprises such as beef feed- ing or dairy. The northern Michigan 200-cow enterprises, when under good or higher levels of management, appear to produce incomes which are competitive with alternative en- terprises. In many cases, perhaps there may be no alternative l71bid., p. 42. 63 enterprise to the beef cow herd in northern Michigan ex- cept possibly forestry or recreational uses. In assessing the place of the full-time beef cow enterprise in Michigan the following tentative conclusions are made. On the basis of the assumptions made for the budgets, the full-time beef cow'herd does not appear to be a particularly feasible enterprise on an economic basis for southern Michigan. It is better suited to the conditions in northern Michigan and the Upper Peninsula. Due to the problems of acquisition of finances and land, the necessity of good or better management in order to be profitable, and the necessity for very low cost land, it is likely that large full-time beef cow enterprises will remain fairly limited in numbers. Growth in the numbers of large beef cow herds in Michigan will likely occur, but probably at a very moderate rate. CHAPTER V THE SMALL PART-TIME BEEF COW ENTERPRISE Most of the beef cows in the state are in small herds which may be either secondary enterprises on large farms or major enterprises on small part-time farms. Due to their relatively low and flexible labor requirements, beef cows are well adapted to these part-time farms which produce large amounts of forage and for which the farm in— come needs are not high. For similar reasons they may also be suitable for farms on which the Operator is elderly, per- haps eligible for retirement benefits, and interested in re- ducing the labor load.l’ 2 A large and growing percentage of Michigan's farms are part-time units, many of which may be suitable for small beef cow enterprises. In 1959, about 42 percent of Michigan's farmers worked Off the farm 100 or more days during the year. Ten years previously the prOpor- tion of such part-time farmers was 31 percent.3 No empiri— cal data are available to indicate how many of Michigan's 1 . . . Wiggins and Hagan, op. c1t., p. 8 and 9. 2 Janssen, Op. cit., p. 11. 3 . Schmid and Abel, Op. cit., p. 15. 64 65 beef cow herds are on part-time farms, but it is likely that a substantial number of them are. Over a third of the herds in a southern Indiana beef cow study were on small farms whose operators had full—time employment off the farm or were semi-retired. To study the economic feasibility of part-time beef cow enterprises, budgetary analyses of hypothetical small part-time farm units which featured a 25—cow beef herd as the major enterprise were made for varying levels of manage- ment and locations. A herd of 25 cows is generally consid- ered to be about the Optimum size for a one bull herd. Bud- gets were made for farms of the necessary size to support a 25 cow herd. Acreages were held constant at the level required under the least efficient system of management assumed for the enterprises in a particular location. Other than this the basic assumptions upon which these budgets were constructed are the same as those elaborated in Chapter IV for the full-time beef cow herd enterprise. The budgets include various combinations of managerial performance on moderately productive soils in the Upper Peninsula, northern lower Michigan, and southern Michigan. A corn silage feed- ing program was compared with the conventional hay feeding 4 Janssen, Op. cit., p. 11. 66 program in southern Michigan also, and returns from renting out the farms were compared with those from the beef cow enterprise. The 25-Cow Part-time Herd in Northern Michigan CrOpping program and acreage requirements. The 25-cow herd in northern Michigan (including the Upper Peninsula) requires about 140 acres of moderately pro- ductive land when slightly above average or good crOp yields are Obtained. About 83 acres of permanent pasture, which may be up to one half shaded by brush, would be sufficient to supply about two thirds of the herd's pasture. Twenty- five acres of alfalfa-brome pastured after the first cutting of hay had been removed would supply the remainder of the pasture. To Obtain enough hay to winter the herd about 11 more acres Of alfalfa-brome hay cut twice would be needed. It has been arbitrarily assumed that all budgeted farms would have a minimum of 15 acres of oats, which could be used as the nurse crOp for reestablishing seedings of alfalfa- brome. Therefore, this budget includes 15 acres of oats. When higher crOp yields are Obtained, fewer acres are required to support the beef cow herd. To show the 67 effect of better crOp yields on the same farm, acreages have been assumed constant. The land now in excess Of that required to support the 25—cow herd could be used to produce extra crops for sale as has been assumed here or it could support additional beef cows or some other secondary live- stock enterprise. The 140 acre farm on moderately produc- tive soils, When operated under excellent crop management, had about 18 more acres available to produce additional crops for sale (as budgeted) or to support additional live- stock than did the same farm when under good management. With excellent management, about 71 acres of permanent pasture, 19 acres of alfalfa-brome pastured after the first cutting of hay, and 10 acres of second cutting hay would be required. Since many farms in northern Michigan may not be suited to production of corn or other high value cash crOps, the 18 extra acres were assumed to be used to produce oats for sale. If other higher valued crOps such as corn could be grown instead of oats, then it might be more profitable to grow them instead of the oats. Capital and labor requirements. The investment in machinery, livestock, equipment, -\ . feed and supplies for the 25-cow Operation was about $10,000. 68 The investment in the beef herd, feed, supplies, and live- stock equipment accounted for about two-thirds of this. Total investments, including land and improvements, varied from about $20,000 for the Upper Peninsula operation with good management to about $23,000 for the northern Lower Peninsula operation with excellent management. The latter Operation had a slightly greater percentage of crOpland, which was valued higher than the Operation with good man— agement. Total labor requirements were about 545 hours for the Operation with good management and about 565 hours for the one with excellent management. The maximum labor load occurred in the months of April and June. The operation with good management required about 72 hours of labor in April and 87 hours in June. It was assumed that the Oper- ator and his family could provide this much labor, therefore, no charges for hired labor were made. It should be noted that all harvesting was assumed to be custom hired and that the labor contributed by the custom Operators was not in- cluded in the total labor requirements. Incomegpotential. The 25—cow part-time beef farm in the Upper Peninsula with moderately productive soils, slightly above average crOp 69 yields, an 85 percent calf crop, and average weaning weights of 425 pounds for steer calves and 400 pounds for heifer calves produced a net income of $662 when no depreciation was charged on improvements. Many farm units which previ- ously had a small dairy enterprise have more than adequate facilities already on the farm for beef cows. Depreciation was not charged to the improvements on these farms since the Operators were interested in the returns to the fixed resources already on the farm and since most of the existing improvements would likely not be replaced when they were worn out. However, expenses for repairs on improvements were included. The net income of $662 included returns to the Operator's labor, interest on investment, and depreci- ation on improvements. Property taxes on the entire farm were included in the expenses. Net income was $646 in the northern Lower Peninsula or essentially the same as for the Upper Peninsula. (See tables 18 and 19) These operations under slightly above average or good management, however, produced negative labor incomes when a charge of 5 percent on total investment was deducted from the net income. The Upper Peninsula Operation had a labor income of minus $209, while the northern Lower Michi- gan Operation had a labor income of minus $317. The difference 70 in labor incomes was due primarily to variations in the total investment for the farms in the two areas. High levels of managerial performance increased incomes considerably. For instance, the Upper Peninsula farm had a net income of $1,543 and a labor income of $640 when excellent crOp yields, a 90 percent calf crop, and average weaning weights of 475 pounds (for stEers) were obtained. Even at this very high level of production effi— ciency the returns per hour of labor were only $1.13. Although the returns from the small part-time beef cow enterprise were quite low in absolute terms the most important factor was how they compared with alternatives. If the farm were left idle, no returns would be received, but such expenses as real estate taxes would still have to be paid. For example, the idle farm in northern Lower Mich- igan would have a net income Of about minus $99 and a labor income of minus $698. The farm would receive no return on investment and would not pay for the fixed expenses such as taxes as long as it was idle. The part-time beef herd under good management would pay the prOperty taxes, and would pro- vide a return on investment Of something less than 5 percent, but would provide no return for the Operator's labor. In most instances it is apparent that the Operation of the 71 part-time beef cow'herd is more economically advantageous than allowing the farm to be idle. Very little in the way of alternative farming en- terprises may exist for small, part-time farms in northern Michigan. If the land is adapted only for forage production, then some sort of forage consuming livestock would likely be required. Dairy herds would not likely be suitable on small part-time farms in northern Michigan due to high la- bor requirements, need for large investments in bulk tanks, and other equipment needed to remain competitive, and the decline in markets for milk in some northern areas. Beef feeding enterprises, except for grazing programs, may not be suitable due to the high cost of grain which must be trucked in. The beef cow enterprise may be the only feas- ible one for many small, part-time farms, particularly those with large amounts of permanent pasture. Table 22 shows the effects on income if the farm was rented out rather than used to maintain the 25-cow beef herd. If the crOpland could be rented at $6.00 per acre and the pasture at $2.75 per acre, then the net in- come would be about $348 and the labor income about minus $251 for the Operation in the northern Lower Peninsula. This net income of $348 is equivalent to a return on total 72 investment of 2.9 percent if no deductions for depreciation on improvements or the operator's labor and management were made. This compares to a 3.3 percent return from the beef cow enterprise if no depreciation on improvements was de- ducted and the Operator's labor was assumed to be free (i.e. have an Opportunity cost of zero.) If these estimated re- turns from renting out the farm represent the best alterna- tive to keeping the part-time beef cow herd, then the part- time beef cow enterprise may be the best or, at least, equal to the best alternative use for the farm if the operator's labor has a very low or negligible Opportunity cost. Assuming no Opportunity cost for the Operator's la- bor and no depreciation on improvements, the rate Of return on total investment of only 3.3 perCent from the beef cow enterprise seems quite low. For the purpose of decision making, an Operator who wishes to retain ownership of the farm may' be more interested in the rate of return he could expect from additional investments on the farm and not the return on total investment. The rate of return on the in- vestment in livestock, machinery, equipment, feed and sup- plies for the beef cow program was about 6.5 percent assum- ing no depreciation on imprOvements and no charge for the Operator's labor. This rate of return isstill quite low 73 but may be sufficient to just cover the financing of the enterprise. 'In addition, various non-pecuniary motives for maintaining the small part-time farm with the beef cow herd or some other appropriate enterprise exist. The desire to live on the farm and raise the family there; the consid- eration of a small beef herd as a hobby or recreational ac-, tivity, and the holding of land in expectation of gains in value are all possible motives for maintaining the small part-time beef cow farm. Therefore, the beef cow program may be appropriate for part-time farms where the operator's labor required for the enterprise has a low Opportunity cost and/or Where non-pecuniary motives for maintaining the part- time farm exist. The effects of varying price levels for cattle on incomes from the 25-cow enterprises should be similar to thOse for the large herds discussed in the previous chapters. Likewise, land values affect labor incomes from the 25—cow herds in-a manner similar to the way they affected the 200- cow herds. Although computations were not made it is Obvious that the 25-cow beef enterprise could not afford to pay as much for land as could the large 200-cow Operations studied in the previous chapter. Some economies to scale appear to exist in the beef cow enterprise. 74 The 25-Cow Part—time Herd in Southern Michigan Cropping program and acreage requirements. An 80 acre farm with moderately productive soil in southern Michigan would be sufficient to support the 25-cow beef enterprise when good crOp and pasture yields were ob- tained. Such a farm might include 23 acres of open perma- nent pasture, 19 acres of alfalfa-brome pasture, 16 acres of alfalfa-brome hay and 15 acres of oats. Crop yields at higher levels commensurate with ex- cellent management practices reduced the acreage required for feeding the herd by about nine acres. These extra acres could be used to support additional livestock or to grow crOps for sale. The budgeted example assumes that a cash crop, corn, is grown on these extra 9 acres. When corn silage was produced instead of hay for the winter herd feed, the acreage required to feed the herd was reduced further. The 16 acres of alfalfa-brome grass hay would be replaced by about 9 acres of corn silage and around 7 acres of corn, which could be sold when this system was used. With excellent management a little more than 6 addi- tional acres would be available to produce corn for sale under this system. 75 Capital and labor requirements. Investments in cattle, machinery, equipment, feed, and supplies for the 25-cow enterprise is about the same for the southern Michigan farms as for those in northern Michigan. However, the corn silage program requires a slightly larger investment for forage handling equipment. Note that all the part-time operations are assumed to cus- tom.hire all their harvesting done rather than to own the harvesting equipment themselves. Total value of the cattle, machinery, etc., for these operations was about $10,000. Investment in real estate, however, was much higher for the 25-cow farm in southern Michigan than for similar operations in northern Michigan. The value of the land and improvements on the 80 acre farms was about $18,000. The farms with the corn silage program had slightly higher in- vestments in improvements, mainly because of the silos neces- sary for silage storage. Farms with less productive soils may be lower in value. Labor requirements are similar to but perhaps slightly less than those for the northern part-time beef farm. The Operation using the conventional hay feeding program required about 507 hours of labor under good management and about 517 hours with excellent management. The increase was due to the 76 fact that the farm with excellent management grew some corn in addition to the hay and oats for the herd. The corn silage program reduced total labor requirements under good management to about 479 hours, but raised them to about 539 hours with higher management. Income potential. The 25—cow Operation using the conventional hay feeding program had a net income of $792 under good manage- ment. This was $129 higher than for the Upper Peninsula part-time herd. The southern Michigan Operation had slightly higher receipts from crop sales, and lower expenses for seed, fertilizer, fuel, and custom hire which offset the higher prOperty taxes. However, when compared in terms of labor income the northern Michigan Operations exceeded the south- ern ones due to the considerably greater investment and, hence, interest charges on investment for the southern Michigan farms. Labor incomes under good management were minus $463 in southern Michigan versus minus $209 in the Upper Peninsula. This net income expressed as a percent return on investment is about 3.1 percent for southern Mich- igan if no depreciation were charged to the improvements and if the Operator's labor was assumed to have an Opportunity 77 cost of zero. This compares to a 3.3 percent return for the northern Lower Michigan enterprise. When corn silage was used instead of hay for winter feed, incomes at the slightly above average levels of manage- ment were reduced. Net income under the corn silage program was $689 as compared to $792 with the hay program. Labor income fell from a minus $463 to minus $607 when the corn silage program was used instead of the hay prOgram. However, when excellent management in the cropping program was assumed, the corn silage program produced slightly more income than did the hay program. When high crOp yields, a 90 percent calf crOp, and average weaning weights of 475 pounds (steer calf basis) were Obtained, net‘income with the corn silage program was $1,734 as compared to $1,655 for the hay program. Labor incomes were $407 and $361 respectively. Apparently under these conditions of moderately productive soils the use of corn silage to feed the cow herd is more profitable than feeding hay only at high levels of management and crop yields. The level of returns from the part-time herd rela- tive to alternative enterprises is more important than the absolute level of income. The part-time beef cow herd does provide some return to the use of land and improvements as 78 well as paying for real estate taxes and, therefore, may be preferable to letting the farm be idle. However, alterna- tives do exist such as renting the farm out or grazing and feeding a few beef feeders. If the farm could be rented out at the rate of $14 per acre for cropland and $5.50 per acre for the permanent pasture, then a net income of $571 could be obtained. After deduction of a 5 percent charge on in— vestment, the return to the owner's labor and management was a minus $310 which was somewhat higher than that Obtained from the part-time beef cow enterprise at slightly above aver- age levels of management. If rental payments such as these described previously could be Obtained, then it would be pref- erable to rent the farm out rather than keeping a part-time beef cow herd on it, unless very high levels of management were expected to be applied to the beef cow operation. Thus, the part—time beef cow herd looks less attractive compared to possible alternatives in southern Michigan than it does in northern Michigan. Problems and Prospects for the Small Part-time Beef Cow Enterprise Returns from the 25-cow operations budgeted and ana- lyzed previously are quite low. Except under very high levels 79 of management these enterprises yield only enough income to pay the real estate taxes, other expenses, except de- preciation on improvements, and provide a return on total investment of only about 3 percent with no return to the operator's labor and management. Returns from renting out the farms are, at the estimated rates, slightly less than the returns from the beef cow enterprise in northern Mich- igan when the labor of the Operator is assumed to have little or no value if not used for the beef cow enterprise. In southern Michigan the returns from renting out the farm are greater than the returns from the part-time beef cow enter- prise. If the estimated returns from renting out the farms represented the expected returns from the best alternative use of the land, then the part-time beef cow herd appears better adapted to the northern Michigan farm whose Operator works off the farm than it does to the southern Michigan part-time farm. It is likely that the beef cow enterprise is most likely to be the best alternative on those part-time farms with less productive soils which are suited primarily for forage production. A growing prOportion of Michigan's farmers are part- time Operators. Good opportunities for off-farm employment in southern Michigananeani important factor in this trend to ii iii, (III! 80 part-time farming. Several of these part-time operators with rougher land suitable only for forage production main- tain small beef cow herds. It is probable that the number of part-time beef cow herds will grow in the future. The extremely low returns from such enterprises, however, may discourage any rapid increase in the number of such small herds. CHAPTER VI THE BEEF COW HERD AS A SECONDARY ENTERPRISE Many beef cow herds are secondary or minor enter- prises on various types of farms, both large and small. The cow herd may have a place on farms with pasture, crop residues such as cornstalks and grain stubble, and other resources which would not be utilized if the cow herd were not kept. Profits are usually maximized when the beef cow herd is restricted to the size necessary to utilize the cheap pasture and other unsalable forages produced on the farm. 1 Roughly 96 percent of Michigan's beef cow herds have fewer than 50 cows.2 Nearly all of these herds are secondary enterprises on full-time farms or either major or secondary enterprises on part—time farms. This chapter includes the budgetary analysis of three basic situations. The first shows the effect on l . . . Wiggins and Hagan, Op. c1t., p. 9. 2 1959 Census of Agriculture (see footnote 1 in Chapter IV). 81 82 income of placing a 50—cow herd on land capable of produc- ing corn, i.e., the land used for hay and pasture for the herd could have been in corn if the beef cow herd were not kept. The second budget determines the change in income expected when a 22—cow dairy herd is replaced by a 50-cow beef herd. In this case it is assumed that a given acreage of legume, grass mixture, must be grown in the rotation. The budget thus compares the utilization of this forage with a beef cow herd as Opposed to a small dairy herd. The third budget shows the effect on income Of adding a 50-cow herd kept on drylot the year around using a ration Of corn- stalk silage. The first two budgets compare cornstalk sil- age with corn silage feeding programs. All these budgets are based on the assumptions of moderately productive soils in southern Michigan. These are partial budgets showing only the changes in receipts and expenses directly affected by adding the beef cow enterprise to each situation as Op- posed to complete budgets for the entire farm business as used in the two previous chapters. The basic assumptions for budget construction are the same as in the previous chapters except as noted. 83 The 50-Cow Herd on Land Suitable for Corn CrOpping program and acreage requirements. These budgets are for a 50-cow herd maintained on land which could be used entirely for the production of corn if the beef cow herd were not kept. Two programs are compared; one using cornstalk silage for the wintering ra- tion and the other using corn silage. The use of cornstalk silage for wintering beef cows is a relatively new idea. However, available experiences indicate that it can be used successfully.3 Both programs are based on the assumption that a substantial acreage Of corn is grown on the farms in each case so that cornstalk fields would be available for grazing by the beef cow herd for a period of about 45 days immediately following corn harvesting. Both programs require about 56 acres of alfalfa- brome grass pasture. No permanent pasture was assumed to be available. Fifteen acres of oats were included in each budget based on the assumption that a minimum of 15 acres of oats would be grown on any farm requiring them. About 3 Newland, H. W., Center-Cut and Corn Stalk Silage for Fattening Calves and Beef Cows in Dry-Lot, AH 98, Ani- mal Husbandry Department, Michigan State University, 1963. 84 63 acres of cornstalks would provide forage for the herd during a 45 day period after corn harvesting and preceding the heavy winter snows. The winter feed would be provided by about 33 acres of cornstalk silage or alternatively by about 13 acres of corn silage. The cornstalk silage program requires the direct use of about 71 acres of crOpland to support the beef cow herd with a few surplus oats being produced for sale. In addition to this amount, about 96 acres Of cornstalks would be required to provide the corn- stalk silage and some grazing. The corn silage program involved the direct use of some 84 acres of cropland for the support of the 50-cow herd. Sixty-three acres of corn- stalks for grazing were also utilized. All acreage require- ments were based on yields expected from moderately produc- tive soils in southern Michigan when slightly above average or good management was applied. These estimated yields were 14.2 tons corn silage, 6.4 tons cornstalk silage, 3.0 tons hay equivalent for alfalfa-brome grass pasture, and 75 bushels of oats. These are net quantities available for feeding. Capital and labor requirements. Either program requires an investment of about $13,000 in livestock, equipment, feed and supplies. Almost 85 $12,000 of this represents investment in cattle. The addition of a 50—cow'herd adds about 200 more hours of labor than what would be needed if corn was grown on the land and no beef herd was kept. The cornstalk sil- age program has its peak labor requirement during October, when the demands on labor for corn harvesting are already at their peak. Estimated labor requirements excluded the labor of the custom operator assumed to be hired for har- vesting the silage. If the farm operator harvested his own silage then labor requirements would be higher during the critical harvesting season. Added labor requirements may be a significant disadvantage for the cornstalk silage program on many farms where labor is not plentiful during this period. Incomegpptential. When the land which would otherwise be used for corn production is used to grow pasture and feed for the beef cow herd, net income for the farm will be reduced, at least, under the assumed conditions budgeted here. Net income was reduced by $1,344 when the cornstalk silage program was used and by $2,141 when the corn silage program was used. These results are based on slightly above average or good crop 86 yields on moderately productive soils in southern Michigan. Returns from the beef herd were based on average weaning weights of 425 pounds for steer calves and an average calf crop of 90 percent, which is 5 percentage points above the basis used in the previous budgets for slightly above aver- age or good management. Adequate buildings, silos, and fences were assumed to already be on the budgeted farms and no depreciation or interest was charged to these im- provements. The income figures above this represent the return to the use of these improvements plus the approxi— mately 200 additional hours of labor required by the cow herd. The 50—cow herd actually covered all direct expenses and made a profit, but the foregone profits from the corn production more than offset the profits from the cow herd so.that the addition of the cow herd decreased net income. The cornstalk silage program required slightly higher expenses for fuel, oil, and custom hire, but had much smaller foregone receipts, since it utilized a by-product feed which would otherwise have been wasted rather than using a feed (corn silage) which had a high Opportunity cost. The results would have been much different if the cow herd could have been pastured on permanent pastures on 87 land not suitable for cropping, especially if this pasture would have been wasted otherwise. In such a situation the addition of the beef cow herd may be highly profitable. However, When land is taken out of the production of prof- itable crops such as corn and used to grow pasture and feed for a-beef cow herd, farm income is likely to fall as was shown above. (See Table 23) The 50-Cow Beef Herd in Replacement of a 22-Cow Dairy Herd Many farms may of necessity grow some legumes and grasses in their rotations to control erosion. Dairy herds are often used as the indirect market for these forages on many Michigan farms. Many Of the small,relatively ineffie cient dairy units are hard pressed to compete effectively with the larger more modern dairy Operations. Numbers of dairy herds with less than 20 cows have decreased rapidly in recent years.4 The beef cow'herd may be a possible re- placement for the small dairy herd on some farms. The following budgets indicate the effects of re- placing a 22-cow dairy herd with a beef cow herd of 50 head. The dairy Operation is assumed to be a stanchion barn setup. 4Hoglund, C. R., Op. cit., p. 8. 88 Milk sales were assumed to be 9,500 pounds per cow. Further assumptions are outlined below. Cropping program and acreage requirements. Both alternatives utilized the same acreage (56 acres) of alfalfa-brome grass. Of this total, about 34 acres were for hay and about 22 acres for pasture for the dairy herd. The 50-cow beef herd would utilize the entire 56 acres as pasture. The dairy herd would also need 7 acres of corn silage. Fifteen acres of oats were included for each alter- native. Total crOpland required for the 22-cow dairy herd was about 78 acres. This compares to 71 acres for the 50— cow beef herd when a cornstalk silage program was used or about 84 acres when corn silage was used as the winter ra- tion for the beef herd.- (See the previous section on acre- ages required by the 50-cow herd.) Thus, under the assumed conditions ittoOk roughly the same acreage to support a 22- cow dairy herd as it did to support a 50-cow beef herd. A11 acreage requirements were calculated using the slightly above average yield levels which have been designated as those expected when good management is used. Capital and Labor requirements. Total capital requirements may be reduced slightly _ _ . K . v -. . _ 41 1 C. J 1 L a 1 C s.— ‘ 89 by switching to the beef cow enterprise. Total investment in cattle,equipment, feed and supplies was about $15,000 for the 22—cow dairy herd as compared to about $13,000 for the 50-cow beef herd. If the dairy herd and equipment could be liquidated at its inventory or depreciated value, then sufficient funds should be available to establish the beef cow herd. The buildings, silos, and feeding equipment used by the dairy herd should be adequate for the beef herd with little or no remodeling. The most dramatic effect of the switch from a small dairy herd to a medium sized beef cow herd was the drastic reduction in labor requirements. In this case the estimated labor requirements for the dairy herd including growing feed for the herd was about 2,600 hours. The 50-cOw beef herd required roughly 600 hours of labor. Therefore, the shift from a 22-cow dairy Operation to a 50-cow beef herd reduced labor requirements by nearly 2,000 hours under the assumed conditions. The use of the cornstalk silage program for the beef cows reducedlabor needs by about 2,014 hours, whereas the corn silage program cut labor needs by about 1,991 hours. The reduction in labor requirements by shifting to the beef cow herd was sufficient to allow a major increase in some other enterprise or a shift from full-time to part- 90 time farming or some other major readjustment. Income potential. The replacement of the 22—cow dairy herd with a 50—cow beef herd resulted in a reduction in net income of $1,365 when the cornstalk silage program was used for the beef cow herd and $2,290 when the corn silage program was used. Returns from the dairy herd were based on 9,500 pounds of milk per cow sold at $3.80 per hundredweight, a replacement rate of 25 percent with cows selling for $143 (1100 pounds x 13¢ per pound), and a 90 percent calf drop with deacon calves selling for $30 each. Returns from the beef cow herd were calculated assuming average weaning weights of 425 pounds for steer calves (400 for heifers), 90 percent calf crOp weaned, and good crOp yields (See Table 24). The reduction in income doesn't appear quite so formidable when the reduction in labor requirements is taken into account. When the beef cow herd is wintered on corn— stalk silage, labor income is reduced by $1,365 while labor utilized decreases by 2,014 hours; therefore, if the released labor was worth 67¢ per hour no reduction in income would occur when the dairy herd was replaced by the beef herd. 91 Under the corn silage program for the beef cow herd the breakeven value of the released labor is $1.15 per hour. Thus, if the labor, which would be freed when the dairy herd was replaced, could be used in some other enterprise or in off-farm employment to earn the above amounts per hour or more, then the switch from the dairy herd to the beef cow herd would be profitable. It appears that the beef cow herd may be a reason- able alternative to the small dairy herd on many Michigan farms, which of necesSity must grow some forages, if the labor which is thus released can profitably be used else- where. Such a shift may allow a small full-time farmer to shift to a part-time operation, or may allow the older Operator to go into semi-retirement. On other farms, the replacement of the small dairy herd with a beef cow herd would release labor to be used in the expansion of other enterprises or would reduce hired labor requirements. The shift to the beef cow herd would not be profitable if the freed labor could not be used to earn the specified break- even amount of 67¢ or $1.15 per hour, reSpectively. Even if this could not be done, the shift might still be desir- able for the dairy farmer who wants to reduce his labor load and is willing to accept a lower income. 92 The 50-Cow Herd Kept Year Around on Drylot In recent years some interest has been shOwn in keeping beef cows on drylot the year around, particularly in areas with relatively expensive and productive land.5 One Minnesota study indicated that calf crOp percentages and birth weights were not adversely affected by keeping cows in drylot. Feed costs per cow, however, are much higher for the drylot cows fed hay and silage than for the cows which were pastured in summer in this project.6 The calves produced by the drylot cows had somewhat lighter weights than did pasture reared calves in spite of the fact that the drylot calves consumed considerably more creep feed.7 To obtain some conception of the returns which might be expected from a beef cow herd kept on drylot the year around the following budget was prepared for a 50-COW'herd fed a ration of cornstalk silage. Due to the limited data available concerning performances of beef cows on drylot and, particularly, when fed cornstalk silage, the input- 5Newland, Op. cit. 6Meiske, et a1., Beef Cow Herd Management at Rose- mount, B-58, University of Minn., Agr. Exp. Sta., Sept. 1964. 7Meiske, et a1., Grain Preference of Creep—Fed Beef Calves, B-57, University of Minn., Agr. Exp. Sta., Sept. 1964. 93 output assumptions and the results for this budget should be regarded as highly tentative. Two budgets were prepared, one for farms with adequate facilities for the cow'herd al- ready on the farm, and the other for farms requiring new facil- ities to accommodate the herd. CrOpping program and acreage requirements. With excellent crOp yields, about 14 acres of corn would be the only crOpland directly required to feed the cow herd under this system. In addition about 70 acres of cornstalk silage would be needed to furnish sufficient forage for the entire year with the exception of a 45 day period of direct grazing of cornstalk fields. About 63 acres of corn— stalks would be used during this grazing period. Bedding requirements could be met by 17 acres of straw or by using corn cobs or corn stalks. Thus, the 50-cow herd on a dry- lot program would require 133 or more acres of cornstalks in addition to 14 acres of corn grain to provide adequate feed for the year using a cornstalk silage ration. This particular program would be possible only Where large acre- ages Of cornstalks were available. The example above is based on the crOp yields abtained when excellent management practices are applied on moderately productive soils in 94 southern Michigan. Similar results would be Obtained on more productive soils with slightly lower levels of man- agement. Capital andlabor requirements. The average investment in cattle, equipment, feed and supplies for the 50-cow herd is about $13,000. Average investment in minimal improvements for the drylot Operation including silage storage and shelter for the cattle would be about $4,500. The new cost of a silo, shed, and other minimum improvements for the herd would be aroUnd $9,000. Some farms may already have sufficient facilities available which would not be used otherwise. Note that concrete yards and elaborate sheds and feed handling facilities have not been assumed to be necessary. Farms with other livestock enterprises should already have sufficient Specialized ma— chinery to care for the cattle such as a forage wagon, ma— nure spreader and loader. If these items were not available an additional average investment of about $1,600 would be required. The 50-cow drylot Operation required an estimated 754 hours of labor to care for the herd and harvest the feed. The peak labor load occurred in the month of October ”N 95 when about 140 hours was required to harvest the cornstalk silage in addition to about 48 hours spent directly caring for the herd. The large acreage of corn which must be grown to supply enough stalks for the silage means that October would be a month of maximum labor requirements even without the additional job of harvesting cornstalk silage. This may be a major drawback to the cornstalk silage program. Income potential. Labor income from the 50—cow drylot operation was minus $243 when it was assumed that new facilities were re- quired for the herd and all costs for the improvements were charged against the herd. When it was assumed that adequate facilities with no alternative uses were already available on the farm, no depreciation or interest or investment charges for the improvements were made, labor income was then $477. These results are based on a 90 percent calf crop and average weaning weights of 425 pounds (for steer calves). NO charge for repairs or depreciation on machinery were made in either case under the assumption that adequate machinery for the beef cow herd such as forage wagon, manure spreader and loader would already be on the farm and that the addition of the beef cow enterprise would not appreciably affect the costs of Operating these items of machinery. If the full 96 cost of Operating these machines were charged against the beef cow herd then expenses would be increased by about $450. (See Table 25) The returns from the 50-cow drylot Operation ex— pressed as return per hour of labor required are minus $.32 for the situation when the full costs of the improvements are charged against the herd and $.63 per hour when depre— ciation and interest on the improvements are not charged to the herd. If the specialized machinery necessary for the cow herd had to be purchased solely fOr use by the herd then the returns per hour of labor would fall to about minus $.92 or $.04, respectively. The drylot operation thus appears to be profitable only when unused resources such as sheds, silos, and machinery are available on the farm. The above returns are based on a proposed cornstalk silage feeding program. If corn silage was used instead, it is likely that returns would be even lower as the budgets in the previous sections of this chapter indicated. Problems and Prospects for the Secondary Beef Cow Entepprise The beef cow herd may be a profitable addition to those farms which have forages and other resources suitable 97 for the cow herd which would not otherwise be used. The budgets indicate that beef cows may profitably replace small relatively inefficient dairy enterprises on some farms as a means of marketing the forage produced on the farm if the labor which is released by the transition to the beef cow enterprise can be profitably employed elsewhere. When the herd is expanded beyond the amount necessary to utilize the forages which of necessity must be produced on the farm so that land is taken out of crOp production in order to produce feed for the herd, profits are likely to fall. The use of land suitable for the production of corn and other high valued crOps in the production of pas- ture and feed for the beef cow herd may be highly unprofit- able. The proposed drylot beef cow enterprise using a by- product feed, cornstalk silage, was moderately profitable only when facilities and machinery suitable for the enter— prise were already available on the farm and, therefore, the full costs of these were not charged against the beef cow enterprise. In all the budgets where corn silage was compared with cornstalk silage, the latter was more profit— able. However, a major disadvantage of the cornstalk silage program is that it creates a problem of labor distribution 98 in that cornstalk silage must be harvested in conjunction with or immediately following the harvesting of the corn and, thus, intensifies labor needs, during this already critical time period. In summary, the beef cow enterprise can be profit- able as a secondary enterprise on farms which have adequate resources for the cow herd such as crOp residues, other forages, buildings, etc., which have little or no alterna- tive uses. When resources which are suitable for other, more profitable enterprises are used for the beef cow en- terprise, profits will be reduced.. Undoubtedly, there are many Michigan farmers who could increase profits by adding a secondary beef cow en- terprise to utilize crOp residues, other cheap forages, unused buildings, and other resources with little alterna- tive value. The beef cow enterprise may profitably replace the small, relatively inefficient dairy enterprise in those situations where the labor which is freed in the process can be employed elsewhere at moderate returns. High labor costs and favorable Opportunities for Off—farm work in southern Michigan may encourage the replacement of ineffi- cient dairy enterprises with beef cows. Expansion in the number of secondary beef cow herds may be likely. CHAPTER VII SUMMARY AND CONCLUSIONS Summary Budgets for beef cow enterprises under various hy- pothetical conditions were calculated using input-output data synthesized from information from a review of past re- search and modified to fit expected conditions in Michigan in the near future. The full—time 200—cow beef enterprise in northern Michigan required from 900 to 1,300 acres of land. With good management these Operations produced labor incomes of from $1,500 to $3,000 when moderate prices were received. Changes in prices, crOp yields, weaning weights, and percent calf crop had significant effects on incomes. Likewise land values were an important determinant Of the level of return to the Operators for theirldxn' and management. Only moder- ate to low priced land could be afforded for the large beef cow enterprise. Returns from the well—managed 200-cow en— terprise seemed to be competitive with possible alternatives 99 100 in many northern Michigan and Upper Peninsula situations. Principal problems facing these Operations include the large capital requirements and the very slow rate of capital turn- over. The 200—cow enterprise on less productive soils in southern Michigan was not as profitable as most of those budgeted under northern Michigan conditions. Labor income for the enterprise in southern Michigan using a conventional hay wintering ration was $1,700. An alternative program using corn silage as the wintering ration was unprofitable in that labor income was nearly zero. The beef cow enter- prise appeared to be considerably less profitable than poss- ible alternative enterprises in southern Michigan. Twenty-five cow part—time enterprises required about 140 acres of land in northern Michigan or about 80 acres in the southern part of the State under the assumed conditions. When good management was assumed, net incomes were about $650 in northern Michigan and from $700 to $800 in southern Michigan. Labor incomes, however, ranged from minus $200 to minus $300 in northern Michigan and from minus $450 to minus $600 in southern Michigan. A corn silage program on the southern Michigan farms was slightly less profitable than the hay program except at very high levels of management. 101 Returns from renting the farms out rather than keeping the beef cow herd on them were quite similar to the returns from the beef cow enterprise in northern Michigan when a very low (near zero) value was placed on the operator's labor. How— ever, in southern Michigan the beef cow enterprise did not earn quite as much as the rental alternative even when no charge was made for the operator's labor. The use of corn land to grow feed and pasture for a 50-cow herd was very unprofitable. Labor income was reduced by $1,350, when a cornstalk silage program was used, or by $2,150 when a corn silage prOgram was used, from the total possible labor income if the land had been used to produce corn for sale. About 200 added hours of labor would be neces- sary for the beef cow herd over and above the amount of labor which would have been required if only corn was grown on the land. The replacement of a 22-cow dairy enterprise with a 50-cow beef herd would require little change in total invest- ment or in acreage requirements. Labor requirements would be cut by nearly 2,000 hours, however. Net income would be reduced by about $1,350 when a cornstalk silage program was used for the beef herd, or by $2,300 when a corn silage pro- gram was used, if the dairy herd was replaced. Net returns 102 from the two alternatives would be equal if the labor, which was released by the replacement of the dairy herd, could earn $.67 or $1.15 per hour, respectively, in some other use. Labor income from a 50-cow drylot operation utiliz- ing a prOposed cornstalk silage ration was minus $250 when new facilities were required by the herd. If adequate facil- ities, with no alternative uses, were available for the en- terprise and no charges for depreciation or interest in im- provements were made, then the labor income was about $500. Labor income expressed as a return per hour was minus $.32 and plus $.63 respectively. If the specialized machinery such as forage wagons and manure Spreaders, which would be required by the beef cow enterprise, were used solely for that enterprise, then the returns per hour of labor would fall to minus $.92 and $.04, reSpectively, assuming the full costs of the machinery were charged against the beef cow herd. Conclusions The beef cow enterprise, if well managed, can be competitive with alternative enterprises in northern Mich- igan. However, under most southern Michigan conditions the 103 beef cow herd was relatively less profitable. The larger herds appeared to be considerably more profitable than the small ones, however, the importance of part-time farming and the difficulties in organizing and financing large beef cow units may mean that the relative proportion of large to small herds may not change appreciably. The beef cow herd appears to be adapted to and profitable in certain situations likely to be found in Michigan. However, it also can be a highly unprofitable enterprise in other situations where higher earning alternatives are available. The beef cow herd seems best adapted where an abund- ance of forage is available, alternative enterprises are limited, and land values are low. Such conditions are found in some areas of Michigan, particularly in some northern areas where dairy markets are limited. A moderate increase in beef cow numbers may likely occur in Michigan in the next few years. High labor costs and good Opportunities for Off- farm work in southern Michigan will be important factors in the competitive position of the beef cow enterprise. 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It: Iii 105 .00H 0000 00 koHHom 009009000 “090.: 0 HNWH no 0.000.000 030900.30 00Hm .. 0. H 000H 0.99000 000 00.8 H0900. -.. :.H 3.?“ 3000 00. 0H000 00.00 00 0030900003 30.3w -- mm 0;: 5000 .980 -- n. 0.3 03000 M000900.80 -- .1. 9.00. , - 009: 008.3000 .90: 600-909.000-0on 0:260 on .0 H. N. H. N. 000H 0.39000 000 R000 H0909 N.H 3.3 N.H 3.3 30090 900 mp 0.nH hr . 0.nH 0900 0.0.9 .1. 0;: .1. 000.20 0.80 0.m mHm 0.m mHm 00.09000 000.50.900.90 m.m 9mm N.m m.mm 000 0095-030qu .9002 0000:1009: 03.0300 0.300 mm .m 0.8 VWW .90 0000.00 000900.30 03”.“ 5mm 0.00 000H 0.39000 000 00.00 H098. m.H 0.0 NH N0 .3 30.090 900 E. 0.9 E. 0.9 0900 0.m 0.9. 0.m 0.9 0.05.30 000.00-090.02 m. 9mm 0.. 9mm 000000 00.79...~ 030900.80 mtaH o.mH -- .. 00030 0000 -- -- 0.0 0.0m 0009: £093.80 985008: 080:5on 0:260 on .9 «\0H09 H 0 0004 45509 M 00.84 00mg.“ 00030 0000 0009000 00030 030900.30 9900 2.32680 3320002 82008.00 300-00 0309» 000 00000.80. 00.8-...0H 0H0.0.H_ III ‘1'! IIO‘III 1]. II :0 I11". Y 3 ‘IIIII.’II. l 7 I .I' I I r I”? I! [lit D IV [I f Yer I! \l- 3.51 O ! II It: I l I '1‘?) I 0‘4 1' .1 o . a , \, .lq'llulv , v {\Illri. iI'Ilil .9‘ I, :3] r I 106 l Yields are amounts preserved for feeding,ie, harvesting and storage losses have been deducted. Yield estimates are based on data from E. P. Whiteside, Soils Department; L. V} Nelson, Farm Crops Depart- ment; and C. R. Hoglund,.Agricultural Economics Department. 2Moderately productive soils--represents such soil groups as upland loams, silt loams, and clay loams. Less productive soils-~represents such soil groups as sandy 10ams and loamy sands. Soils of very low productivity such as drouthy sands have been excluded. 3Good management refers to the use of average to above average (but not excellent) practices. Yields listed under good.management are slightly above average. Excellent management refers to the use of above average and improved production practices. 1"Northern Michigan.budgets (including U. P.) are based on the assumption that 2/3 of the pasture requirements are obtained from permanent pas- ture. These permanent pastures consist of quackgrass, bluegrass, etc., and are assumed to be up to 50% covered with brush. Note that pasture acreages exceed the requirements (based on yields) by 10% in order to partially account for variation in yield from.season to season. 5Oat acreage based on amount necessary to reseed alfalfa-brome stands every five years. The minimum acreage of oats for any budget has been arbitrarily set at 15 acres. 6Southern Michigan budgets assume that 1/3 of pasture requirements are obtained from open permanent pastures. 7Assumes oats are grown on the acreage which is in excess of the amount necessary to support the cow herd. SAssumes corn is grown on the acreage which is in excess of the amount necessary to support the cow herd. 9Cornstalk silage yield is assumed to equal 60% of the corn silage yield on a dry matter basis. (Cornstalk silage assumed to be 60% moisture.) See Newland, Complete Energy Corn Silage,.AH 89, M.S.U., 1963. 107 .0009 00>o 09000900>0H 00000>¢H 000.000 000.0 000.00 000.00 000.00 000.00 0000000 000000 0000 - 00000 0>00000000 0000 HOH.0nH 000.: 000.00 mwo.HH 00:.NH 000.00 9008000006 0000 . 0H000 0>fi9000000 000A "00000002 00009000 000.000 000.0 000.00 000.00 000.00 000.00 0000000000 0000 . 00000 0000000000 0000 000.HmH 00H.n 000.00 m®0.HH ®m0.:H 00H.0m 9008000000 900HH0000 u 0HH00 0>09000000 0H09000002 000.000 000.0 000.00 000.00 000.00 000.00 0000000000 0000 - 00000 0000000000 000000000: "0H0009000 00300.00009002 000.000 000.0 000.0 000.00 000.00 000.00 0000000000 0000 - 00000 0>00000000 0000 000.000 000.0 000 .00 000.00 000.00 000.00 000000000s 000000000 - 00000 0000000000 000000000: www.mmH 00H.m 000.0: 000.HH 0mm.zH 0mm.Hm 9000000008 0000 u 0H000 0>fi9000oam 0H09000002 . . "0H000H000 0000: $0 03 30 E 30 has 009Hmmdm .mwddm . 000 00090 000 09000 . 00000 3001000 H0909 0000 u0>HA .0002:0>0008H 0000 II I“ H 0000000000 300-000 09008900>0H UOHHnuom H0995 0090BH90M-I.0H oHQ0B 108 .0090000>0 0000000 900 000 000.00 0000 000.00 000 0000 0000 0000000 000000 000.00 000 000.00 000 -- 0000 .0000000 000000000 000.00 0000 000.00 000 -- 0000 .0000000 000000 0000 "00000002 00009000 000Hmm00 00995 000 00090 9008 000000 009008 0000 300u0n 0000 10>0A 100000 -0002 0>o0080 00000mm90m koouomI 00000000000 00000000 00000 000000000--.00 00000 0000mm 0:0 omwm 00:: N0mm 0mz0ma 9008000008 .oxonn8000000 000000 0000 000.mm 000 Oman 000: 000m 000.00 9008000008 0000::8000000 000000 0000 m:m.0m own omwm 000m 0m0m 000000 9008000008 900HH0on 000.00 000 0000 0000 0000 000.00 0000000000 0000 000000 .0000 .0o8v "00000002 00009000 000.00 000 0000 0000 0000 0000 0000000000 900000000 000.00 000 0000 0000 0000 0000 0000000000 0000 000000 .0000 .0Q8v 000000000m 00300 00009002 000.00 000 0000 0000 0000 0000 0000000000 000000000 000.00 000 0000 0000 0000 0000 0000000000_0000 “00000 0>09000000 0009000008V "00000000m 0000: 00000msm 900800000 00998 000 00090 000 09008. 0000 08000 secunm 0000 n0>0q 000000002 0>0008H 0000000900 soounm 09008900>0H 0000000m 00908 0090809mmnu.00 00909 109 Table 2.--Fertilizer Requirementsl’2 Moderately Less Productive Productive Soils Soils Good Excellent Good Management Management Management N P K N P K N P K Alfalfa-brome hay O - 20 - ho O - 28 - 52 O - l5 - 3O Alfalfa-brome pasture O - 15 - 30 O - 2O - ho 0 - 10 - 20 I 08138 o-ho-2o 26-52-26 12-2u-2u Corn 25-60-60 32-78-78 25-ho-ho Permanent pasture 0 - 0 - O O - O - O O - O - O 1Earpressed in pounds of actual N, P20 , and K20 per acre. Estimates are based on Iertilizer Recommendations gor Michigan Crops, Extension Bulle- tin E-159, April, 1963, Michigan State_University. 2All soils are also assumed to require .1 T of lime per acre annually. 110 Table 3.--Daily Feed Requirements, Beef Cow and Ca1f1’2’3’h Hay Program Corn Silage Program Winter: Winter: Mixed hay 20 lbs. Corn silage M7 1bs. Protein supplement 1 Summer: Summer: Pasture (hay equiv.) 27 Pasture (hay equiv.) 27 Cornstalk Silage Cornstalk Silage - Drylot Winter: Winter: Cornstalk silage 56 lbs. Cornstalk silage 56 lbs. Protein supplement 1 Protein supplement 1 Summer: Summer: Pasture (hay equiv.) 27 Cornstalk silage 56 Protein supplement 1 Grain5 5 Grain (creep)5 5 lEstimated requirements for cow and pre—weaning calf only. 2All rations include an annual requirement of 20 pounds of salt and mineral and 250 pounds of straw for bedding per cow (except the drylot program which includes 750 pounds of bedding.) 3The wintering period is assumed to be 190 days, and the grazing season to be 175 days in Northern Michigan. Southern Michigan is assumed to have 195 days of grazing and a 170 day winter feeding period. 1{Up to #5 days of the winter feeding period may be used for grazing corn- stalk fields in place of the usual ration. Feed consumption is about 25 lbs. of cornstalk (hay equiv.) plus 1 lb. of protein supplement per day. 5Cows are fed grain for the first 120 days of lactation. Calves are creep fed for 120 days. Table h.--Daily Feed.Requirements, Replacement Heifers ’ 111 l 2 Hay'Program Winter: Mixed hay Grain Summer: Pasture Cornstalk Silage Winter: Cornstalk silage Grain Protein supplement Summer: Pasture 12 lbs. 15 25 lbs. 15 Corn Silage Program Winter: Corn silage 30 lbs. Protein supplement 1 Summer: Pasture l5 Cornstalk Silage - Drylot All year: Cornstalk silage 25 lbs. Grain ' 3 Protein supplement 1 lEstimated requirements for heifers fed to gain 1.25 pounds per day for the 12 months following weaning. 2 Total requirements are based on a 215 day winter feeding phase and a 150 day grazing season in Northern Michigan and a 195 day wintering period with a 170 day grazing season in Southern Michigan. 112 Table 5.--Estimated Value of Unimproved Cropland and Permanent Pasture Land, and.Property Tax Rates Land Values Cropland Permanent Pasture Land (dollars/acre) (dollars/acre) U. P., moderately productive soil 75 Northern.Lower Michigan, moderately productive 100 U. P., less productive 55 Northern.Lower Michigan, less productive 70 Southern Michigan, moderately productive 225 Southern Michigan, less productive 165 M m Estimated Property Tax Rates 35 ho 25 30 95 80 Tax Rates Per $1,900 of Assessed Value Northern Michigan including U. P. Southern Michigan $25 .30 lAssessed value is assumed to be 33% of actual market values. 113 Table 6.--Labor Requirements 1 Beef Breeding Herd: Hours 1 - 15 cows 22 per cow 16 - 39 it no and up 9 ho and up (drylot) l2 Crops:2 (If Custom Harvested) Hay, 2 cuttings 8 per acre Bay, 1 cutting then pastured h. Corn silage ll Oats 3 Corn - Alfalfa-brome pasture .3 Permanent pasture .2 Cornstalk silage harvesting 3.0 2.0 l 2 Straw baling 1Estimates based on data from Wells, unpublished 1963 study, University of Minnesota; Lampher and Hagan, Beef Cattle Labor Requirements, Special Report #5, Oct., l96h,‘University of Missouri; Wright, Beef Costs and Returns in Northeastern Michigan, Ag. Econ. #89, June 1951, Michigan State University. 2Estimates based on data from Michigan Farm.Management Handbook, Ag. Econ. 929- 11h Table 7.--Estimated Prices for Products and Inputs Item Unit Prices for Products % Steer Calves pound $.27 Heifer Calves pound l.2h-l/2 Yearling Heifers pound .20-1/2 Cull Cows pound .16 Cull Bulls pound .18 oats bushel .55 Corn bushel 1.00 Item Unit Prices for Inputs Hired Labor hour $1.25 Nitrogen (actual N) pound ‘ .12 Phosphate (actual P205) pound .09 Potash (actual K20) pound .Oh Protein Supplement pound .05 Salt and Mineral pound .03 Gasoline gallon .25 Alfalfa seed pound .57 Brome Grass Seed pound .25 Oats Seed bushel 1.65 Corn Seed bushel 12.50 Lime ton 5.85 ~_—._ 115 Table 7a.--Genera1 Livestock and Custom.Hire Expenses Item Unit Cost per Unit veterinary and medical eXpenses - cow $2.00 Utilities: 200 cow farm cow 2.50 25 cow farm cow h.00 5O cow herd cow 1.00 Miscellaneous eXpensés cow 1.00 Livestock marketing eXpenses % of sales 3 Bull depreciation: (when h25 pound Itaer calves) bull 12.00 (when heavier steer calves) bull 37.00 Custom hire: Baling hay or straw bale .12 Combining small grain acre 6.00 Planting corn acre 2.00 Picking corn acre 6.00 Harvesting silage, chop, haul, and fill hour 10.00 116 Table 8.--Budgeted.Annual Costs and Returns--200-CowEnterprisesl Upper Peninsula Michigan _—‘ Mederately'Productive Soils —Je Good Crgp Yields2 1 Excellent Cro Yields3mt Weaning Weight h25#5 ‘h25#5 E75# h25# R50# #75# 500%5 iflCalf Crop 85$? 90% 85; 90$ 90$ 90% 9055 ($3 ($) ($)4 ($) _($) ($) ?$) Receipts: ‘ . ' 8 ~ . . Cattle 21,027 22,091 22,60h 722,091 22,9hh 23,796 i2h,6h8 Crops 2,338 2,338 2,338 2,301 2,301 2,301 2,301 Total 23,365 2h,h29 2h,9h2 2h,392 25,2h5 26,097 26,9u9 EXpenses: I Seed,fert.,lime 2,658 2,658 2,6581 2,560 2,560 2,560 2,560 Fuel,oil,cust.hire 1,617 1,617 1,617 1,h12 1,h12 1,h12 1,h12 Power & machinery 2,87u 2,87h 2,87h 2,87h ' 2,87h 2,87u 2,87h Hired labor 1,252 1,252 1,252 975 975 975 975 Purchased feed 155 155 155 155 155 155 155 Veterinary, med. hoo hoo #00 #00 #00 hoo hoo Utilities 500 500 500 500 500 500 500 Marketing 631 663 678 663 688 71k 739 Improvements 2,361 2,361 2,361 2,280 2,280 2,280 2,280 Equipment 107 107 107 107 107 107 107 Bull depreciation 96 96 296 96 296 296 296 Property taxes 1,075 1,075 1,075 1,003 1,003 1,003 1,003 Miscellaneous 200 200 200 200 200 200 200 Tbtal 13,926 13,958 1h,1731 13,225 13,h50 l3,h76 13,500 Net Income 9,h39 10,h7l 10,769 11,167 11,795 12,621 l3,hh8 Int. on Investments at 5% 6,hu9 6,hh9 6,505 6,020 6,075 6,090 6,106 Labor Income 2,990 h,022 h,26h 5,1h7 5,720 6,531 7,3h2 1Complete budget for farm.organized to support a 200-cow beef herd as the sole major enterprise. 2 1,0h2 acres required--csop yields are based on good but not excellent management practices-~see tables of crop yields and production. 3883 acres required--crop yields are based on very good or excellnt man- agement practices--see tables of crop yields and production. #Weights given are for steer calves; heifers assumed to be 25 pounds lighter. 117 Table 9.--Budgeted Annual Costs and Returns, ZOO-Cow Enterprises Northern.Lower Michigan Mbderatel Productive Soils 1 -- . Crop Yields Excellent Crop Yields weaninggweight he h25# h75# h25# h§Q# h7§£_7 299E Lcalf Gran 8:3 90% 85% $1» 90% 90% $36 Receipts: (same as for U.P.) Tbtal 23,365 2u,h29 2h,9u2 2h,392 25,2h5 26,097 26,9h9 EXpenses: (all expenses except property taxes same ,- as for U.P.) 12,851 12,883 13,098 12,222 12,uh7 12,h73 12,h98 Property taxes 1,181 1,181 1,181 1,092 1,092 ‘1,092 1,092 Tbtal 1h,032 1h,o6h 1h.279 13,31h 13.539 13.565 13.590 Net Income 9,333 10,365 10,663 11,078 11,706 12,532 13,359 Interest on Invest- ment at 5% 7,087 7,087 7,1h2 6,55h 6,609 6,625 6,640 Labor Income 2,2u6 3,278 3,521 u,52h 5,097 5,907 6,719 1All receipts and all expenditures, except as noted below, are assumed to be equal for the upper peninsula and.the northern areas of the lower peninsula. taxes are higher in the northern lower peninsula. and.crop yields are assumed to be identical.) Land values and, hence, interest on investment and property (Acreage requirements 118 Table 10.--Budgeted.Annual Costs andeeturns, 200-Cow Enterprise Northern Michigan Less Productive Soils1 Upper Peninsula North.Lower Penin. Weaning‘fleight h25# hng h25f #25} Loan crop 85% 90¢ ' 85$ 90% ($1 ($) ($7 (3) Receipts: . .3 .3 . Cattle 21,027 22,091 21,027 22,091 Crops 2,136 2,136 2,136 3,136 Total 23,163 2h,227 23,163 2h,227 EXpenses: ' Seed, fertilizer, lime 2,837 2,837 ‘. 2,837 2,837 Fuel, oil, custom hire 1,97h , 1,97h (r 1,97h 1,971+ Power and machinery 2,87h 2,87h .« 2,87h 2,87% Hired labor 1,561 1,561 ‘1: 1,561 1,561 Veterinary, medical 1100 #00 + hoo hoo Purchased feed 155 155 ’ 155 155 Utilities 500 500 j 500 500 Marketing 631 663 631 663 Improvements 2,h83 2,h83 2,h83 2,h83 Equipment 107 107 107 107 Bull depreciation 96 96 96 96 Property taxes 1,035 1,035 1,128 1,128 Miscellaneous 200 200 200 200 Total lh,853 1h,885 { lh,9h6 1h,978 F . Net Income 8,310 9,3h2 8,217 9,2h9 Interest on Investment at 53 6,211 6,211 6,766 6,766 Labor Income 2,099 ( 3,131 l,h5l 2,h83 11,272 acres rqquired--crop yields are based on good but not excellent management practices--see tables of crop yields and production. . ”Aflfiu ”.44 NL'\ .71? L51!!! 119 Table 11.--Change in Labor Income Resulting from.Price Changes 200-Cow Enterprise ‘ weaning weight, lbs. h25 h25 h50 M75 h75 500 Percent calf crop 85 90 90 85 g_90 90 ($) 73>) ($) (3+) ($T ($7 I. Lower prices2 200 cow herd -2823 -29%0 -3038 -2998 -3133 -3227 50 cow herd -706 -735 -760 -750 —783 -807 25 cow herd -353 —368 -380 -375 —392 ~h0h II. Moderate prices3 200 cow herd 5O cow herd ....(No change from budget results).... 25 cow herd III. Higher prices," 200 cow herd +2h30 +2550 +26hh -+260h +2739 +2833 50 cow herd +608 1+638 +661 +651 +685 +708 25 cow herd +30% +319 +330 '4326 +3%2 +35% 1Change in labor income from.budgeted levels resulting from higher or lower prices received for cattle, assuming all costs except marketing eXpenses are unaffected. This, therefore, tends to slighly overstate the actual changes in labor income, since interest on investment and property taxes would tend to vary with the price level. 2’3’1"Price levels: (Budgeted.Level) Lg! Moderate High steer calves $.2%/lb. $.27/lb. $.30/1b. Heifer calves .215 .2h5 .275 Yearling Heifers .175 .205 .235 Cows . .13 .16 .18 Bulls .15 .18 .20 120' Table 12.--Labor Incomes under Varying Levels of Prices 200-Cow Enterprise - I U.P.--Moderately Productive Soils [Good Crongields Excellent Crongields Weaning weight,_1bs. h25 h25 A75 h25 h50 h75__ 500 Percent calf crop» 85 90 85 90 90 90 90 ($) ($) ($) ($5 ($7 T$) ($) I. Low prices:1 ' Tbtal rectfi. 20,%55 21,395 21,851 21,358 22,113 .22,867 23,622 Total exp. 13,839 13,86h 1h,080 13,132 13,356 13,379 13,3h8 Net income 6,616 7,531 7,771 8,226 8,757 9,h88 10,27h Int. on inv. at 5%5 6,hh9 6,hh9 6,505 6,020 6,075 6,090 6,106 Labor income 167 1,082 1,266 2,206 2,682 3,398 h,168 II. Moderate prices:2 . Total rects. 23,365 2h,h29 2h,9h2 2h,392 25,2u5 26,097 26,950 Tbtal eXP- 13.925 13,957 1%.172 13.22% l3.%%9 13,%75 13.500 Net income 9,hh0 10,h72 10,770 11,169 11,796 12,622 13,h50 Int. on inv. at 5% 6,hh9 6,hh9 6,505 6,020 6,075 6,090 6,106 Labor income 2,991 %,023 h,265 5,1h9 5,721 6,532 7,3hh 3 III. High prices: Total rects. 25,870 27,058 27,626 27,021 27,971 28,921 29,871 Total exp. 1h,001 1%,037 1h,25h 13,303 13,532 13,560 13,575 Net income , 11,869 13,021 13,372 13,718 1h,h39 15,361 16,296 Int. on inv. at 5% 6,hh9 6,hh9 6,505, 6,020 6,075 6,090 6,106 Labor income 5,L20 6,572 6,867 7,698 8,36h 9,271 10,190 l’2’3Price Levels: Lg! Moderate - High Steer calves $.2%/1b. $.27/1b. $.30/1b. (The complete Heifer calves .215 ..2%5 .275 budgets, else- Yearling heifers .175 .205 .235 where, are based Cows .13 .16 .18 on the moderate Bulls .15 .18 .20 prices.) Marketing expense varies with receipts. 5Livestock investment varies with price level, hence, interest on invest- ment changes with the price level. This factor has not been shown in these figures since interest on invest- ment was assumed constant at all price levels for the calculations. Dif- ferences in labor incomes between price levels is thus slightly overstated. \ 121 Table l3.--Effect of Land Values on.Labor Incomel Northern Michigan, moderately productive soils, good managegent, 200-cowggperation. (E ($) ($) Average land value per acre 62 %6 31 crOpland.value per acre 100 75 50 pasture land value per acre %0 30 20 Net Income 9333 9333 9333 - Interest on Investment at 5% 7087 6283 5%80 Labor income 22%6 3050 3853 1Effect of land value on labor income occurring because of changes in level of and, hence, interest on investnent is shown. Real estate taxes are assumed constant. Since real estate taxes are positively correlated to land value, the changes in labor income due to varying levels of land value are understated here. 2 Good crop yields, 85% calf crop, %25 1b. weaning weights (steer basis). Table 1%.--Capitalized Land values, Land with Improvements $3000 charge for $5000 charge for Operator's labor operator's labor Northern Michigan, moderately productive soils, good manage- ment 299-99w Qpezgtion. and management. and management. Net Income $9333 $9333 - Charge for Operator's Labor 3000 5000 Return to Capital 6333 h333 - Charge for Non-real estate capital 31h6 31%6 Return to Real Estate 3187 1187 Capitalized Value of Returns to Real Estate @ 5% 637%0 237%0 value per acre (10%l.6 acres) 61 23 lGood crop yields, 85% calf crop and %25 1b. weaning weight (steer basis). Qi 122 Table 15.--Capitalized.Land Values, Land without Improvements Northern Michigan, moderately $3000 charge for $5000 charge productive soils, good minage- operator's labor for operator's ment,3200-cow operation. labor and mgmt. labor and mggt. Net Income $9333 $9333 - Charge for Operator's Labor 3000 5000 Return to Capital 6333 #333 ,- Charge for Non-land Capital 3873 3873 Return to land 2%60 %60 Capitalized value of Returns to , Land at 5% #9200 9200 Value per acre (10%l.6 acres) %7 9 1Good crop yields, 85% calf crop and %25 pound weaning weight (steer basis). Table l6.--Capitalized Land values Northern Michigan, less productive Land without Land with soils, good management, 200-cow improvements improvements operation. Net Income $8217 $8217 - Change of Operator's Labor 3000 3000 Return to capital 5217 5217 - Charge for Non-Land Capital2 3910 31h6 Return to land 1307 2071 Capitalized value of Returns to Land at 5% 261%0 h1h20 value per acre (1271.5 acres) 21 33 lGood crop yields, 85% calf crop and %25 pound weaning weight (steer basis). 2 Non-land capital includes improvements in the first case, but not in the second. 123 Table l7.--Budgeted Annual Costs and Returns, 200 Cow Enterprise, Southern.Michigan Less Productive Soilsl Hay'PrOgramg Corn Silage Prog.3 Weaning_Weight %25# %25# %25#_ %25fi_ % Calf Crap 85% 90% 82% 90% ($7 ($) ($) “($7 Receipts: . . . - . Cattle 21,027 22,091 21,027 22,091 Crops 2,109 2,109 915 915 Total 23,136 2h,200 21,9h2 23,006 EXpenses: Seed, fertilizer, lime 2,002 2,002 2,0h6 2,0u6 Fuel, 011, custom hire 1,619 1,619 98% 98% Power and machinery 2,87% 2,87% 3,2%% 3,2%% Hired.1abor 1,232 1,232 580 580 Purchased feed 155 155 2,%98 2,%98 Veterinary, medical #00 #00 #00 too Utilities 500 500 500 500 Marketing 631 663 631 663 Improvements 2,028 2,028 1,958 1,958 Equipment 107 107 107 107 Bull depreciation 96 96 96 96 Property taxes 1,592 1,592 l,%38 1,%38 Miscellaneous 200 200 200 200 Total 13,%36 13,%68 1%,682 1h,71h Net Income 9,700 10,732 7,261 8,292 Interest on Investment at 5% 7,959 7,959 7,189 7,189 Labor Income l,7%l 2,773 71 1,103 lCrop yields are based on good but not excellent management practices. 2 626 acres required. 3 525 acres required. 12% Table l8.--Budgeted Annual Costs and.Returns, 25-CowEnterprise1 Upper Peninsula ( Moderately Productive Soils Good CrongieldsIExcellent Yield weaning weight #25# #ggfi #25# #72E_ ficalf Graph 8 - 90$ 99$. 90% ($3 T45) (31 Receipts: . . . . Cattle 2628 2761 2761 297# Crops 526 526 1#87 l#87 Total 315# 3287 .#2#8 ##61 Expenses: Seed, fertilizer, lime #31 #31 692 692 Fuel, oil, custom hire 536 536 662 662 Power and machinery 873 873 873 873 Hired labor - - - - Purchased feed 19 19 19 19 veterinary, medical 50 50 50 50 Utilities 100 100 100 100 Marketing 79 83 83 89 Improvements (repairs only) 173 173 173 173 Equipment 25 25 25 25 Bull depreciation 12 12 12 37 Property taxes 169 169 173 173 Miscellaneous 25 25 25 25 Total 2#92 2#96 2887 2918 Net Income 662 791 1361 15%3 Interest on Investment at 5% 871 871 89% 903 Labor Income -209 -80 %67 6%0 1Budget for a 1%0 acre farm adequate to carry a 25-cow beef herd under assumed conditions and yields--see tables of crop yields and production. 125 Table l9.--Budgetethnnua1 Costs and Returns, 25-Oow Enterprise1 Northern Lover Michigan Mederately Productive Soils Good Crgp Yields Excellent Yields WeaningL we itht 1125f 1125} 125% 117% £081.? Crop 82$ 90% 90% 90L (3%) ($T ($) (3) Receipts: (same as for U.P.) . Total 315k 3287 u2h8 ##61 EXpenses: All expenses except property taxes (same as for U.P.) 2323 2327 27111 27115 Property taxes 185 185 191 191 Total 2508 2512 2905 2936 Net Income 6H6 775 1343 1525 Interest on Investment at 5% 963 963 999 1008 Labor Income -317 -188 3th 517 1Budget for 1hOA farm, 126 Table 20. --Budgeted Annual Costs and.Returns, 25- -Cow'Enterprise1 Southern Michigan Moderately Productive Soils Good Crop Yields Excellent Yields weaning We ight #2fi #21 #23 #12 i Calf 0'02 8511 $5 90% 90% W) (3) ($) “($7 Receipts: , . Cattle 2628 2761 2761 297# crops 572 572 1533 1533 Total 3200 3333 #29# #507 Expenses: Seed, fertilizer, lime 377 377 575 575 Fuel, oil, custom hire #19 #19 578 578 Power and machinery 873 873 913 913 Hired labor - - - - Purchased feed 19 19 19 19 Veterinary, medical 5O 50 5O 50 Utilities 100 100 100 100 Marketing 78 83 83 89 Improvements (repairs only) 158 158 158 158 Enuipment 25 25 25 25 Bull depreciation l2 l2 12 37 Property taxes 271 271 283 283 Miscellaneous 25 25 25 25 Total 2#08 2#12 2821 2852 Net Income 792 921 1&72 1655 Interest on Investment at 5% 1255 1255 1285 129# Labor Income “#63 '33” 187 361 1Budget for an 80A farmr-see tables of crop yields and production. H 127 Table 21.--Budgeted.Annua1 Costs and Returns, 25-Cow Enterprise1 Southern.Michigan--Corn Silage Program ‘ Moderately Productive Soils Good Crop Yields Excellent Yields Weaningpweight h25# h25# : h25# h75fi % Calf Crap 85% 90% 90% 90% ($) ($) ($) ‘1$5 Receipts: , . Cattle 2628 2761 2761 297# Crops 1157 1157 2112 2112 Total 3785 3918 #873 5086 EXpenses: Seed, fertilizer, lime 550 550 750 750 Fuel, oil, custom hire #09 #09 #51 #51 Power and machinery 1086 1086 1086 1086 Hired labor - - ~ - Purchased feed 312 312 312 312 Veterinary, medical 5O 5O 5O 50 Utilities 100 100 100 100 Marketing 79 83 83 89 Improvements (repairs only) 196 196 196 196 Equipment 25 25 25 25 Bull depreciation l2 l2 12 12 Pr0perty taxes 292 292 296 296 Miscellaneous 25 25 25 25 Total 3096 3100 33h6 3352 Net Income 689 818 1527 173# Interest on Investment at 5% 1296 1296 1318 1327 Labor Income ~607 -#78 209 #07 1Budget for a 80A farm--see tables of crop yields and production. .\ 1.0 i '81:!1"? 128 Table 22.--Costs and Returns for Renting Out the 25-Cow Farm Mederately'Productive Soils Northern Southern Michigan Michigan ($) ($) Receipts: 2 . . Cropland rental 30h 699 Pasture rental3 229 127 Total 533 826 Expenses: Real estate taxes 1 99 176 Improvements (repairs only) 87 79 Total 185 255- Net Income 3&8 571 Interest on Investment at 5% 599 881 Labor Income -251 -310 IRepairs at one half the amount they would be if the beef herd were kept. 2Cash rental rate for cropland--$6/acre in N. Michigan and $1h/acre in S. Michigan. 3 $5.50/acre in 5. Michigan. Cash rental rate for permanent pasture—-$2.75/acre in N. Michigan and (It is assumed that no additional rent is received for the building.) 129 Table 23.--Change in Income from.Putting a 50-Ciw Beef Herd on Moderately Productive Corn Land I So. Michigan--Good Crop Yields Beef Herd Ration 1 Cornstalk Silage Corn Silage ‘Weaning Weight - #25# #25# % Calf Crop 90% 90% T$) ($) Receipts: Cattle 5522 5522 Oats #83 530 Reduced Expenses: Cost of growing and harvesting corn lhlh lhlh Total Gains 7#19 7#66 EXpenses: Seed and fertilizer 373 373 Fuel, oil, custom hire 588 #72 Power and.machinery 23h 23h Purchased feed 625 625 VEterinary, medical 100 100 Utilities 50 50 Taxes on beef herd 125 128 Miscellaneous 50 50 Marketing 166 166 Improvements (repairs only) 190 178 Equipment 31 31 Bull depreciation 2h 2# Interest on beef herd at 5% 627 6#2 Reduced Receipts: Value of oats fed 136 89 Value of cgrn (that would have been raised) 5### 6##5 Tbtal losses 8763 9607 Net Change in Income3 ~13hh -2lhl 1Assumes all land used for pasture and feed for the beef herd would be in corn otherwise. See crop production table. 21f the beef herd were not kept, 70.7 acres of corn would be available for sale if the cornstalk silage program had been used. 83.7 acres of corn would be available if the corn silage program had been used. Net corn yields were estimated to be 77 bushels per acre. The corn was valued at $1.00 per bushel. 3Returns to the approximately 200 hours of additional labor required. 130 Table 2k.--Change in Income from Replacing a 22-Cow Dairy Herd With 50 Beef Cows So.,Mich.--Moderate1y’Productive Soils--(Good Crop Yields) Beef Herd Ration Cornstalk Silage Corn Silage Weaning‘Weight h25# ' h25#_¥ %Calr Crop 90%» 90% ($) ($) Receipts: . . Beef cattle 5522 5522 Corn 570 - oats #83 530 Reduced Expenses: Purchased concentrates 732 732 Dairy equipment 600 600 Veterinary, breeding, misc. ##0 ##0 Interest on dairy herd at 5% 76h 76# Taxes on dairy herd 153 153 Fuel, oil, custom hire 851 851 Seed and fertilizer 29 29 Total Gains 101## 9621 ExPenses: Fuel, oil, custom hire hh8 #88 Purchased feed 625 625 Veterinary, medical 100 100 Utilities 50 50 Miscellaneous 50 50 Marketing 166 166 Bull depreciation 2h 2h Interest on beef herd at 5% 627 6#2 Taxes on beef herd 125 128 Reduced Receipts: Value of additional corn fed - #31 Value of oats fed 136 89 Receipts from dairy herd 9158 9158 Total losses 11509 11911 2 Net Change in Income -13651 ~2290 1Labor needs reduced by 201% hours, hence the released labor must be worth $.67/hour to break even. 2Labor needs reduced by 1991 hours, hence the released labor must be worth $1.15/hour to break even. 131 Table 25.-~Budgeted Costs and Returns for a 50-Cow Beef Herd on Drylot Using a Cornstalk Silage Ration SouthernnMiChigan Moderately'Productive Soil (excellent cropyields) New Facilities Facilities.Al- Required ready Available weaning weight #25354 #25# i Calf Crop 90% 90% ($) (35) Receipts: . Cattle 5522 5522 EXpenses: Fuel, oil, custom.hire 927 927 Purchased feed l2#3 12h3 Veterinary, medical 100 100 Utilities 50 50 Miscellaneous 50 50 Marketing 166 166 Bull depreciation 2% 28 Taxes on beef herd investment 193 188 Equipment 1 38 38 Power and machinery - - Improvements--repairs 270 270 Improvements--depreciation #50 - Reduced Receipts: Corn fed 1288 1288 Total Expenses #799 #30# Net Income 1 723 1218 Interest on Investment at 5% 966 7#1 Labor Income2 ~2h3 ”77 1Assumes needed machinery is already on hand, if not then about $h50 ad- ditional expense may be incurred (for forage wagon, manure spreader and loader). 2 Returnto the 758 hours of additional labor required--return per hour of labor is $-.32 and $.63 respectively. BIBLIOGRAPHY Beef Cow Herd Management, Extension Circular 497, Purdue University. Beef, Swine, Sheep and Horses--Phase II Report, Project ‘80, Michigan State University, May, 1965. Brake, J. R., et a1., Michigan Farm Management Handbook, A. E. 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G., Economic Analysis of Beef Cow and Calf Fagm and ManufacturinggMilk Dairy Farms, Washington and Syinth Counties, Virginia, Bulletin 529, Virginia Polytechnic Institute, September 1961. Kyle, L. K., Beef Cow Farminq_Today, A. E. 966, Michigan State University, 1964. Kyle, L. K., Michigan Farm Business Report for 1963, Re- search Report 30, Michigan State University. Lanpher and Hagan, Beef Cattle Labor Requirements, Special Report 45, University of Missouri, October 1964. Livestock and Poultry Inventory,,January 1, S.R.S., CrOp Reporting Board, U.S.D.A. Masten, John E. J., "An Analysis of Costs, Returns, and Re- sources Used by the Beef Breeding Herd in Southern Indiana," unpublished M.S.thesis, Purdue University, 1958. Meiske, et a1., Beef Cow Herd Management at Rosemount, B-58, University of Minnesota, Agricultural Experiment Station, September 24, 1964. 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Shaudys and Sitterly, Costs of Returns of the Beef Breeding Enterprise in Western Ohio, Research Circular 73, Ohio Agricultural Experiment Station, August 1959. Shipments of Stocker and Feeder Cattle, January 27, 1965, S.R.S., U.S.D.A. Snapp and Neuman, Beef Cattle, 5th Edition, John Wiley and Sons, Inc., 1960. Wells, A. R., unpublished data from 1962 records of 48 beef cow herds in Minnesota. Wells and Nodland, "Beef Cow Herd Costs and Returns," Min- nesota Farm Business Notes, University of Minnesota, June 1963. Wheeler, R. G., Planning YOur Michigan Farm, Extension Bul- letin 379, Michigan State University, November 1963. Wiggins and Hagan, Economics Potential for Beef Cows, SB 827, University of Missouri, February 1965. Wirth, M. E., "Land Prices--Shou1d Continue Moderate Upward Trend} Michigan Farm Economics, January 1963. Wright, K. T., Beef Costs and Returns in Northeastern Mich- igan, 1951, A.E. No. 526, Michigan State College, March 1953. 1959 Census of Agriculture 1959 Census of Agriculture for Michigan by Area, Type, and Economic Class, Volume E, Autostat copies of unpub- lished worksheets. HIIIINIHIIHIIIIllllllllil 45 0624 ml 3