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MSU le An Affirmative Action/Equal Opportunity institution
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The Economic Viability of Intensive Stocker Cattle Grazing
Systems

BY
Cheryl Joy Wachenheim

A THESIS
Submitted to
Michigan State University
in partial fulfillment of the requirements
for the degree of

MASTER OF SCIENCE

Department of Agricultural Economics

1991

ABSTRACT

THE ECONOMIC VIABILITY OF INTENSIVE STOCKER CATTLE GRAZING
SYSTEMS

BY
Cheryl Joy Wachenheim

The average annual net return (AAR) to land and other
unallocated costs for land capable of producing 100 to 120
bu/acre corn was calculated for three grazing systems
differing in grazing pressure and design and for a corn
system with three yield levels at two prices. Production
data from a Michigan State University stocker cattle grazing
trial was used. Break-even thresholds between systems were
calculated. Risk was included through the use of cumulative
distributions and an expected benefit model. A corn system
at 100 and 120 bu/acre resulted in a higher AAR than that of
two stocking systems supporting two head/ acre which was
greater than the AAR of a corn system yielding 80 bu/acre.
The two stocking systems had a higher AAR than the corn
system at any yield level using a break-even price.
Cumulative distributions explicitly showed the large
negative returns possible with an inappropriately high

stocking rate.

ACKNOWLEDGEMENTS

I've finished! There are so many to thank. First of all, I
thank all who shared their lives during my 3 year stay. I
would like to thank Dr. J. Roy Black for his guidance and
assistance. My mind obtained brief freedom from trivial
activities such as socializing, as my Mom would say; "eating
right" and the like. What you (and Dr. 's Steven Rust and
Gerald Schwab) did allow me was a pair of fun filled summers
with several hundred ears to listen to me (yes Mike, I heard
you singing to the steers). Also I thank those faculty
named previously, Margaret Benson, Jim Hilker and for their
assistance trial (both physically and through brain power)
and your endless patience with the many drafts of my thesis.

Thanks to Michael Schlegel and to all who unselfishly
"volunteered" their help. Thanks for putting up with me and
realizing just how lucky you were to have me (you did

realize that, didn't you).

To Jeff Wilson for his unguestioning friendship and to he
and the rest of the Agricultural Economics computer staff, I

thank you for you patience and help.

iii

Thanks to Mom and the rest of the clan for the solid
support, ignoring the missing laundry detergent, late night

talks about declawing cats and someone to call home to.

Special thanks must go to Mark Edlund who not only read
endless versions of uninterpretable writing and developed
most of the figures contained within this thesis, but who
also owns a yellow canoe and can always be counted on for a

good dinner.

Speaking of dinner, to the Taylor's, who always seemed to
come up with a dinner invite when I was stuck with
indecision over Taco Bell or Nancy's crackers. Nancy, I
never will admit it wasn't the Blackster, and by the way,
thanks for the fine friendship. To Roxie and Linda who I
thank not only because they helped me out with this piece of
art, but because they live God's work by bringing some

organization to our boss.

iv

TABLE OE CONTENTS

List Of Tables 0 O O O O O O O O O O O O O O O 0
List of Figures . . . . . . . . . . . . . . . . .
LiSt Of SW18 0 O O O O O O O O O O O O O O O 0

Chapter 1 INTRODUCTION

1.1 Background . . . . . . .
1. 2 Factors Influencing Adjustments in
the Beef Industry . . . . .

1.2.1 Macro Adjustments and Changes in
Adjusted"Prices Paid and Received
Participants in the Beef Industry.

0 O O O 1

O O O O 2
"Inflation
by

2

1. 2. 2 Technology Available to Stocker and Cow-Calf

Growers . . . . . . . . . . . . . . . 4

1.2.3 1990 USDA Farm Bill . . . . . . . . . . . 4

1.3 Description of the Michigan Beef Cattle Industry 5

1.4 Objectives . . . . . . . . . . . . . . . . . . . 7

1.5 Scope of the Study . . . . . . . . . . . . . . . 9

1.6 Organization of Thesis . . . . . . . . . . . . . 12

Chapter 2 LITERATURE REVIEW

2.1 Introduction . . . . . . . . . . . . . . . . . . 14

2.2 Background . . . . . . . . . . . . . . . . . . . 15

2.2.1 Grazing . . . . . . . . . . . . . . . 15

2. 2. 2 Macroeconomic Shocks . . . . . . . . . . 16

2. 2. 3 Implications of Macroeconomic Shocks . . 16

2.2.4 Pastureland . . . . . . . . . . . . 17

2.2.5 Intensive Rotational Grazing . . . . . . 19

2.3 Grazing Systems . . . . . . . . . . . . . . . . 19

2.3.1 Continuous Grazing Systems . . . . . . . 19

2.3.2 Rotational Grazing . . . . . . . . . . 20

2.3.3 Continuous versus Rotational Grazing: Trial

Results . . . . . . . . . . . . . 21

2.3.4 Intensive Rotational Grazing . . . . . . 22

2.3.5 Pasture Design . . . . . . . . . . . . . 23

2.3.6 Pasture Systems . . . . . . . . . . . . . 23

2.4 Managing Pasture; Plants . . . . . . . . . . . . 25

2.4.1 Plant Biology . . . . . . . . . . . 25
2.4.2 Plant Considerations in Grazing

System Design . . . . . . . . . . . . . . 26

V

2.4.3 Treatment Effects in Grazing . . . . . . 26

2.4.4 Species Type . . . . . . . . . . . . . . 28

2.5 Alfalfa . . . . . . . . . . . . . . . . 31

2.5.1 Alfalfa as Pasture . . . . . . . . . . . 31

2. 5.2 Weed Control in Alfalfa . . . . . . . . . 32
2.5.3 Growth Cycle of Alfalfa and its

Implications for Grazing . . . . . . . . 33

2.5.4 Bloat Risk and Prevention . . . . . . . 38

2.6. Managing Pasture; Animals . . . . . . . . . . . 39

2.6.1 Animal Biology . . . . . . . . . . . . 39

2.6.2 Animal Considerations in System D s gn . 39

2.6.3 Timing of Animal Movement . . . . . . . . 40

2.6.4 Stocking Rate . . . . . . . . . . . . . . 42

2.6.5 Number of Paddocks . . . . . . . . . . . 45

2.6.6 Conception . . . . . . . . . . . . . . . 45

2.6.7 Management Practices . . . . . . . . 46

2.6.8 Ration Formulation Considerations

for Animals on Pasture . . . . . . . . . 47

2.7 In mplw wentation of an Intensive Grazing System . 48

2.7.1 Land Improvement From Grazing . . . . . 48

2.7.2 Grazing Resources and Basic Considerations49

2.8 Fencing . . . . . . . . . . . . . . . . . . . . 50

2.8.1 History of Fencing Systems . . . . . . . 50

2.8.2 Fencing Systems for Grazing . . . . . . . 52

2.8.3 Economics of Fencing . . . . . . . . . . 55

2.8.4 Fence Construction . . . . . . . . . . . 57

2.9 Grazing Models . . . . . . . . . . . . . . . . . 63

2.9.1 Grazing Models . . . . . . . . . . . . . 64

2. 9. 2 Grazing Model Accuracy . . . . . . . . . 67

2.10 Grazing Research/Survey Findings . . . . . 68

2.10.1 Grazing System Treatment Effects . . . . 68

2.10.2 Economic Findings in Grazing Research . 76

2.10.3 Alfalfa and Other Forages . . . . . . . 79

2.10.4 Grazing Systems for Dairy Cattle . . . . 86

2.10.5 Forage and Grazing Demonstrations . . . 89

2.11 Economics of Grazing . . . . . . . . . . . . . 93
2.11.1 Revenues and Costs Associated

With Intensive Grazing . . . . . . . . 93

2.11.2 Case Studies in Economics of Grazing . . 96

2.11.3 The Economic Model . . . . . . . . 97

2.1L 4 Explicit Costs of Beef Production . . 100

2.11.4.1 Harvested Forages . . . . . . . 100

2.11.4.2 The Cost of Pasturing . . . . 101

2.11.5 Risk . . . . . . . . . . . . . . . . . 102

vi

Chapter 3 ECONOMIC MODEL AND DATA SOURCES

3.1 Introduction . . . . .

3.2
3.3
3.4

3.5

Outline of Chapter . . .
System Definitions . . .
Economic Model Details .
3.4.1 Net Present Value Procedures
for the Comparison of Land
Use Alternatives . . .
3.4. 2 Components of Capital Expenditures
for Stocker Systems . . . . . . .
3.4.2.1 Alfalfa Stand . . . .
3. 4. 2. 2 Fencing System . . . .
3.4.3 Variable Costs . . . .
3.4.4 Prices Used in the Analysis .
3.4.5 Partial Budgeting Procedures
3.L 6 Break-even Analysis . . . .
3.4.7 Risk Considerations in Analysi
Model Formulation . . . . . .
Information/Assumptions . . . . .
3.5.1 Animal Performance Data . .
3.5.2 Economic Data . . . . . . .

Chapter 4 ECONOMIC ANALYSIS

106
107
107
112

113

117
117
117
118
119
119
120

124
127
127
127

4.1 Description of the Michigan State University

Stocker Grazing Trial . . . . . .
L 1.1 Experimental Methods (Animal and
Plant Component) . . . . . . . . .
Experimental Results from the MSU
Stocker Cattle Grazing Trial . . .
4.2.1 MSU Grazing Trial Results (1989) .
4.2.2 MSU Grazing Trial Results (1990) .
4.2.3 MSU Grazing Trial Results
(Average of 1989 and 1990) . .
Integration of Data Sources . . . . .
Corn Budgets . . . . . . . . .
L 4.1 Specifics of the Corn Systems .
L L 2 Corn System Analysis Results .
Grazing System Budgets . . . . . . .
4.5.1 Specifics of the Grazing Systems
4.5.2 Grazing System Analysis Results .
4.5.3 Grazing System Analysis Conclusions
Comparison of Land Use Alternatives . . .
Calculation of Break-even Performance . .
4.7.1 Break-even Comparison of 13 Paddock
Low Stocking Rate Grazing System
to Continuous Corn . . . . . . . .
Risk Assessment . .

4.8.1 Cumulative Distribution Analysis
4. 8. 2 The Expected Benefit Model . . .

vii

129
129

133
134
136

137
138
138
138
141
143
143
149
150
151
154

155
157
157
160

Chapter 5 SUMMARY AND CONCLUSIONS

5.1Summary.. .

5. 2 Implications of Analysis . .

5. 3 Computer Model . . . . .

5. 4 Limitations of the Analysis

5. 5 Future Research Objectives
5.5.
5.5.
5.5.

BIBLIOGRAPHY
APPENDICES

Appendix

Appendix B

1 Pasture Performance
2 Economics . . . . .
3 Risk Analysis . . .

A Assumptions of the Analysis .
Grazing System Net Cash Flows

viii

161
162
164
167
168
168
169
169

171

180
186

LIST OF TABLES

2392
2.1 Morrow, et a1. (1988) Results . . . . . . . . . . . 72
4.1 Two by Two Factorial Arrangement of Experiment . . 130
4.2 MSU Grazing Trial Results (1989) . . . . . . . . . 135
4.3 MSU Grazing Trial Results (1990) . . . . . . . . . 136
4.4 MSU Grazing Trial Results (Average of 1989 and 1990)137
4.5 Real Corn Price: Michigan 1975-1989 . . . . . . 140
4.6 ARR for Corn: Average and Standard Deviation ($) . 142
4.7 Gross Margins for Grazing Systems 1976-1990 . . . 147
4.8 AAR for Grazing: Average and STD . . . . 149
4.9 AVG AAR, STD and Range for Corn (Historical Price) 151
4.10 AVG AAR for Corn (Break-even Price) . . . . . . . 154
4.11 Expected Benefit . . . . . . . . . . . . . . . . . 160
APPENDIX A
A.1 System Investment: 4 Paddock Grazing System . . . 181
A.2 System Investment: 13 Paddock Grazing System . . . 182
A.3 System Investment: 80 bu/acre Corn Yield . . . . . 183
A.4 System Investment: 100 bu/acre Corn Yield . . . . 184
A.5 System Investment: 120 bu/acre Corn Yield . . . . 185
APPENDIX B
B.1 System Net Cash Flows (4L) . . . . . . . . . . . . 186
B.2 System Net Cash flows (13L) . . . . . . . . . . . 187
8.3 System Net Cash flows (13H) . . . . . . . . . . . 188

ix

m SuNH huNH Lump H

uh bah-bib UUUU NNNN H

LIST OF FIGURES

Hierarchy of Farm Operators Land Resource Use Options10

Intensive Grazing Design: Circle with a Central Hub 24
Quality of Intake as a Function of Time . . . . . 42
Number of Electric Fence Wires For Animal Control . 60
Intake Rate as a Function of DM . . . . . . . . . . 65

Layout of the Four Paddock System . . . . . . . . . 65
Layout of the 13 Paddock System . . . . . 109
Actual Cash Flows Over a 10 Year Period (13L) . . 110
Average Annual Return for a 10 Year Period (13L) . 116

MSU Grazing Trial Pasture Layout . . . . . . . . . 130
Real Corn Price Per Bushel (Michigan) . . . . . . 141

Gross Margins of Cattle . . . . . . . . . . . . 148
Cumulative Distribution of Stocker Cattle Grazing
Systems . . . . . . . . . . . . . 158
Cumulative Distribution of Corn Systems . . . . . 159

AAcc
AACS

AOC

Fcorn
CF cattle
CF21989

DL
E(B)

LIST OF SYMBOLS

+ V + O
C
173.“: .m

Annuity actor

Opportunity cost (ARR of next best
alternative land use system

Average annual return

Other associated costs (e.g. veterinary
costs, water costs,...)

Total cost of supplemental feeds

Total cost of harvesting hay and silage
Total cost of nitrogen fertilizer
Coefficient of absolute risk aversion
Cash flow in 1989 dollars ($/acre)

Cash flow in 1989 dollars ($/acre)

Cash flow in period t in 1989 dollars
(Slacre)

Fraction of a year

Death loss

Expected Benefit

Expected annual average return

Number of head

Interest on feeder cattle

Labor cost

Number of years

Other ownership costs (e.g. building
depreciation, maintenance and interest)
Market price of corn ($/bu)

Purchase price of cattle ($/cwt)

Sale price of cattle ($/cwt)

Present value

Present value of system operated
for N years in 1989 dollars

Real interest rate

Year in which cash flow appears

Overall value of meat and. hay/silage
produced

Cash flow associated with the stocker
operation (e.g. poloxalene)

Other variable costs (e.g. seed,
fertilizer)

Variance of average annual return

Sale weight of cattle (cwt)

Purchase weight of cattle (cwt)

Yield of corn (bu/acre)

xi

Chapter 1 Introduction
1.1 Background

The Michigan beef cattle industry leadership believes
Michigan has the potential to double the number of cattle
fed to 600,000 per year (Weinstock, 1990). This suggestion
is based upon the fact that Michigan's share of fed beef
production in the corn belt and in the U.S. has increased
over the past decade (Black, 1990), suggesting a comparative

advantage in fed beef for Michigan.

A key to achieving this objective is to increase the sizes
of Michigan cow/calf and stocker sectors. The Michigan
share of the US cow/calf production has been constant over
the decade of the 1980's. National cow-calf production
declined over the decade of the 1980's and Michigan shared
equally in the decline. A target was set to obtain half of
the increased feeder supply that would be needed from
Michigan cow/calf and stocker operations and the remainder

from purchases outside the state.

The identification of alternative production and marketing
systems that increase the profitability and/or reduce the
risk of the cow/calf and stocker sectors in the beef cattle
industry would help achieve this goal. Stocker grazing

operations on land currently in row crop production (e.g.

1

2
corn, soybeans and wheat) is an alternative that is being

explored.

1.2 Factors Influencing Adjustments in the Row Crop and Beef
Industry that Suggest the Booncaic Potential for Stocker
Operations

Significant changes in Michigan beef cattle production
systems and in the prices faced by beef cattle farmers have
occurred over the last two decades. These include: (1) a
reduction in the ”inflation adjusted" prices received for
calves, relative to previous decades in the post World War
II era, an increase in feed grain and soybean prices during
the 1970's followed by a decrease in the 1980's and changes
in the relative prices of inputs, with increases in the
relative prices of energy intensive inputs; (2) an increase
in knowledge about grazing systems; (3) changes in the
technology available, particularly fencing technology and
(4) changes in 'USDA. price and income support. programs,
particularly increased flexibility under the 1990 Farm Bill.

1.2.1 Macro Adjustments and Changes in "Inflation Adjusted"
Prices Paid and Received by Participants in the Beef Cattle
Industry

Adjustments at the national level and resultant changes in
prices, resulted in cattle producers exploring alternative
production ‘methods. Beef cattle production nationally,

while exhibiting cycles, experienced growth throughout much

3
of the twentieth century, peaking in 1974. In late 1973,
fed beef prices fell sharply, resulting in sharp drops in
feeder cattle prices. In 1974, oilseed and grain prices
reached a record high post World War II level's, resulting
in a transfer of land from forage production to grain and
oilseed production and a reduction in the cow/ calf herd

(Black, 1990).

In the mid and late 1970's, there were large increases in
energy prices and the rate of inflation became a major
problem. The inflation adjusted prices of transportation
inputs and fertilizer increased and the nominal interest
rate reached record highs in the late 1970's, although real
interest rates were low or negative as a result of the rate
of inflation. The demand for beef appears to have fallen
continuously since the late 1970's (Hilker, 1991). The
result has been lower inflation adjusted fed cattle and calf
prices. The increases in feed grain, wheat and oilseed
prices in the 1970's increased the profitability of using
pasture land for grain and oilseed production and reduced
the profitability of using the land for cow-calf and stocker
production. The extensive margin in crop production was

pushed outward.

By the late 1980's national beef cattle production had been
reduced to 75 percent of peak levels, increasing fed and

feeder calf prices to the point where adequate profits could

4
be realized to maintain the size of the cow herd. Also,
grain and oilseed prices were significantly lower over most

of the 1980's relative to the 1970's.

Lower calf prices change the utilization of pasture land.
When calf prices are high, producers tend to maximize income
from pasture by holding additional cows on pasture; calves
are sent to feedlots at an earlier age. Relatively, less
pasture is used for stocker operations. When calf prices

are lower, the reverse is true.

1.2.2 Technology Available to Stocker and Cow-Calf Growers

New technological developments affect the beef cattle
industry by making potential stocker system profits more
volatile. Improvements in grazing and fencing technology
have increased interest in intensively managed grazing of

stocker cattle as one alternative land use.

New electric fencing technology provides a reasonable
alternative to permanent fencing. The relatively low cost
of electric fencing allows more flexibility in management of

pasture and movement of livestock.

1.2.3 1990 USDA Para Bill
The 1990 Farm Bill allows more flexibility in the use of
base acres for non-program crops than previous farm bills

(Hilker, 1991) . Flex acres which had previously been

5
restricted to program crops can now be in other uses, such
as grazing. This new legislation will have a wide array of
implications for the beef cattle industry, including cattle

supply and profitability.

1.3 Description of the Michigan Beef Cattle Industry

There are three major types of Michigan beef cattle farms:
cow-calf, stocker and feedlot operations. Cow-calf farms
provide the stocker and feedlot farms with 400-550 pound
calves; weight depends upon the frame size of the cows and
bulls used, feedstuff quality and calving date. Calves may
be overwintered, for sale as stockers or sold directly to
feedlots. Feedlots purchase both calves and yearlings to be
fed to market weight.

Stocker cattle farms, the focus of this study, are those in
which cattle are on pasture over the spring, summer and/or
fall months. The cattle are obtained either from a cow-calf
enterprise on the farm (vertical integration of cattle
production) or purchased. Calves or yearlings may be
purchased in the winter or spring, placed on pasture in the
summer and sold in early fall. Length of the pasture season

depends on pasture type, climate and market conditions.

The type of pasture affects both the carrying capacity and

the length of season for grazing. Grass pastures can be

6
grazed from early April until snow or cold weather dictates
removal of the cattle. Legume pastures, such as alfalfa,
should not be grazed in late September in order to allow
adequate root reserves to build up. Once the plant has had
an adequate regrowth period and a hard frost has killed the
available forage, it may be grazed.

Grazing systems are categorized into two types; continuous
and rotational. Continuous systems allow cattle access to
an entire pasture over the season. Continuous grazing is
generally practiced on marginal land. This study is
concerned with finding the optimal use of land with soils
suitable for row crops. Therefore, continuous grazing will
not be considered. In rotational grazing, cattle are moved
at relatively short intervals, from one pasture to
anotherl. After grazing, each section is allowed time for

regrowth before being grazed again.

Conventional rotational grazing can be defined as grazing
practiced with fewer than 8 separate pasture areas. The
movement of animals is often on a fixed schedule. Intensive
rotational grazing (including controlled grazing) involves
more frequent moves of animals, based on pasture condition.

Intensive grazing requires more pastures.

 

1 Often, part of the first rotation is mechanically harvested and stored.

7

1 . 4 Objectives

The objective of this study2 is to evaluate the economic
viability of intensive stocker grazing as a land use
alternative to corn, soybeans and wheat production.
Economic viability is defined as generating the highest
average annual net return to land (and other costs that are

the same across systems) at an acceptable level of risk.

There are eight objectives of the study to accomplish this

overall objective. They are:

(1) to define beef weight gain per acre and the yield and
quality trajectory of alfalfa pastures within a grazing
system over time as a function of management intensity.
This will provide an objective function within which the
management intensity of the grazing system will be an input,
and revenue from beef production, the output. This
objective will be met through future analysis when data

becomes available (Schlegel, 1991).

(2) To identify variables and their values which influence

the costs and returns for each system.

 

2 This thesis is a companion thesis to: Schlegel, ML. 1991. Grazing Schemes for Direct
Seeded Alfalfa Pastures. Department of Animal Science. Michigan State University.

8
(3) To estimate net cash flows from stocker production (for
three grazing systems) on alfalfa pastures with varying

degrees of management input and from corn production.

(4) To compare the average annual return to land for each of
four systems. The four systems considered: (1) low stocking
rate (13L) and ( 2) high stocking rate 13 paddock system
(13H), a (2) low stocking rate 4 paddock system and a (4)

120 bushel/acre corn.

(5) To calculate break-even prices and yields to indicate

the economic threshold at which systems are equivalent.

(6) To interpret the results from the analysis in light of
various risk preferences and risk bearing capacities faced
by Michigan cattle producers. How the trade-offs between
profit and risk can impact the decision making process of
various cattle producers facing the outlined options will be
quantified. The implications of uncertainties in both corn

and beef gross margins are considered.

(7) To provide the framework for the development of a
computer model by which individual farm decision makers can
assess the economic viability of various land use
alternatives for a particular farm under particular risk

preferences and risk bearing capacity.

9

(8) To specify avenues for future research.

1.5 Scope of the Study

A 40 acre plot is assumed to be capable of growing 100 to
120 bushel/acre corn. A farm manager has essentially three
choices for using this land: cropping, grazing or leaving it
idle (Figure 1.1). Although the USDA's CRP program may be
an option, it will not be explored.

Growing crops on the land could include grains, oilseeds,
legumes and nonlegumes, all of which could be used by a
farmer to feed his cattle or sold directly. The first three
alternatives generally necessitate the use of a feedlot or
other concentrated confinement for the cattle. With

confinement feeding come the costs of feeding the animals
and hauling manure. Growing crops for a cash crop often
requires incurring storage costs, machinery costs, and

extensive planting and harvesting labor.

The other land use alternative is grazing3. Grazing
systems generally take one of two distinct forms as
described in section 1 . 3 , continuous or rotational . Both

types of grazing systems are seasonal, as plant growth is

 

3 Although such practices as grazing harvested corn fields maybe a common practice in
some areas of the country and one such study is included in the literature review, only the
grazing of alfalfa will be considered within the limited scope of this analysis.

10

Land Resourcc‘

 

 

 

 

Crop; Grown for Idle Land
Harvest
l I l I 1
Cash Crops (AR?) Legumes Untillable Unused Other Gov't
for Hay. Land not Tillable Incentive
Green used for Land Programs

Crop. Silage Pasture

 

 

I 1

Other Row
Forages Crops

1
Pasture

 

l R
Continuously Rotationaliy Crazed
Grazed

 

 

Chnventional IBM

‘ Land Resource Use is a function of operator's preference demand (operator’s market) for various crops, land quality and

rotationaleeherne.

Figure 1.1 Hierarchy of Farm Operator’s Land Resource Use Options

11
limited by the seasonal environment. Both require a watering
site or system. Both grazing systems may require less
storage, less machinery, and perhaps lower labor costs than
cropping the same land. Grazing systems limit consideration
of crops over cropping for harvest systems. Supplemental
feeding may be required under one/both system(s) depending

upon forage type and availability and animal pressure‘.

Having reviewed the two alternatives for land use, corn
production and grazing, as well as the two basic grazing
system types, techniques to be used for comparison will be
considered. The land is productive enough for row crops.
Therefore, corn is considered the defender alternative land
use and grazing systems for stocker cattle are considered
the challengers. The method used in this thesis will be to
compare corn production, rotational grazing and intensive

grazing simultaneously.

While a great deal of thought can be given to an "optimal
crop mix/rotation" for crop production and the legume mix
for grazing which would maximize returns to the land, these
ideas will be left for further research or will simply be

discussed as management considerations. The budgets to be

 

4 Breed, weight, desired gain, condition of the animal, sex and pregnancy are among the
factors determining animal pressure.

12
used as comparison tools will be limited to including

specific crop and pasture mixes.

Input will include data from a Michigan State University
(MSU) campus grazing trial, MSU crop budgets, USDA price

series and agricultural supply dealer expenditure estimates.

Net present value analysis will be used to adjust for time.
While comparison of net return to land and other unallocated
costs and break-even analysis for corn and beef production
levels and prices will be used to compare various systems

utilized in a beef stocker or corn production operation.

1.6 Organisation of Thesis

Chapter two describes the biological basis for the economic
model by reviewing past literature. Various trials are
discussed. Past literature on various economic
methodologies used to solve resource allocation and capital

expenditure problems is discussed.

In chapter three, the economic framework to be used in the
analysis are set forth. The land use alternatives to be
considered are described including system definitions,
assumptions and variables. The capital budgeting and break-

even analysis methods to be used are described. The

13
incorporation of risk into the analysis is discussed and a

model is presented and its use justified.

In chapter four, Michigan State University grazing trial
data is set presented. Using this data, budgets are
developed for the alternative land use systems. Net present
value and break-even thresholds are calculated using the
capital budgeting and break-even analysis techniques set
forth in. chapter ‘three. IRisk considerations are
incorporated as management options to minimize uncertainty.
Cumulative distributions of net returns to each system are
presented. Implications for decision makers with various
levels of risk aversion and facing different constraints are

discussed.

Chapter five summarizes the results of the analysis, their
implications and the limitations of the study. Suggestions

for further research are presented.

Chapter 2 Literature Review

2.1 Introduction

The use of past literature increases the data base and level
of understanding from which components of an analysis are
drawn, broadening applicability of the results. .Agricultural
studies depend upon a combination of biological systems and
therefore, must draw upon a diverse survey of literature. To
understand the characteristics of animal and plant systems,
their interaction and how this interaction forms a system and
compares with other biological systems, much material,
covering many subjects, must be reviewed. Further
incorporating the management and financial considerations
involved in a business decision, makes it clear that one can
only scratch the surface of the available literature in a
project of this scope. Therefore, a very limited number of
papers from which to assess our knowledge base, formulate

ideas, systems and assumptions (parameters) must be selected.

This chapter is a review of such selected papers. Background
information on how the evolution of grazing coincides with
that of the beef industry and the macroeconomy is discussed.
Literature on grazing systems follows, including a look at
plant species, emphasizing alfalfa, the crop which acts as a
challenger to corn in this thesis, and the management of

pasture through plant and animal control. Logistics of the

14

15

development of an intensive grazing system follows. Variables
to be included in an economic analysis are specified.
Fencing, a considerable portion of the cost of grazing system
development, is emphasized. A review of literature describing
pasture systems and results of past research trials follows.
Literature on the economics of grazing is discussed.

From this base of knowledge, the design, implementation and
analysis of a specific rotational or intensive grazing system
for stocker cattle on alfalfa is built. Grazing is then

introduced as a challenger system to corn.

2.2 Background

2.2.1 Grazing

The original beef animal feeding system was pasturing. The
use of pasture decreased over time due to the advent of
automated feed harvesting systems (Bartlett, 1991) . This
automation slowly replaced pasture, much of which performed
poorly as overgrazed and weedy continuously grazed pastures of

low nutritional value and sparse regrowth (Rayburn, 1988).

Interest in grazing as a potential solution to relatively low
profits in the beef industry has recently been renewed by
advances in grazing and fencing technology. Fencing
technology has become available to make 20 to 30 paddock
intensive grazing systems practical (Bartlett, 1991) , offering

the potential to utilize maximum forage potential with low

l6
investment. Previously, fencing costs on such a system would

have been prohibitively high.

2.2.2 Macroeconomic Shocks

Two major shocks to the beef industry in the 1970's caused
producers to look for alternative production methods. At the
beginning of the decade, there was an increase in grain prices
contributing to a large reduction in the cow-calf herd. In
the mid to late 1970's, the were large increases in real input
costs including energy, transportation, fertilizer, and credit
which could not easily be passed on to the consumer in the
form of higher beef prices (Nation, 1985). Over this period,
asset values (largely land holdings) and thus, borrowing
capacity, remained constant or decreased. In the past 50
years, especially accelerated from 1960 to 1980, agriculture
has faced increased technology and capitalization in buildings
and equipment.

2.2.3 Implications of Macroeconomic Shocks

Due to the higher cost of traditional input use patterns and
the trend towards highly capitalized production, a structural
change, oriented towards cost reduction, may hold promising
potential. Feed, depreciation and/or interest make up a large

share of these overall beef production costs.

Rotational grazing may be used to cut feeding and associated

costs by moving animals regularly to harvest their own feed

17
efficiently. A rotational grazing system will potentially use
less machinery and labor for cutting, drying, storing and
feeding of animal feed and hauling manure, fewer chemicals and
decrease risk while maintaining the beef gain per acre over

either mechanically harvested or continuously grazed land.

Cow/calf herds are heavily grass based, but calves are weaned
at 300 to 500 pounds. Attempts to increase weaning weights
with higher quality grasses and increased cow weights have
often increase costs substantially (Nation, 1985). Recently,
producers began to look at intensive rotational grazing as a
method by which to increase weaning weights and maintain or

decrease grain supplementation and fuel costs.

Much resistance to intensive grazing exists due to the
increased daily pasture management requirement. The
traditional method of animal turnout still offers the greatest
profit potential for a low'management grazing system (Nation,

1985).

2.2.4 Pastureland

In past years, for many areas, no pressing economic need
existed to use the abundant land efficiently. There existed
a high land/animal ratio and a large grain surplus since World
War II (Murphy, 1989).

In the Northeast region of the United States alone, there are

18
approximately 10 million acres of permanent pastureland
referred to as marginal land due to soil and site limitations
that make tilling and row-cropping infeasible. In addition,
there are 4 million acres in rotational pastures and other
crops that produce below potential due to poor management (NE

Research Program Steering Committee, 1976 in Murphy, 1989).

Gould (1989) inventoried Michigan's pastureland resources by
county and estimated the number of ruminant animals grazing
these lands, including dairy cow herds, beef cow herds and
sheep flocks. An average of 2.9 acres of pastureland, ranging
from 1.65 to 8.83 acres depending upon county, is available
per estimated grazing animal unit in the lower peninsula.
This large land/animal ratio implies a potential to increase

the utilization of Michigan's pastureland (Gould, 1989).

The acres of pasture per animal unit is a function of degree
of urbanization, soil fertility, land topography, percent of
pasture acres wooded versus cleared, and relative advantage of
animal versus cash cropping in the county. Counties with
lower soil fertility have a lower carrying capacity per acre

and thus, require more acres per animal (Gould, 1989).

In the upper peninsula, acres of pasture per grazing animal
unit ranges from 2.68 to 9.24 by county, averaging 3.9. In
Michigan, there is a total of approximately 1 million grazing

acres and about 350,000 grazing animal units or 3.15 acres.per

19
1 animal. Sixty-nine percent of grazing units are beef cow

herds (Gould, 1989).

2.2.5 Intensive Rotational erasing

Intensive rotational grazing has potential to increase the
efficiency of pasture use in Michigan. Intensive grazing
systems can be used with any class or species of animals, in
any environment (wet/dry, hot/cold) , or with any stocking
rate. Although it may not be feasible due to social,
cultural, or economic reasons, biologically, intensive grazing

can be applied wherever plants grow.

An intensively managed grazing system can increase
productivity per acre , resulting from both high quality
pasture from intensive forage management and breeding

selection for efficiency of forage utilization.

2.3 Grasing Systems

In this section, definitions of grazing systems are explored.

2.3.1 Continuous erasing Systems

In continuous grazing, a pasture is continually grazed
throughout the season. Carrying capacity is thus limited by
the slowest plant growth period. Therefore, a conservative
number of animals is grazed and/or supplemental feeding is

necessary.

20
Continuous grazing, in combination with a fixed stocking rate,
may result in overgrazing during slow plant growth period
and/or undergrazing during fast plant growth period.
Continuous grazing with a low stocking rate will result in
forage waste due to undergrazing of the pasture and increased
selectivity by the animals (Allen, 1985). The most palatable
plants are frequently regrazed while competition from the
undesirable species, which are allowed to mature and
reproduce, increases. During this period, individual animal
performance may be high while production per acre suffers.
Management options to decrease forage selectivity include
increasing the stocking rate, restricting grazing area, or

conservation (Murphy, 1989).

Advantages to continuous grazing systems include lower capital
costs and management demands and less stress to animals from

movement and overcrowding (Wall, 1982 in Allen, 1985).

2.3.2 Rotational erasing
In rotational grazing, the pastures are subdivided. Movement
between areas is often on a fixed schedule (Bartlett, 1991)

and determined by set fences.

No types of rotational grazing systems, conventional and
intensive systems differ by the number of grazing areas, the

size of each grazing area, pasture grazing duration and rest

21

period and daily stocking rate per acre.

2.3.3 Continuous Versus Rotational erasing; Trial Results

Within the literature, there is no consistent advantage to
either rotational or continuous grazing systems. Hubbard
(1951), Rogler (1951) and Hull, et al. (1967) related weight
gains under rotational and continuous grazing to stocking rate
and animal type. Hull, et al. (1971) related the results of

two grazing system types to number of paddocks.

Numerous studies have found that continuous grazing treatments
result in higher production than rotational grazing (Campbell,
1961, Cooke, et al., 1965 and Blaser, et al., 1969 in Parsch

and Loewer, 1987).

MeMerkan and walshe (1963) found that a rotational grazing
system is more productive than continuous grazing system (in

Parsch and Loewer, 1987).

Animal performance in rotational grazing systems have also
been found to be greater than that of continuous grazing only
in certain years (Walton and Bailey, 1981) and only during
late summer months. One study found both systems to be
equally productive during the early summer months (Lowensby,

et al., 1973 in Parsch and Loewer, 1987).

22
2.3.4 Intensive Rotational erasing
voisin (1959, 1960) developed a type of rotational grazing
designed to maximize pasture productivity through time
control. The pasture is allowed to recover between grazings
according to plant growth rate. This period is referred to as

the pasture rest period (Hodgson, 1977).

A high stocking rate is used for a short period of time in a
pasture composed of at least 8 paddocks. A variable movement

schedule is often used (Bartlett, 1991).

This type of rotational grazing requires a greater management
input than conventional rotational grazing. It is referred to
by many names including intensive rotational grazing,
intensive grazing management, short duration grazing, Savory
grazing, controlled grazing management and Voisin grazing
management (Murphy, 1989). For the purposes of this thesis,
the term 'intensive grazing' will be used to describe this

management intensive type of rotational grazing system.

Rayburn (1988) defines an intensive rotational grazing system
in biological terms as one in which the stand is grazed to a
height appropriate for the plant species survival and
environmental conditions. Each grazing period is sufficiently
short so grazing of regrowth within the same grazing period

does not occur.

23
2.3.5 Pasture Design
The three types of grazing systems discussed have implications
for pasture design. Continuous grazing systems require little
time control and therefore require little pasture design.
Rotational grazing requires paddock systems designed to define
movement schemes and intensive rotational grazing systems

incorporate an even stricter element of time control

Design of an intensive grazing system considers the
characteristics and shape of the pasture available and may
include existing resources such as a natural water source or

an existing fence.

A circle design utilizing a central hub (Malechek and Dwyer
(1983)), is one example of a pasture layout (Figure 2.1). In
this system, the use of central hub minimizes animal stress
and water damage development, in addition to facilitating

animal handling.

2.3.6 Pasture Systems

In a conventional grazing trials, one pasture is grazed over
the entire season and is evaluated as a separate entity.
Pasture systems are comprised of several separate pastures
which animals graze over the course of the season. The
systems are designed using differences in pasture growth
associated with different forages and management practices.

For example, pastures comprised of early maturing species are

24

Ojimflc

 

 

 

Olimfle

‘

IO

 

 

Figure 2.1 Intensive Grazing Design: Circle With a Central Hub

combined with those which grow late into the season to form a
complete, extended pasture system. Production potential of

the entire system for season long grazing is then evaluated.

Trials conducted on pasture systems have a season-long,
multiple pasture dimension contrasted to the segmented
approach of conventional single pasture grazing trials

(Matches, et al., 1974).

Two benefits to a pasture system in grazing trials are
increased degrees of freedom for statistical analysis and a
decreased number of separate pastures required, as pastures

can be used for more than one treatment. Two disadvantages of

 

25
grazing multiple assignment tester animals in two or more
separate pasture components are increased chance of error in
animal assignments and that compensatory gain may mask the

animal response to one specific forage or treatment.

2.4 Managing Pasture: Plants

Because management requirements vary from low with
continuously grazed systems to high with intensive
rotationally' grazed. systems, plant. biology' and its
relationship to various management schemes must be thoroughly
understood when designing a grazing system. .An understanding
of the biological principles of plants and animals facilitates

pasture management.

2.4.1 Plant Biology

The growth cycle of the plant has important implications for
pasture management. Once grazed, the leaf area of a plant
begins with a stage of slow regrowth supplied with energy from
the root reserves. Leaf area then increases rapidly through
the later vegetative stages of growth, using energy supplied
through photosynthesis. Here, plant growth rate is five to 20
times higher than in the first stage (Bartlett, 1991) .
Depending on plant species, the rate of dry matter production
is greatest about the fourth week of growth and levels off

during the third stage as the plant matures, reproduced and

26
decays (Bartlett, 1991). Grazing during the late vegetative

stage optimizes the use of this plant growth cycle.

Amount of fiber, energy and protein present as quality
measures of.a pasture are a function of days regrowth, forage
type and time in season. Protein solubility is a function of
forage type, month of sample and bulk height. Major mineral

content is a function of forage type (Rayburn, 1988).

2.4.2. Plant Considerations in Grazing System Design
Intensive grazing works well because forage is harvested at
its peak growth rate (Bartlett, 1991) . Plants require an
adequate regrowth (8 to 10 inches) period of 35 to 40 days in
midsummer and 28 to 35 days in the spring and fall (Bartlett,
1991).

Land slope and orientation greatly influence the plant
environment and forage growth. If a paddock is not
homogeneous in slope, terrain and species mix, then over and
under grazing may take place within the same field (Turner, et
al., 1986).

2.4.3 Treatment Effects in Grazing

The literature indicates no consistent finding on the effect
of grazing treatment on plant quality and quantity. Findings
from research indicate the effect of grazing system on diet

quality and quantity. Various plant communities were not

27

affected by grazing treatment (Walker, et al. , 1988 in Walker,
et al., 1989). Diet quality varied seasonally as a function
of availability of live herbage, but not of total herbage or
grazing pressure. Lack of differences between diets was
attributed to an absence of large variability in palatability
among major forage species (Walker, et al., 1989). Grazing
treatments on clay loam range sites did not effect botanical
or nutrient composition of cattle diets (Heitschmidt, et al.,
1987).

Any difference found in the nutrient composition of diets of
fistulated steers grazing a 16 paddock system versus
continuous grazing was attributed to pasture differences

(Pitts and Bryant, 1987).

In Oregon, differences in sheep performance between
rotationally grazed and continuously grazed pasture were
attributable to differences in diet quality due to differences

in available herbage between treatments (Sharrow, 1983).

Diet quality was found to be similar between the first and
last day of grazing over various grazing systems (Walker, et
al., 1989, Taylor, et al., 1980, Kirby and Parman, 1986, and
Pitts and Bryant, 1987, in Walker, et al., 1989). Ralphs, et
al. (1986) reported significant changes in diet quality and
botanical composition of sheep and cattle diets within a three

day grazing period. These changes were directly related to

28
diversity of plant species available. The change in diet
quality was simply a change in species intake as preferred

species ran out.

2.4.4 Species Type

Species type within a pasture will effect grazing performance.
Clover (1989) discusses the environmental impact of various
forages. Of all crops, forages have the highest potential for
removing environmental pollutants. Perennial plants provide
nourishment to the soil, permanent protective cover from wind
and water erosion and receive and eliminate waste. Non-
perennial plants can only be eliminated by reversing the
selective grazing habits of livestock.

Several studies have looked at the relationship between
species type and pasture performance. In Alabama, high
average daily gains and gains per acre have been produced on
small grains (Anthony, et al., 1971 and Harris, et al., 1971
in Schmidt, et al., 1985) and fungus free tall fescue
(Hoveland, et al., 1983) pastures with stocker cattle.
Average daily gains on season perennial grass have been low
(Hoveland, et al., 1971 in Schmidt, et al., 1985). Serala has
been found to be productive in the warm season, but produces
poor gains because it is high in tannin. Au Lotan, with a
lower level of tannin, offers good potential (Schmidt, et al. ,

1985).

29
Cool season annuals represent pastures of’most stocker-feeder
operations in the South (Nation, 1985) . Due to a high
leaf/stem content, more than 2 pounds per day can be produced
on these slow maturing plants. Growing conditions of cool
season annuals vary greatly throughout the season. Therefore,
practices such as put and take stocking, or using lightweight
cattle in the spring and supplementing in the mid winter are

often practiced.

Warm season grasses can provide efficient use of soil
nutrients and have a stabilizing effect on the soil. Because
they often have slow establishment, native warm season grasses
cannot be used effectively as a sole pasture. When combined
with cool season species, an effective pasture system can be

formed.

Clover (1989) suggests coastal bermuda as a warm season grass,
reed canary grass and tall fescue as cool season grasses and

annual ryegrass for winter grazing.

Birdsfoot Trefoil requires a high grazing height encouraging
selective grazing under an intensive system and leading to an
increase of undesirable weeds and a lower productivity of
desirable forages. Grasses which will work well under
intensive management grazing systems include perennial

ryegrass, orchardgrass, Kentucky Bluegrass, and Timothy

(Murphy, 1989).

30
Grazing systems of soybeans, cowpeas, velvet bean in corn,
lespedeza and sweet potato vines have been evaluated (Nation,
1989) . In one study, grazing of sweet potatoe vines was
valued at $14.82 per acre in terms of feed saved. The grazing
of corn crop residues provides the opportunity for reducing
stored feed needs in the corn belt region. Based on hybrid,
growing conditions and grain yield, 2.3 to 2.9 tons of residue

have been produced per acre.

Legume-grass mixtures provide a dense turf which reduces
trampling damage and can produce high tonnages. The legumes
in the mixture fix nitrogen for grass growth, resulting in low
fertilization needs, are high in protein and contain the
mineral needs of an animal. legumes alone make poor sod and
create a high bloat risk. Thirty to forty percent legume and
sixty to seventy percent grass is recommended as the ideal
pasture mixture Nation (1985) . As other components of pasture
composition, the amount of legume in a pasture can be
controlled through grazing management (Bartlett, 1991) . If
more clover is desired, the grass should be defoliated
frequently to allow sunlight in (Swayze, 1988 and Rayburn,

1988).

White clover often becomes the dominant legume in pastures
under intensive management because it is favored by periodic
low grazings that remove tall growing plants that would shade
it (Murphy, 1989) and receives adequate regrowth time.

31

Therefore, seeding a high cost legume may not be justified.

2.5 Alfalfa

Grazing alfalfa represents the challenger system to row crops
in this thesis. Gain per acre using alfalfa can exceed 1000
pounds while stand persistency is maintained (Clover, 1989)
although other research has not indicated this potential (e.g.

Schlegel, 1991).

2.5.1 Alfalfa as Pasture

Due to its high yields, high quality and perenniality, alfalfa
has been used as a premium forage for hay and silage, and is
used extensively in the ewe-lamb industry in New Zealand.
Alfalfa has not been widely used as a grazing species in the
United States. Due to its delicate stems, it cannot survive
compacted soils and crown breakage (Coburn, 1906 in Allen,

1985).

A renewed emphasis on forage quality, the fact that alfalfa's
growth pattern fits well into a controlled grazing program and
offers a high quality nutrition in the hot, late summer months
and alfalfa's strong drought tolerance have worked to spur an

increased interest in the use of alfalfa for grazing.

Alfalfa is high in energy and protein. Its high rate of

passage and low proportion of cell walls allows the rumen to

32
empty quickly. Alfalfa allows large bites and thus, a fast
rate of intake (Clover, 1989). It has been estimated that
stocker cattle can eat enough for up to three pounds of growth

per day in four hours (Dougherty and Absher, 1987).

Sustaining an alfalfa pasture requires a higher management
input than other permanent grasslands, translating into higher
variable labor hours or opportunity cost associated with

management input.

Bloat can be a problem, increasing the risk of increased
health costs and/or death loss. There is potential for
erosion and treading damage unless grasses are present. This
may lead to increased stand maintenance costs and/or lower
stand productivity in future periods. Although alfalfa is
productive on good soils, it is not productive on marginal
lands. Alfalfa has a shorter growing season than some other

pasture crops such as fescue (Dougherty and Absher, 1987).

2.5.2 lead Control in Alfalfa

Although weeds in alfalfa will not greatly affect forage
yield, because most weeds mature faster, quality will
decrease. In the Midwest, weeds in an alfalfa stand tend to
decrease both crude protein and energy (Hesterman and Kells,
1989). Cost/anticipated benefit figures can be estimated to

determine the desired level of weed control.

33
2.5.3 Growth Cycle of Alfalfa and its Implications for Grazing
Several researchers have found that alfalfa survival and
productivity is severely reduced with continuous grazing
(Moore, et al., 1946, Barker, et al., 1957, Iversen, 1965,
O'Connor, 1970, Peart, 1986, Brownlee, 1973, McKinney, 1974,

and Southwood and Robards, 1975).

Rotational grazing acts as a tool by which to adapt to the
growth cycle of alfalfa. Frequency of cutting is important in
stand maintenance and for yield of alfalfa (Graber, 1972,
Bryant and Blaser, 1964, Reyonds, 1971, Smith, 1972 and
Jansan, 1982, in Allen, 1985) . Yield is a function of number
and size of stems per acre. Number of stems is dependent on
the physiological status of the crown and size is dependent on
agronomic and environmental conditions (Daugherty and Absher,

1987).

Alfalfa for grazing should be planted and grown, including
managing seeding, inoculation, fertilization, weed control and
pest management, as appropriate with alfalfa for hay or silage
(Daugherty and Absher, 1987) . Additionally, theoretical
nutrients from manure and urine should be ignored when
forecasting available forage. Although grazing should mimic
mowing to a large extend, the plants reaction to the animal an
machinery are not the same (Vankeuren and Martin, 1972 in

Allen, 1985) .

34
Highest yields occur when alfalfa is cut at full bloom stage,
although the highest nutrient yield occurs at one tenth bloom
(Smith, 1972 in Allen, 1985). Cutting near maturity allows
root reserves of carbohydrates to form, resulting in fast
regrowth and strong plant vigor. Immature cutting results in
stand losses (Graber et, al., 1927 and Grandfield, 1935, in
Allen, 1985) . Increasing the cutting height usually decreases
dry matter yields of hay per acre over the season (Smith
review, 1972 in Allen, 1985). Two to three weeks must be
allowed for adequate carbohydrate storage, with. maximum
storage occurring at the full bloom stage (Granfield, 1935 and
Smith, 1962 in Allen, 1985). Rest period recommendations for
alfalfa are as follows; Vankeuren and Martin (1972) in Allen
(1985): 35 to 42 days, Iversen (1967): 36 days, O'Connor
(1970): 42 days, McKinney (1974): 38-39 days, Smallfield
(1980): 42 days, Leach and Clements (1984): 40 days, and
Dougherty and Absher (1987): 26-32 days. Smallfield (1980)
found that a 21 day rest period for alfalfa increased dry
matter yield, number of plants and root weight and greatly
decreased weed content as a percent of pasture over a 42 day

rest period.

The growth pattern of alfalfa dictates a fairly rigid form of
rotational grazing to maintain a stand over time. Two main
periods, a well defined grazing period followed by a well
defined rest period, must be specified (Dougherty and Absher,

1987).

35
Alfalfa should be grazed as close as possible to the ground
without damaging the crown (Dougherty and Absher, 1987) .
Clover (1989) recommends a two phase system, with low
demanding animals following high demanding animals. Grazing
should begin one week before the first cutting would occur.
Alfalfa requires rotational grazing (Vankeuren and Martin,
1972 in Allen, 1985). The duration period of grazing is more
important than the regrowth period (Leach, 1978, and Janson,
1982 in Allen, 1985) and can extend up to 14 days (Janson,
1982 in Allen, 1985). If it is cut or grazed too frequently,
the population and size of plants decreases and the stand is

weakened (Dougherty and Absher, 1987).

If the grazing period is too short or too long, selectivity
will be high, thus increasing unpalatable weed species. An
excessively long grazing period allows cattle to graze off or
damage crown shoots, decreasing stem population and leading to
weed or grass invasion. Alternative pasture should be

available during excessively wet periods.

Three, nine and eighteen day grazing durations led to similar
alfalfa yields and stem densities the following spring
(O'Connor, 1970). A two to four day grazing period produced
a higher eight.month forage yield (base of 100%) than.did a 15
day (86%) or 30 day (71%) grazing duration (Jason, 1973).
Grazing durations between five and 20 days were found to

provide similar forage production and stand persistence

36
(McKinney, 1974) . After two years, alfalfa survival was lower
and percent grass higher with a four day grazing duration

versus a sixteen day duration (Leach and Clements, 1984).

Rest period was found to be influenced by the beginning of
flowering, the presence of new crown shoots, lodging,
infestation of alfalfa weevil or potato leaf hoppers and
drought stress. Rest periods which are too short may decrease
root reserves and crown bud primordia, thus lowering the
potential of crown and taproot to stave off diseases and
winter kill and promote grass growth. If a stand is grazed
longer than 12 days, a decreased stem population and decreased
subsequent yields, weak crowns and roots, decreased stand
life, and weed or grass invasion may result (Dougherty and

Absher, 1987).

Seasonal and environmental conditions affect alfalfa's
response to grazing (Janson, 1982, in Allen, 1985) and thus,

alfalfa grazing management must vary by season.

Rotational grazing drastically and quickly changes the
structure and quality of the alfalfa sward. These changes are
paralleled by drastic changes in the diet and therefore,
productivity. This supports the follower grazer concept
developed by Blaser, et al. (1969) at Virginia Tech, in which
grazing management provides consistent quality of forage over

time for a specific group of animals (Dougherty and Absher,

37

1987).

Alfalfa can be used as a season long pasture forage. Alfalfa
is most persistent in the spring (Heinricks and Nielsen, 1976
in Allen, 1985) but this may be the worse time of year to
graze alfalfa due to wet weather (Janson, 1982 in Allen,
1985) . Native pastures can be grazed later, allowing a

producer to carry cattle later into the summer.

Summer grazing of alfalfa can be used to provide a high
quality forage during the hot, dry summer slump period.
Grazing in the late summer can also be an effective way to
harvest the forage during times when its difficult to get in
the field to hay. With moderate moisture, plants may adapt
but have fewer shoots and less growth (Leach, 1978 in Allen,
1985) . Overgrazing drought stressed alfalfa may decrease the
stand due to increased incidence of crown and root rot disease

(Talbot, 1982 in Allen, 1985).

In the fall, alfalfa growth is slowed or stopped by either a
series of light frosts or a killing frost. The forage quality
obtained in the fall is excellent and grazing is often an
effective method to harvest the forage, as weather conditions
may make hay curing difficult. Fall grazing also decreases
the severity of alfalfa weevil in the spring. Overgrazing the
stand in the fall may remove crown buds which will decrease

production in future years and does not leave an adequate

38
growth to hold the snow cover. Cold resistance falls
considerably when harvested less than four to six weeks before
a killing frost. Late summer and fall harvest management are
the keys for stand persistence in the following year (Smith,
1972 in Allen, 1985). Management needs vary by climate, with

less severe climates offering the mast flexibility.

2.5.4 Bloat Risk and Prevention

Grazing stands containing a high percentage of alfalfa
increases the risk of bloat. Bloat susceptibility is related
to the rate at which small feed particles leave the rumen.
Methods used by producers to avoid bloat include waiting to
graze until one third bloom stage, as the pre-bud stage
alfalfa's large flat leaves may increase bloat risk,
maintaining a constant rate of intake by cattle and turning
cattle out when the alfalfa is dry and when the cattle have a
full gut. Cattle should not be moved from poor to high
quality alfalfa. Dandelions or quackgrass in the stand can

decrease bloat risk (Thomas, 1989).

Poloxalene should be used in blocks, lick tanks, or mixed with
supplemental feed (Rather and Dorrance, 1985) . Bloat has been
associated with a low Sodium (Na) and high Potassium (K)
condition in the rumen, thus, mineral supplements rich in NaCl

should be used.

Rather and Dorrance (1985) reported cattle lost from bloat due

39
to grazing alfalfa on 19 of 30 farms studied. Producers

blamed poor management for the death loss of cattle.

2.6 Managing Pasture; Animals

2.6.1 Animal Biology

In this section, a review of animal biology's implications for
grazing system design will be explored. An animal's
characteristics will affect its ability to utilize pasture.
Species differ in their diet requirements, grazing patterns
and social interactions. Breeds differ in their response to
environmental conditions. The class and weight of an animal
affect its need for quality and quantity of forage. Number of
animals present affects the producers control over timing of
pasture use, stress an undesirable plants and animal behavior

(Smith, 1989) .

2.6.2 Animal Considerations in System Design

Grazing behavior may vary among grazing treatments in
intensive grazing systems as a function of differences in
forage yield and presentation (Arnold and Dudzinski, 1978, in

Walker, et al., 1989).

Animals have a large impact on plant growth. Over or
undergrazing can be detrimental to pasture quality. In
general, total forage production decreases over time, as the

more palatable species are grazed before their maximum.growth

40
rate is reached. Overgrazing may cause the steers to eat the
unpalatable and nonnutritious basal stems, limiting intake and

may damage crowns.

Intensive grazing places a large number of animals in a small
area. The hoof action of a large number of animals in a
limited area tends to disperse manure and trample out
broadleaf weeds. Trampling caused by animals looking for the
best forage is also decreased. The rest period allows the
trampled forages to regrow as the manure makes soil contact

(Bartlett, 1991).

Animal behavior can be partially defined by a measure of
grazing efficiency. Grazing efficiency is the % of available
pasture actually consumed by the livestock. Fifty percent
grazing efficiency under continuous grazing systems has been

considered reasonable (Nation, 1985).

2.6.3 Timing of Movement

The response of a pasture to grazing management varies with
the intensity of the system. Three tools by which to change
the intensity of the grazing system are the timing of animal
movement, the stocking rate and the number of paddocks in the
system. Optimal pasture rest length is a function of
vegetative growth rates and the nutritional requirements of
the livestock present (Walker, 1989). Rayburn (1988)

similarly found the optimal rest period to be a function of

41
forage species and the characteristics of the animal grazing.

Forage availability affects dry matter intake.

Wynn-Williams (1982) defines grazing duration as the length of
time livestock graze an area at any one time before being
moved, to allow uninterrupted regrowth. A longer regrowth
period means greater forage availability, but may also mean
higher fiber and lower energy and protein as species mature
(Rayburn, 1988) . Rayburn (1988) describes two methods of
controlling availability of forage. The forage allocation
method looks at the amount of dry matter available at the
beginning of the grazing period. This is the easiest to
quantify and can be easily compared to the nutritional
requirement of the herd. The forage residual method looks at
the amount of residual remaining at the end of the grazing
period. These measurements are more difficult to make, but
it allows better control when grazing clovers. Smith (1989)
recommends moving the cattle after 40 to 50% of the forage is

consumed in cases where dry matter cannot be easily estimated.

Variables to consider in time control grazing application
include the growth rate of the plant, the number of pastures

available, and the stocking rate per acre over time.

If the grazing period in one paddock is long, the rumen micro-
flora must continually adjust to a changing diet causing

weight loss (Figure 2.2) and lower revenues (Smith, 1989).

42

I Daily Movement
w w Weekig Movement

7 dag: 14daqs 21 days
Time

Quality

 

 

Figure 2.2 Quality of Intake as a Function of Time

Moving the animals frequently allows for manure and urine to
be deposited evenly, decreases trampling damage and.decreases
non grazing social interaction. The stand comes back better

and intake increases.

2.6.4 Stocking Rate

In Kentucky, alfalfa stands are stocked at 3 to 5 head per
acre for the first year and higher in later years if the
capital is available (Daugherty, et al., 1987). The
Cooperative Extension Service of other states often recommends
4 to 6 head per acre. This stocking rate then increases
according to the production of alfalfa, managerial skill and
availability of capital. Due to the seasonal growth pattern
of alfalfa, in which growth decreases over the season,

carrying capacity decreases throughout the season.

Cowlishaw (1969) analyzed numerous grazing trials with three

43
or more stocking rates and found that the average daily gain
of cattle or sheep decreased linearly as stocking rate
increased. Others have found the relationship between
stocking rate and gain per acre was invariably curvilinear

(Matt, 1960, and Riewe, 1961, in Marten and Jordan, 1972).

There are two methods to stock a grazing system, put and take
or fixed stocking rates. Put and take stocking uses variable
animal stocking rates during the season according to the
carrying capacity of the pasture (Matt and Lucas, 1952) .
Fixed stocking rate uses the same stocking rate all season.
Stocking rate can be defined at the number of animals per unit
of land (Matt, 1960) . Grazing pressure can be defined as the
number of animals per unit of available forage. Carrying
capacity is the stocking rate at optimal grazing pressure

(Mott, 1960).

The put and take stacking rate is preferred by many
researchers in the United States (Matt, 1960, Marten and
Donker, 1968, Burns, et al., 1970, Matches, 1970, Matt and
Lucas, 1952, in Matches, et al., 1974). Matches, et al.
(1974) describe the harvesting of excess forage for hay of
silage or stockpiling for winter grazing as one practical put

and take stocking procedure.

Testers and grazers or puts and takes are the two groups of

cattle used in a put and take system. Testers remain for the

44
whole season and their performance is tested as an estimate of
forage quality. Grazers are added and removed to apply an
appropriate grazing pressure. In a fixed system, all animals

are testers (Matches, 1970, in Matches, et al., 1974).

Loewer, et al. (1987) state that set stocking rates should be
used in arid or semi arid conditions, after plants have gone
to seed, and when attempting to introduce more desirable
plants. They can be used when one desires high individual
performance using a light stocking rate, when reproduction
schedules require it and when the pasture growth rate is very
fast.

The stocking rate can be estimated from the yields of the
second, third and fourth cutting indicated on the farm record,
the required level of intake (3% of body weight at 50%
utilization) and the length of the grazing period. Stocking
rate should not be based on the first cutting (Doughterty and
Absher, 1987). A.high stocking rate will increase uniformity
of pasture distribution and utilization (Smith, 1989).

For many systems, the use of two groups of cattle should be
considered. The stocking rate of the late summer and fall
should be 25 to 50% less than the first group. With each
group, the heavier stockers should be sold as they reach
market weight.

45
In a continuously grazed pasture, stocking rate must be high
enough so that the forage is held to a mean height of 12 to 18
inches. This can be very difficult to maintain, as the growth
rate slows over the season. With rotational grazing, grazing
should to start at approximately 12 to 15 inches and continue

to 5 to 6 inches (Gerrish and Davis, 1988).

2.6.5 Number of Paddocks

The number of paddocks is a key variable in defining a grazing
system. Factors affecting the appropriate number of paddocks
include length of rest period required, nutritional
requirements of the cattle and stimulation of forage intake
with fresh feed.

2.6.6 Conception

Artificial insemination (A.I.) efficiency is sometimes low
with heifers on pasture as heat checking and breeding are
difficult (Zartman and Shoemaker, 1989). Research was
performed at an intensive grazing site at the Ohio Ag. and
Research Development Centers Branch station of Mahaning County
Farm. The use of superovulation resulted in a 100% conception
rate for 13 heifers on pasture in 8 weeks during a droughty
June and July in 1988. This indicates that pastured heifers
can be bred artificially with great success and reasonable
labor and demonstrates the capacity to schedule heifer

breeding on pasture (Zartman and Shoemaker, 1989).

46

2.6.7 Management Practices

For grazing steers and non replacement heifers, several
management practices need consideration. Implants are
advantageous (Garner and Cornell, 1988). A.properly designed
implant program can increase growth rate by 10% (Wyatt, 1985) .
Implanting success is measured by feed efficiency, rate of
gain, carcass parameters and presence of side effects. When
grazing, these are not practically measured. Pounds of beef
per acre, any adverse side effects and ease of application are
thus used to indicate the appropriateness of implantation
(wyatt, 1985).

Parasite control should be practiced. Shade is important,
especially for infected fescue pastures. Without proper
shade, body temperature may rise, affecting growth, milk
production and breeding efficiency in cows. Fescue toxicity
symptoms from endophytic fungus include poor gains, reduced
intake, heat intolerance, rough haircoat, agalactia (absence
of mammary gland development) and fescue foot (Garner and

Cornell, 1988).

The profitability of raising a beef animal is a function of
growth rate and efficiency of feed utilization, which are
functions of genetic composition, disease status, absence of
internal and external parasites, nutrition and sexual status

(Wyatt, 1985).

47
2 . 6.8 Ration Formulation Considerations For Animals on Pasture
Rayburn (1988) describes the optimal balance between pasture
use and supplemental feeding on pasture as a function of the
animal's biological cycle, the animal's response to
supplemental feed, the value of animal product sold, pasture
availability and value, supplemental feed availability and

value and the overhead cost of the farm business.

For sheep and cattle, the dry matter intake of grass decreases
0.5 kg for each additional kg of dry matter of concentrates
fed (Ag. Research Council, 1980). Therefore, a substitution
rate of concentrate for grass of 0.5 kg should be used as a
rule of thumb when incorporating pasture into a ration. For
forages of less than 80% dry matter and with metabolizable
energy less than 11MJ, such as many hay or silage diets, a

substitution rate of 1 to 1 with grass should be used.

Insufficient pasture may cause animal performance to suffer
and excessive pasture may cause non-grazed feed to be wasted
(Rayburn, 1988). For unsupplemented animal pasture,
allocation affects the rate of production and efficiency of
pasture utilization. If pasturing a beef cow, excess pasture
can make her overfat and cause calving difficulties.
Insufficient pasture may make it difficult for the calve to
reach market weight by the end of the grazing season (Rayburn,

1988).

48

2.7 Implementation of an Intensive Grasing System

In order for intensive grazing systems to compete with row
crops on comparable land, good management procedures must be
followed during the planning, implementation and control

stages.

Murphy (1988) compares learning to manage an intensive grazing
system to learning to ride a bicycle. The task should be
approached to accomplish the job, rather than perfectly
execute every detail. Specifics are then worked out during

the implementation period.

2.7.1 Land Improvement Prom Grasing

Swayzes, 1988, recommends the following to a producer
interested in implementing an intensive grazing system: begin
by taking a soil test, adding lime and phosphorous as needed,
and stocking livestock heavily to clear land of tall growing
plants and to apply concentrated manure. Overtime, grazing
will encourage the formation of a thin sod of low growing
grasses and clover. The soil is tested and fertilized as
needed to favor clover in 2 to 3 years. Productivity
increases in the land will be accelerated by replanting or

oversowing the land.

Kyburg (1989) recommends beginning by experimentation, slowly

developing marginal land for grazing.

49
Stocking rates will continue to increase with land
productivity. Swayze (1981) recommends beginning with 100%
portable fence to allow“maximum.flexibility. Permanent fence

can then be slowly added.

2.7.2 Grasing Resources and Basic Considerations

An inventory of the basic resources available is taken during
the planning stage. Goals are set. Resource needs stem from
present and future system expectations and include the size
and number of pastures available, quality and quantity of
forages, soils, topography and unique characteristics of the
land. The physical inventory also includes capital, its
condition and liquidity, life expectancy and worth. Livestock
should be inventoried. The breeds, sex, age, stock flow,
calving season, mean weaning weights, percent calves weaned
and major livestock programs such as artificial insemination
on the farm must be recognized and their implications to the
systems success, understood. The financial situation,
including borrowing ability and employee and management.hours

available, skills, and preferences are inventoried.

Objectives and production and performance targets are set.
Feed budgets are planned to meet performance goals. Herd
management and cash flow is discussed. Implementation of a
grazing system requires capital management. Within three to
four years after the initiation of grazing, carrying capacity
of the land will increase, increasing capital demands with the

50
purchase of additional cattle (Swaynes, 1988) . Risks are
considered. An iterative implementation process is developed,
with feedback initiating changes in the systems

implementational tactics.

Designing and implementing a grazing system includes planning
and flexibility. Swayze (1981) stresses the importance of
animal containment, animal nutrition, feed ration balancing,
plant growth management, vegetation types and soil
productivity.

Animal feed requirements, available pasture and the
feasibility of mechanically harvesting should be considered.
Winter feeding methods influencing the starting weight and
fleshiness of the animal and marketing options must also be

considered (Clark, 1988).

2.8 Fencing

One major capital cost which must be considered throughout the

grazing system design stage is fencing.
2.8.1 History of Fencing Systems
Barbed wire fence was introduced in the mid-1800's, and by the

1870's, the open range was a thing of the past (Steger, 1986) .

Initially, producers faced two basic decisions; how much

51
acreage to allocate to grazing versus cash crops and the most
effective stocking rate with which to use this land. Around
the mid 1950's, the issue of time control was added and with

it, the concept of intensive grazing (Steger, 1986).

Intensive grazing offers improved forage response to grazing.
Fencing is used to sub-divide the pasture. The objective is
to use fencing to best utilize the plant resources available,
while providing adequate rest periods for regrowth (Turner, et
al., 1986). Because the use of intensive grazing has been
limited and often practiced without the necessary management

control, animal performance suffered.

Animal Performance began to show improvement through better
forage management made possible by incorporating electric
fence as a tool in pasture management. High tensile wire
fencing was introduced to the United States from Australia and
New Zealand (Selders and Mcaninch, 1987). Electric fencing
offered an alternative to the traditional barbed wire and
woven fences, with animal performance more than paying off the

cost of installing and maintaining the fence (Steger, 1986).

Fencing technology is now based on a high power fence charger
which powers a fence working as a physiological barrier
(Steger, 1987) . Intensive grazing requires a large amount of

fencing. Therefore, fencing must be inexpensive. The new

52
technology in chargers allows minimal fencing to provide
maximum control. This keeps costs lower by using a high
amperage to maintain a high voltage, even under heavy ground
conditions. In addition, this fence is safe because the
charge period is short. Polywire fencing with step-in posts
is also available. High tensile permanent fence is lower in
cost than conventional fence, requires less maintenance, is
easier to operate and is cheaper than machinery (Bartlett,

1991).

2.8.2 Fencing Systems for Grasing

This section looks at fencing systems and how they work. The
advantages and disadvantages of high tensile electric fencing
and other types of fencing most commonly associated with

intensive grazing are considered.

The main objective in the use of fencing in any grazing system
is animal control. Animals will cross the fence for three
basic reasons: curiosity, to be with other animals, and to get
available food or water. Variables which need to be
considered prior to the construction of a fencing system
include costs, the distance to an available power source and
water and the duration of the system (i.e. , is this site to be

permanent, semi-permanent , or temporary?) .

Other considerations include terrain slope, erosion,

rockiness, and obstructions (e.g. , is the land impractical for

53
cash crop farming because it can't be adequately reached by
the appropriate machinery) . The homogeneity of the land is an
important variable. Animals change grazing behavior with
forage availability over time. A nonhomogeneous field can be
overgrazed in some spots and undergrazed in others. The
proper type and placement of fencing can help alleviate these

problems .

Portable fencing such as polywire or flexnet allows the same
unit of fence to be used in many locations within one season.
Although costs per foot is higher, a great deal less yardage
is needed (Swayze, 1988) . A portable internal fence with
minimal permanent fence will decrease fencing costs and

facilitate conservation machine harvest.

Fence and labor costs for installation and maintenance will
vary greatly depending on existing fence, materials available,
topography and type of system (Murphy, 1989) . Permanent fence
can offer a high quality, long lasting fence which is low in
maintenance and over the life of the fence, is often lower in
cost. A general rule is that very small operators should use
100% portable power fence and large operations should use
permanent fencing or a combination of permanent and temporary
fencing (Swayze, 1988) . As a farm matures, permanent fence

can replace temporary fencing (Bartlett, 1991).

Advantages to the use of high tensile electric fencing as

54
compared to conventional fencing (woven or barbed wire) are
economics, effectiveness, flexibility and ease of use

(Malechek and Dwyer, 1983).

High tensile wire is economical. It is reasonably inexpensive
to construct, requires fewer posts, is durable and has less
visual impact on the landscape than conventional fencing.
Ease of construction allows producers to build their own
fence, saving valuable labor expense (Gallagher, 1988). Ease
of maintenance saves both material and labor costs (Selders,
1987) . Decreased maintenance costs may result from a decrease
in fence damage due to animals, snow and fallen trees. High
tensile wire fencing can be constructed for $600 to $1000 per
mile (Malechek and Dwyer, 1983). Through proper use, this
fencing acts as a tool to increase forage quality, decrease
use of supplemental feed, increase efficiency of labor and
equipment and better control vegetation to offset operating

costs such as herbicides for weed control.

High tensile wire is effective. Through a uniform charge, it
provides good livestock control, predator control and offers
protection to newly seeded areas and increased water shed
protection. It is safe for livestock and causes minimal
damage to the hide. This effectiveness is due to the high
voltage and low impedance which provides a safe, short pulse,
allowing the animal to easily back off (Malechek and Dwyer,
1983).

55
High tensile fence is flexible. Spider fence (semi-permanent)
allows for ease of frequent movement between paddocks , a
practice which can lead to increased forage quality and
production (Selders, 1987) . High tensile fence can be subject
to low temperature contraction with out losing elasticity,
while still maintaining flexibility. It is flexible enough to
bend, wrap up, form, tie in knots or clamp with crimping
sleeves or by hand- This high elastic limit decreases common
stretch or sag problems that are found in conventional fencing

(Selders, 1987).

High Tensile wire is easy to handle and can be easily adapted
to specific needs (Malechek and Dwyer, 1983) . Portable
polytape allows rapid set-up and take down. Lang distances

may be strung from a single charger.

The disadvantages of high tensile fencing include wire tension
problems in extreme temperatures, power failures, the cost of
electricity, and the need for special equipment such as a
crimper and a tightener. By assessing the costs associated
with these advantages and disadvantages, the economic
viability of high tensile electric fencing for a particular

operation can be assessed.

2.8.3 Economics of Fencing
Cost benefit analysis can be used to chose a fencing system.

The benefits derived from an undertaking must be greater than

56
or equal to the costs incurred. This usually involves only
tangible costs and benefits (those whieh can be assigned a
dollar figure). From there, a decision maker can incorporate
intangibles, such.as personal preference and safety concerns,
to finalize their decision. The cost of preparing the site
and future expansion or other land use plans must be

considered in a economic analysis.

Benefits of utilizing high tensile fencing can be realized by
increased revenue or reduced costs over conventional fencing.
The cost.of high tensile electric fencing is usually 30-50% of
conventional fencing (Steger, 1986 and 1987). For example, a
four wire fence on flat pasture costs approximately half as
much as a comparable barbed wire fence and one third as much
as a net wire fence. Costs for high-tensile fencing drop

rapidly when fencing flat terrain (Gallagher, 1988).

Extensive plant management made possible by the use of semi-
permanent and temporary fencing through intensive time
controlled grazing, potentially decreasing supplemental feed
costs by increasing the forage quality. In addition,
increased plant management capabilities allow the manipulation
of vegetation to offset expenses like weed control. vehicle
expenses are saved because cattle are in a concentrated

location.

Increased revenue can be realized through increased weight

57
gain per animal and/or a higher stocking rate per acre. Thus,
a higher return per acre grazed can be made possible by more
management control. For example, ”Graze More Beef"
demonstrations resulted in gains per acre 600 to 650 lbs
higher than that realized in traditional continuous grazing at
low stocking rates (Turner, et al., 1986). Other benefits
which have been realized include increased conception rate and

calf weaning weights.

Economic costs of high tensile fencing can occur as increased
costs or decreased returns over general conventional fencing.
Increased costs with a high tensile electric fence include an
electrical charge not realized with nonelectrical fencing and

special tools.

2.8.4 Fence Construction

Many variables are explicitly considered to design a fencing
system. .Actual fencing construction requires a design of the
fencing system layout, acquisition of the necessary'materials
and tools and an understanding of construction.principles and

techniques.

The design and layout of an intensive grazing system.involves
many steps. Initially, pasture boundaries must be defined.
The first attempt of designing a grazing system should always
be on paper. Producers should make use of 3 maps (soil

capacity, aerial photograph and topographical map) to organize

58

logical boundaries for fields (Turner, et al., 1986).

Shading opportunities should be considered in the design of
the system for milk cows, but is not generally necessary for
other species. Shade will encourage manure deposit in one
central area, depriving other areas of natural fertilizer

(Bartlett, 1991).

Existing fence should be considered, but not limit the best
use of the land's resources (Turner, et al., 1986). Fixed
resources on the farm (acreage, soil type, slope, rockiness),
semi-fixed resources (water supply, existing fences, and grass
base) and variable resources (forage type, temporary fences,
cattle numbers) and factors such as seasonal use patterns,
economics, and opportunity cost of land are included (Turner,

1986).

The location and shape of the field is a logical beginning
point to design a system. Animal movement must be
considered. The fencing design must facilitate easy movement
of cattle to decrease animal stress and increase performance.
A pie-shaped arrangement has two distinct disadvantages over
a rectangular system: a mud hole may develop at the watering
site and it is more difficult to make semi-homogeneous

paddocks that following land contours with this arrangement.

A choice must be made between electric or conventional fencing

59
such as wooden or woven fences. Existing fencing at the
grazing site will alter the cost structure of the alternative
fencing systems. When grazing is considered on under or
unutilized land, rate of return to the fencing system is often

used as an economic indicator of the projects feasibility.

A mixture of temporary and permanent fencing can be used in
the systems There are management and other considerations in
addition.to those of cost and longevityu The use of temporary
fences is a good labor saver. Temporary and portable fence
increase management effectiveness or ease the use of tillage
equipment. If an electric wire fence is used, the type and
number of wires must be chosen. Guidelines are available on

the number of wires to use by species (Figure 2.3).

Water access and availability may be a capital consideration
in the formation of a grazing site. Location of the watering
tank or access to a natural water source can greatly influence
the cost of the system. A watering site should include good
drainage and enough space for watering, but not so much as to
encourage loitering. As a result of proper fence design,
cattle should come to the site only to drink water, which
always must be in adequate supply (Steger, 1986) . Because its
more difficult to use a separate water supply for each
paddock, a central watering source is often recommended.
Water direct from.a pond or spring may hamper disease control

(Turner, et al., 1986).

60

 

 

 

 

 

 

 

 

 

Five Wire Cattle Fence Four Wire Cattle/Horse Fence
(46", five wire) (46", four wire)
10" 12"
10"
12"
10"
10"
800
8“ ‘2.

(6 foot fiberglass rod with soft spacings)

 

 

 

 

 

Two Wire Beef IDai r9 w/o Calves Two Wire Beef/Dot rt) with Calves
(36", two wires) (36", three wires)
16" '2'
ll"
20 13,,

(also suggested is two wire, 17" and 37")

Hard to Hold Cattle
Permanent 17", 26", 37"
Portable 11", 26-26", 34-38“

Figure 2.3 Number of Wires for Animal Control

61
For sheep or a small number of cattle, water can be hauled
with a pickup or water wagon. Another option is black plastic
hose laid on or just below the surface. This option is
inexpensive and effective and the line does not have to be
water proved as the grazing season does not coincide with long

or extreme periods of freezing weather (Bartlett, 1991).

The materials and tools used in the construction and use of an
electric fencing system make up additional costs. An
energizer is a vital component of an electric fencing system.
Energizers vary by type of power source requirement (battery,
solar, or plug in) and by capacity (size of capacitor), which

determines how far the charge can be transmitted.

An energizer is chosen based on the length of the fence,
vegetation present, type of animal and power available
(Steger, 1987). Each amp of capacity will effectively power
one mile of fence. For control of stocker cattle, voltage may
be as low as 2000 to 2500 volts and a low impedance, properly
grounded, fence charger should be used. Grounding is often
the limiting factor of efficiency. Existing ground rods for
power or telephones should not be used as grounding for the
fence. Energizers vary widely in cost. An energizer emitting
a short pulse will limit total energy, protecting posts and

wires.

Wire type must also be chosen. Overpower wire is costly and

62
not necessary for livestock control. A commonly used wire is
twelve and one-half gauge high tensile triple galvanized wire,
which will last about 20 years. Tumbleweed electric fences
allow the size of the grazing area to be easily adjusted for
rainfall and growing conditions (Nation, 1985).

Posts have a basic function of holding up the wire. The best
and most trouble free post to use is a self-insulating round
fiberglass post (Steger, 1987). The other alternatives are
steel posts, which can ground the intended hot wire, and
structural tubing and wooden posts, which have a higher labor
requirement, but if treated, can often be used without

insulators.

The post-insulator combination used is a major factor in
appearance and effectiveness of the electric fence system. It
works best to use free running wires so animal pressure will
not break the fence. Using insulators on all posts and wires
offers two benefits: the location of the ground or hot wires
can be easily changed and the efficiency of the energizer
increases. High quality insulators should be used for a good
fence. End insulators such as porcelain donuts or insulators
made from high strain plastic work well. Soft plastic

insulators are more easily cut by wires.

When using an electric fencing system, the costs of protection

from electric shock include a voltmeter, insulators,

63
lightening protection and insulation. Other items which may
need to be purchased include: staples, wire splicers
(sleeves), mechanical fasteners or wire knots, spinning jenny
(wire dispenser), nicopress tool (crimping tool) and a chain
removable tool with clamps to grasp the smooth wire for
stretching. A voltmeter, lightening diverter, flood gate
controller, voltage splice protector, and cut off switches may
also need to be purchased. These costs are important to

consider when comparing land use alternatives.

An All terrain vehicle (ATV) can be used for building fence,
stringing temporary wires, opening gates, checking pasture and
other pasture chores. An ATV may be more economical and

mobile that a tractor or a pickup (Bartlett, 1991).

2 . 9 Grazing models

Research on grazing can be a time consuming and expensive
task. The results of a study are often applied to numerous
practical problems of a varying degree of similarity to the
conditions present in the actual study. The specific nature
of a particular grazing study may make inferences to a wide
range of on farm situations inappropriate, creating a need to
formulate a method to shorten the gap between research and its
applicability to the farm situation. Grazing models were
developed for this purpose.

64

2.9.1 Grazing nodal:

One such model, GRAZE, was developed to relate beef animal
performance to environment, management practices and selective
grazing of pastures (Loewer, et al., 1987). In this model,
daily’ measures of pasture quality and availability are
maintained” Measures of animals physiological weight and age
are computed at fifteen minute intervals. Using these
measures, body composition, efficiency of growth and feed
utilization are then determined. Rotational grazing systems
are then evaluated using time of grazing and/or availability

of dry matter as a basis for animal movement.

In this model, the pasture is divided into various
subdivisions throughout each day. These subdivisions
represent conceptual differences in herbage quality and mass
associated with selective grazing. The number and size of
these subdivisions vary with environment and forage removal.
These subdivisions are reevaluated and ranked each day
depending on plant growth, composition, and quantity of dry
matter removed previously. Dry matter is removed, beginning
with the highest ranking area. This logic continues until the

animal reaches its intake maximum.

In this model, the:dry'matter intake rate is a function of the
physiological age of the animal and plant quality and
availability (Figure 2.4). Plant quality and availability is

a function of new, old or dead plant particles present.

65

 

1.0

0 5 - point at which

' DM intake rate
becomes limited

/ by DM availabilitg

 

 

Fraction of lnta ke Rate

 

DM Available

Figure 2.4 Intake Rate as A Function of DH

The rate of ingestion is a weighted average of the portion of
the plant consumed and its potential intake rate. The
potential intake rate may decrease by forage availability
(Loewer, et al., 1987).

GROWIT is a model which simulates plant growth and composition
on a daily basis as a function of the minimum and maximum
daily temperatures, rainfall, forage removal rates,
fertilization data and crop parameters. Each plant is
categorized as new, old, dead or unavailable for grazing.
Each plant is further described in terms of cell content,
potentially digestible cell wall or indigestible cell wall
material (Loewer, et al., 1987).

Another model, the Farm Advisory Model, was formulated to

evaluate grassland management decisions on beef and sheep

66
farms in the United Kingdom (Dowle and Doyle, 1988) . The
model is used to assess the implications of altering
fertilization, stocking rates, feeding schemes and grazing
management. This model evaluates the likely practical and
economic consequences of changes in grazing and conservation
management. Within the model, four submodels are present.
These include grass growth, stock feeding management,
integration of conservation and grazing and a measure of

biological and economical efficiency.

The grassland is.partitioned between grazing and conservation
by maximizing the conservation cut subject to meeting the
sufficient grass intake to meet animal requirements at all

times. Hay and silage losses of 25 percent are assumed.

This model is used to rapidly assess the likely implications
of a given change in a grazing system on both grass
utilization and profits. There are many such changes which
can be evaluated including the alteration of site
characteristics, increasing grass area, improving sward
composition, changing sward composition and improving
drainage. The implication of changing levels and timing of
fertilizer application and conservation cuts, and the value of

concentrate feeding can also be evaluated.

67
2.9.2 Grazing lodel Accuracy
The validity of grazing models depends upon their ability to
predict actuality. The validity of the Farm Advisory Model

was tested.

In order to validate the Farm Advisory Model, its prediction
results were compared with the observed results of 40 farms in
Great Britain (Meat and Livestock Commission of Great
Britain). The model underpredicted stocking rates and
overpredicted.number of conservation cuts. Most of the farms
took either no or one conservation cut. The predicted yields
were larger than actual for the first cut and smaller than
actual for the second cut. Four farms took silage cuts. The
yield of these cuts was generally less than that predicted.
This lower actual yield may be due to higher than predicted

stocking rates implemented on these farms.

The difference between predicted and actual stocking rates and
quantities of silage could be quite large. This is consistent
with the idea that most farms are not exploiting livestock to
their full potential. In the model, increased annual rainfall
and fertilization rates was correlated with higher stocking

rates and profits (Dowle and Doyle, 1988).

The dynamic aspects of both plant and animal growth,
environmental influences, the definition of plant and animal

maturity and accurate measures of forage quality make it

68
difficult to model beef-forage systems (Loewer, et al. , 1987) .
Attempts to overcome these difficulties increase through
modeling efforts put forth by the research community.

2.10 Grazing Research/survey Findings

Much research has been done in the area of grazing. In this
section, a few studies from each of several areas, including
grazing system treatment effects, economic findings in grazing
research, research on alfalfa, grazing systems for dairy
cattle and forage and grazing demonstrations will be

discussed.

2.10.1 Grasing System Treatment Effects

Allen (1985) reported on two randomized block design trials
comparing different rotational grazing systems. In the
first trial, angus cows, calves and yearlings were grazed on
a tall fescue, red clover and white clover mixture

consisting of two systems.

In system one, yearling steers grazed up to 50% of the
available forage in each paddock prior to the cows. Calves
creep fed with the steers. Bay was harvested in 45% of this
pasture. In system two, cows continuously grazed on 55% of
the total area, with the remaining area grazed by calves and

steers and cut for hay.

69
In both systems, yearlings were removed in early August.
Calves continued to creep feed and were weaned in October. In
early November, cows grazed stockpiled fescue from the second
pasture to meet their additional nutrient requirements.
Weanlings were wintered on adjacent stockpiled fescue at a
rate of one acre per calf. The pasture was stocked with six
cow/calf pairs and the steers grazed excess forage on a put
and take system. Stocking rate was increased by one cow in
the rotational system during the first week. No supplemental

feeding was practiced until December.

Cows in the three paddock continuous system maintained a
higher body weight than those under the rotational system.
Yearlings gains were higher in the continuous system, while
calf performance was similar for both systems. In the first
year, more hay was harvested from the rotationally grazed
system. Total gain per acre was 405 lbs and 415 lbs, for the

rotational and continuous systems, respectively.

In the second trial, a ten paddock system was compared to a
one paddock continuous system over two replicates, with
crossbred stocker steers grazing orchard grass and red clover.
The grazing season was from May 9 to September 26. Excessive
hay was harvested. Stocking rate began at two head per acre
aria was adjusted for forage availability, resulting in a
stocking rate of one head per acre by August. No steers

grazed from July 6 to August 9 due to hot weather. Paddock

70
movement in the rotationally grazed system was determined by
forage availability and did not allow for grazing of regrowth.
In the continuous system, the paddock was divided into two
sections prior to first cutting to allow excess forage to be
cut. Individual animal average daily gains and gains per acre
were higher for the continuous system. Total gain per acre
was 345 lbs and 421 lbs for the rotational and continuous

systems, respectively.

It was concluded that individual animal performance was
greater in continuous grazing systems over those utilizing
rotational grazing. No short term advantage was found for
rotationally grazed systems, although inputs of fence,
watering supplies, shade and labor were higher for the
rotational systems. This is in agreement with Missouri
research (Whittier, et al., 1987 in Allen, 1985) which found
no advantage to rotationally grazing fescue based pastures,
and no advantages to increasing number of paddocks for season
long grazing. No botanical composition differences were found

between the systems after one year.

Walker, et al. (1989) hypothesized that overall diet quality
would be lower in a rotationally grazed treatment than in a
moderately stocked, continuously grazed treatment as a result
of grazing pressure, although individual cow performance would

not be affected.

71
An experiment was designed to examine the affect of a
rotational grazing system at two stocking rates on quantity
and botanical composition of cattle diets, harvest efficiency,
animal behavior, watershed conditions, livestock performance

and profit margins.

The pasture consisted of short and mid grasses, Japanese brome
and honey mesquite. The continuous system was a single, 248
ha pasture stocked at 6.2 ha per cow per year. The
rotationally grazed system had 14 paddocks with a mean size of
33 ha. Data was collected from two 27 ha paddocks and one 30
ha paddock. Stocking rates varied from 3 .7 to 5.2 ha per cow
per year. The 30 ha paddock was grazed for two to five days.
The 27 ha paddocks were grazed for 18 hours to two days,
resulting in a pasture rest of 30 to 65 days. Calf weights
increased from 200 to 450 kg over the trial. Individual cow
weight gains in the two systems were similar. Rotational

grazing did not lower the quality of the pasture.

Morrow, et al. (1986) hypothesized that intensive grazing
would result in a higher percent use of the forage available,
decreasing selectivity and thus the overall quality of diet as
a function of paddock movement. Hereford cows nursing
Gelbvieh-sired calves, born from late February to early April,
were grazed on three forage management systems utilizing cool
season grasses and legumes. The low system was an

orchardgrass pasture stocked at 2.67 acres per cow/calf unit

72
on a three paddock rotation. The medium system was a
orchardgrass and.red clover pasture stocked at 2.00 acres per
cow/calf unit on a six paddock rotation. The high system was
a pasture of bromegrass interseeded with alfalfa or birdsfoot
trefoil or fertilized with nitrogen stocked at 1.33 acres per
cow/calf unit on a 12 paddock rotation. The results are

summarized in Table 2.1.

Table 2.1 Morrow, et al.

(1988) Experimental Results

 

 

 

 

 

 

 

 

 

 

   
 

System 1986 1987
lb/calf lb/acre lb/calf lb/acre
Law 266 100 285 107
I Medium 262 131 306 153
248 186 308 232
153 140
Pasture

 

 

In 1986,

the high system had 86% more gain than the low

system, although individual animal performance was less. In

1987, the high system had a higher individual animal
performance and gain per acre than the low system. The need
to monitor forage quality and availability in a high input
system in order to produce high calf gains was stressed.

Matches, et al. (1974) reported on three grazing trials,
including one conventional and two pasture systems held in
Missouri to look at two practical experimental designs for

grazing systems. The objectives of the study were to consider

 

  

73

different forages and management practices for grazing.

The trials were held on two farms. On the Bradford farm, 1.2
ha.pastures of tall fescue, orchard.grass and.erown vetch were
grazed for 217 days by polled Hereford heifers of mean
beginning weight of 227 kg. Eight tenths ha pastures of cool
season forages including tall fescue, orchardgrass, and smooth
bromegrass and pastures of warm season forages including
bluestem and switch grass (1.2 ha) and pearl millet (0.8 ha)
were grazed by Holstein heifers of mean starting weight of 334

kg.

The trial's pastures consisted of separate pastures of cool
and warm season forages, with nine pasture systems being
formed from three warm season and three cool season pastures.
The warm season and cool season pastures were grazed in two

and three paddock rotations, respectively.

Significant differences existed for gain per hectare and
average daily gain among treatments in the separate pasture
trials, while there was little difference shown among pasture
systems with season-long grazing. The highest average daily
gain per ha and per animal occurred on the fescue all season
system at Southwest center site. ‘High animal performance was
attributed to a uniform diet throughout the season. The large
differences found between individual forages was lost when

pastures were integrated into pasture systems for season-long

74
grazing. Integration resulted in differences one half to one
third of that found in conventional trials. Precision between
separate pastures and pasture systems was found to be

comparable.

Heitschmidt, et al. (1982) compared intensive grazing with
continuous grazing. Weight gain per head was the same for
both systems. The stocking rate in the intensive grazing
system was twice that of the continuous system. Thus, gains
per acre for the intensive system were twice that of the
continuous system. Total forage production was good in both
systems and potentially higher in the intensive system.

Malechek and Dwyer (1983) compared animal production of
intensive grazing systems with that of conventional systems in
Utah. Animal behavior, nutrition, forage use, plant community
change, watershed impacts, on site economics and universal
applicability were evaluated. A 210 acre pasture of crested
wheatgrass was arranged in a ten paddock wagon wheel design.
Grazing began in April, with cattle in each paddock for
approximately three days per cycle for two cycles. The major
limitation of this system was the shortage of early spring
forage which limited cattle numbers to those that could be

economically fed expensive hay in the winter and early spring.

Clark, et al. (1988) reported on Hereford cross yearlings

75
grazing grass and grass-legume fields at the Elora research
station in 1986 and 1987. The objectives of the study were to
evaluate the profitability of an intensively managed pasture
as compared to cash crops on productive land, to look at the
effects of pasture as a component of a cash crop rotation on
soil health and to compare currently recommended and exotic

forages for integrated pest management.

Clark, et al. (1988) hypothesized: (1) smaller paddocks and
more frequent moves would permit higher stocking rates and
thus, higher gain per acre and (2) a grass-legume pasture
would produce more beef profits than grass plus nitrogen
fertilizer.

In each year, a control group was fed good quality alfalfa
silage and a feed high in bypass protein while four treatments
were conducted on three acre plots. The two forage types,
grass and grass-legume swards, were each run on two rotational
schemes, a four paddock system and a 12 paddock system. The
four paddock system consisted of four, 0. 75 acre paddocks each
grazed six to 12 days per rotation. The 12 paddock system had
12 paddocks (0.25 acres), each grazed two to four days per
rotation. In each, the regrowth period was 20-25 days in the

spring and 30 to 40 days in midseason and the fall.

The range in gains for individual steers was between 358 and

370 lbs over all systems. The control group gained 365 lbs

76
per head in 1987. The highest gains were in the grass-legume
mixture in the four paddock system and were greater than 400
lbs per steer in 1986 and 1987. Gains per acre were 25 %
higher in 1987 (718 lbs/acre) than in 1986 (575 lbs/acre) due
to the use of short keeper steers in May and June of 1987.
Gain approached 800 lbs per acre in the four and 12 paddock

systems in 1987.

Over two years, the per animal gains were greater in the
grass-legume mixture and were more pronounced in the four
paddock system (14%) than in the 12 paddock.system (4%). This
may be due to damage caused by regrazing of young, high
quality orchardgrass in the four paddock system. There was
18% more gain from a grass-legume stand per acre (25% and 12%
on four and 12 paddock systems, respectively) than on a grass
stand. Gains per acre in both systems were almost the same,
while stocking rate varied. Mean pounds per acre over 1986
and 1987 were 563 and 622 pounds»per acre in the grass system,
four and.12 paddock.systems, respectively and were 702 and 698
pounds per acre in the grass-legume pasture, four and 12

paddocks systems, respectively.

2.10.2 Econeaic Findings in Grazing Research

Parsch and Loewer (1987) used GRAZE, a beef-forage grazing
simulator, to evaluate strict rotational grazing as a
management strategy. GRAZE simulated grazing of 226 kg.

steer calves on Bermudagrass in a continuous grazing system

77
versus nine rotationally grazed systems. The use of ten
different weather scenarios for each system looked at the risk
sensitivity of each system. Market sensitivity was not

addressed.

The systems were then ranked by stochastic dominance.

Returns per hectare are equal to gross returns minus costs and
are predicted from animal weight. Net returns from calves
measures return to overhead labor, overhead capital, land and
management. Costs include purchase of steer calves, costs
associated with buying, selling, and transportation of cattle,
vet costs, fencing, herding labor, and interest on operating

capital.

In this white-box model, beef-forage production is simulated
as a function of environment and management. Grazing animals
maximize digestible dry matter intake rate as a function of
weight-age of animal and forage quality and availability.
Steers were stocked at seven head per acre from June 1 to
October 4 and were not supplemented. Rotational systems were
defined by number of paddocks, number of days each paddock was
grazed and stocking density.

Expected returns were highest in the continuously grazed
system, although risk considerations may cause a producer to
choose one of the rotationally grazed systems. Strategy
formulation will vary according to several factors, including

the risk preference of the producer. An increase in the

 

. .. - - —- - llama.a\ur.xztmzxz'm
“ ‘0 ~,““‘e

78
number of paddocks and grazing period decreased gain and net
return per acre. Sufficient rainfall increased gains and net
returns in pastures with longer grazing periods and more

paddocks.

Rotational grazing' performed poorly under poor 'weather,
decreasing gain and net return as the number of paddocks and
grazing period increased. Gains were 621 kg per ha for the
continuously grazed system and averaged 558 kg per ha for the
rotationally grazed systems. Continuous grazing surpassed
rotational grazing in economic performance in eight years out

of ten.

Leung and smith (1984) analyzed the profitability of
conversion from a continuous grazing system to an intensive
grazing system on a predominately Kikuyu grass pasture. The
intensive grazing system consisted of 28 paddocks arranged in
a wagon wheel design with a center hub. Mean rotation
duration was 28 days and ranged from 16 to 34 days, depending
on growth rate of grass and forage availability. Weaned

steers, with.an.average starting weight of 450 lbs, were used.

Partial budgeting was used to evaluate the change from a
continuous to an intensive rotational grazing system. Costs
and revenues that varied between systems included labor,

veterinarian expenses, mineral supplement and water associated

79
'with a larger herd in addition to cost of construction of the
grazing cell and change in returns from beef gain. Beef
production per acre was 250 pounds in the continuous and 725
lbs in the intensive grazing system. On 358 acres, this
resulted in an additional profit for the intensive grazing
system of $26,000 per year or $72 per acre over the continuous
system, indicating an economic potential for intensive grazing
to increase profits. The intensive grazing system requires a
large additional cash outlay. Careful cash flow planning and
intensive managerial demands are essential in an intensive
system. A holistic or systems approach should be used to
coordinate an intensive grazing system with the other
enterprises of the range, including time and subject

management.

Clark, et al. (1988) performed research on profitable pasture
management in response to a need for methods to increase

profit margins in beef production.

2.10.3 Alfalfa and Other Forages

Rather and Dorrance (1935) report the results of a survey of
35 Michigan farms which regularly used alfalfa for pasture.
The farms had an average history of over ten years grazing
alfalfa. Thirty of the farmers preferred grazing alfalfa to
sweet clover while only two preferred sweet clover. Reasons
stated include greater carrying capacity, the longer stand
persistence, higher palatability and a longer grazing season

80
with alfalfa pastures. The lack of persistence of second year

sweet clover after July 15 was also cited.

Alfalfa was also compared with grass pastures (old and newly
seeded) in 1932. Most permanent grass pastures in Michigan
were primarily Kentucky bluegrass with either white clover on
good soils or Canada bluegrass on poor soils. Alfalfa was
found to be more productive as a pasture crop in the spring
and summer and exhibits greater growth and productivity in the

hot summer months than grass.

Alfalfa was seeded on a sandy loam soil in Augusta, MI in 1929
to look at carrying capacity and suitability of alfalfa
pasture for dairy cows and grazing influence on pasture
compared to haying. Findings indicated that the number of
animals must be large enough to prevent plants from maturing

to a point of low palatability with continuous grazing.

Grazing was discontinued on September 1 to allow a full store
of root reserves to develop. Close mowing or grazing of

alfalfa is injurious to the alfalfa plant during this period.

Oliver (mid 1970's (from Nation, 1985)) reported on stocking
rate of highly nitrated coastal bermudagrass in Northwest
Louisiana. An initial stocking rate of 2,000 lbs per acre of

yearling weight produced the best gain per acre. A lower

81

stocking rate allowed the growth of mature forage and a higher
stocking rate limited forage availability. Best gains
occurred when the grass was kept at one to three inches in
height, although this required intensive management as the
rainfall in the south is highly variable.

In contrast to baled harvest, alfalfa yields increased over
the season. Several management implications were formed from
the results of the trial. Rotation schedules must meet the
normal growth curves of plants, approximately 34 to 36 days
for alfalfa throughout seasontand 21 to 28 days for grass. The
rotation schedule for grass varies throughout the season. For
alfalfa, stocking rate of cattle should be heavier in the
first rotation and then decrease throughout season. A shorter
grazing period in each area will allow plants to recover
better, increasing carrying capacity. Grazing of weed species
enhances legume and grass population growth. With daily
rotations, special attention must be given to timing of
movement, as cattle will stand idle waiting to be moved. It
is recommended that cross fencing be used if cattle are on a
given strip for less than five days. If grazing periods of
greater than five days are allowed, pasture will experience
regrowth and thus a back fence should be used. The high
tensile fencing and portable fencing with low impedance

energizers are the most economical and practical.

Allen (1985) studied alfalfa management for hay and pasture

with both spring and summer grazing. Sheep grazed an

82

established stand of alfalfa with herbicides applied in the
second and third years. Mean stocking rate for the heavy and
light stocked systems was 73 and 53 sheep/ha in the first year
and 39 and 34 sheep/ha in the second year. Sheep were spring
grazed during two years beginning on April 6, when alfalfa was
13 cm in height. Sheep were grazed for zero, two, four and
six weeks at a light (leaf area index (LAI) of 1.0) and heavy
(LAI of 0.5) grazing pressure. The residual effects of
grazing on the hay harvest were measured in the third year
with no grazing. Hay was cut at six weeks after April 6 at
the late bud stage. Regrowth was harvested on all systems at
one tenth bud stage.

Light grazing pressure had little effect on the stand or its
future production. High grazing pressure, especially for the
six week period, reduced plant density and yield. Weeds
increased with grazing, but were decreased using herbicides
after the third season cuttings. Grazing, especially at high
pressure, decreased nutrient value of the stand. The stand
quickly recovered when grazing was discontinued. Grazed
stands reached the cutting stage at a similar time to ungrazed

stands.

Two years of summer grazing trials with six systems, varying
by first grazing date, were held. Residual effects were
measured on three hay harvests in the third year. Alfalfa

grazed at early bloom for a seven day period had similar

83

weeds, regrowth, and stand density to non grazed alfalfa.
Regrowth grazing at the early bloom stage caused increased
frequency of weeds. The stand showed excellent growth in the
third year, although the effects of grazing were still
apparent. As the grazing period increased, weeds increased
and yield decreased, although herbicides may have addressed
both of these effects. Grazing at the early bloom stage did
not harm the stand during the third year.

LAI remaining after summer grazing for two, four and six weeks
was similar to that of the high stocking rate spring grazing
system. This indicates good potential for a lighter stocking
rate, which would leave more leaf area for photosynthesis. As
grazing occurred later in the plant's life cycle, leaves were
selectively grazed over stems and plant quality decreased.
Increasing grazing period in a given area decreased the speed

of regrowth. Regrowth was slower in the summer months.

It was concluded that long periods of spring grazing are not
detrimental to either the stand or its future productivity.
Summer grazing, although less flexible, provides good weed

control.

Schmidt, et al. (1985) studied beef steer performance on
alfalfa and Sericea Lespedeza pastures on Ora and Greenville
soils in the upper coastal plain in northwestern Alabama. The

study was performed in response to the need for definition of

84
high quality pastures that can provide rapid gains into the
summer months when cool season forages are not available. The
study ran from 1982 to 1984. Angus x Hereford cross steers
with a mean weight of 225 kg were assigned to one of four
pasture treatments of 12, 1. 2 ha paddocks. Cimarron Alfalfa,
Seral Sericea, and an Au Lotan rotationally grazed pastures
and an Au Lotan continuously grazed pasture made up the four
treatments. The rotationally grazed pastures were further
subdivided into three, 0.4 ha subpaddocks. Each received two
weeks of grazing and one week of rest. Plant height was kept
between ten to 20 centimeters. Steers were weighed every 28
days and were maintained on alfalfa or Serala Sericea pastures
when not on test. Water, salt and shade were provided for all
steers. Those steers on alfalfa also received poloxalene

blocks.

Averaged over three years, mean grazing period was 163 days
(March 30 through September 8) for alfalfa and 139 days (April
22 through September 8) for Sericea cultivars. Although
carrying capacity didn't differ among treatments, alfalfa was
the most severely effected by drought. Mean average daily
gain was highest on alfalfa (0.98 Kg) followed by An Lotan and

Serala Seri cea .

Continuous versus rotationally grazed Au Lotan provided
similar gains, which were approximately half that showed by

alfalfa. Gains per acre averaged over three years on the

85
alfalfa, Serala Sericea, Au Lotan Sericea rotationally grazed
and Au Lotan Sericea continuously grazed were 533, 278, 310
and 343 Kg per year, respectively. Weed pressure was not a
problem with the exception of the alfalfa pasture in the late
summer. Weeds were preferably selected over the high tannin
Sericea. Alfalfa shoots decreased each year, probably due to
inadequate root reserve replenishment. Persistence was

moderate in the third year.

Russell (1990) evaluated grazing of corn crop residue in
continuous versus strip grazing with a two week rotation
system. Optimal stocking rate was found to be a function of
body weights necessary for cow productivity maintenance, a
function of a cows condition. In 1989, weight gains were 19.6
and 40.0 lbs per cow for the continuous and strip grazing
systems, respectively over 56 days at a stocking rate of .5

acres per cow per month.

Total weight gains and increases in weight to height ratios
of gestating cows strip grazing were twice that of those
continuously grazing. As losses in plant matter did not
differ, it was concluded that strip grazing resulted in a more

efficient use of crop residues.

Weathering accounted for 45.1 to 64.1% of digestible dry
matter loss from the residue. A downside of continuous

grazing is that the most digestible portions of forage are

86
grazed first leaving the least nutritious stover for when
spring calving cows have a high nutritional need. Therefore,

an energy supplement may be needed late in the season.

2.10.4 Grasing Systems for Dairy Cattle

Conrad and Vankeuren (1989) looked at top grazing of high
protein forages as an option for medium and low input
sustainable agriculture. Objectives of the study were to
provide a continuous supply of immature, high-protein forage
to lactating dairy cows from late spring to early autumn, to
keep forages highly digestible by keeping them in a growing or
vegetative state, to determine the effect of minimizing
concentrate feeding on milk and milk protein production and to
assess the relative amount of fossil fuel used in conventional

dairy feeding systems versus those highly incorporating
grazing.

Lactating cows were grazed on a legume or grass pasture
system. The legume pasture consisted of alfalfa or a
combination of alfalfa and Ladino clover. The grass pasture
consisted of orchardgrass or perennial ryegrass. Perennial

ryegrass was difficult to maintain throughout the summer.

Stocking rates of one to 2 . 6 cows per acre were used.
Poloxalene was fed to cows as a bloat guard at 10-20 grams per
day. In several seasons, heifers were used as follower

animals to graze the excess forage, increasing labor use. The

87
follower system was used in conjunction with a put and take

system.

Plots ranging from 1.5 to six acres were divided using
electric fencing. The legume pastures were divided into
eight equal paddocks . A top-grazing procedure was used. Cows
were placed in a paddock when the forage was 24 to 30 inches
high and were removed when the forage was eight to ten inches
high. A combination of rotation and strip grazing was used.
The grazing period was two to four days, allowing
approximately 21 days of regrowth. Excessive growth initiated
harvesting and/ or accelerated rotation. Orchardgrass pastures
were more intensively grazed. A 12 day rest period resulted
from grazing four plots for four days each. Regrowth was 16
to 18 inches and stubble was five to eight inches. Plant

matter less than eight inches was less than 50% digestible.

Concentrates including corn, oats and minerals were feed to
lactating dairy cows at zero, 11 and 21 lbs per day on alfalfa
and at 28 lbs per day on orchardgrass depending on amount of
forage consumed. A control ration consisting of 60% alfalfa
silage and 40% concentrate was fed. The trials began between
April 20 and May 8 and finished September 10. Heifers grazed

in late October.

Grazing reduced fossil fuel use per unit of milk over the

control group in the barn. Grazing systems used slightly less

88
land than a concentrate system but resulted in 20% less milk
per acre. Fencing costs were $200 per cow and were
depreciated over six years. The maintenance of the fence
proved to be a significant problem due to electrical
difficulties. Fencing systems have since improved. The costs
of the grazing system were inserted into the 1989 Ohio Dairy
Enterprise Budgets for harvested forages and grazed forages
for 6.5 months in a 13 month lactation period. Results

indicated that summer feeding through grazing is economical.

The conclusion was that if harvest management and grazing were
at an optimum given plant growth cycles throughout the season,
digestible energy yield could increase four times and dry
matter yields could increase two times with rotational over

continuous grazing.

Johnson, et al. (1988) looked at polled Hereford milk
production on cool and warm season forage systems under
different levels of grazing management and with different
forage types. Objectives of the study were to look at the
effect of different input systems on milk production and to
relate forage quality, availability and composition found to
animal performance. Four input systems, low, medium, high and
warm season were used. Stocking rates were 2.67, 2, 1.33, and

1. 3 acres per cow/calve pair, respectively. There were 26

cows per replicate. Two replicates were milked two days per

 

89
month and data on percent fat, percent protein and somatic
cell count was collected. Species were as follows: low
system; orchardgrass, medium system; orchardgrass, red clover
and ladino seed, high input system; smooth bromegrass with
alfalfa or birdsfoot trefoil, warm season input system; big

bluestem .

The low input system consisted of 16 acres in three, 5.33 acre
paddocks. Pairs spent two to three weeks in each paddock and
one paddock was usually harvested as hay. The medium input
system consisted of 16 acres in six, 2.67 acre paddocks.
Pairs spent five to ten days in each paddock and two to three
paddocks were harvested as hay as needed. The high input
system consisted of 16 acres in 12, 1.33 acre paddocks. Pairs
spent one to four days in each paddock and two to five
paddocks were harvested as hay as needed. The warm season
input consisted of six, 2 .16 acre paddocks. Pairs spent five
to seven days per paddock and no hay was harvested. Results

are not yet available.

2.10.5 Forage and Grazing Demonstrations

Rayburn (1988) reported on the Northeast Farm Forage
Demonstration Project in Maine, New Hampshire, New York and
Vermont. Objectives of the study were to determine the
quality of forage produced under intensive rotational grazing
over a wide range of environment and management conditions, to

develop a data base on pasture quality and factors which

9O
affect pasture forage quality and to obtain samples to develop
a calibration for NIR analysis of fresh forage samples.
Pastures over the entire study were approximately 70% mixed,
mostly grass, 12% grass, 12% mixed, mostly legume, and 5%
legume. Pastures by species were 9% alfalfa, 19% mixed
grasses, 29% Orchardgrass, 10% tall fescue, and 13% white

clover.

Sampling of pastures began July, 1988 and extended to October,
1988. One hundred eighty one complete pasture samples were
taken on 17 farms in four states. Thirty to 50 random, but
representative, samples of what cattle would eat were taken in
each pasture prior to grazing; The three predominant species

in each pasture were listed.

Results indicated a mean regrowth period of 34 days with a
standard deviation of 13 days and a mean bulk height of 4.6
inches with a standard deviation of 2.2 inches, approximating
1980 pounds of dry matter per acre. The quality of intensive
rotationally grazed pastures was measured. Fiber and energy
was comparable to corn silage and was 40% higher than that
usually found in hays and silages of similar forage types.
Crude protein averaged 22% or twice that found in corn silage
and mixed mostly grass hays, although pastures had a low
protein solubility of 28%. Pastures were high in major
minerals. Trace minerals were shown to be highly variable,

indicating the need for a supplement.

91

Data collected in this first year of study indicated that
quality of rotationally grazed pastures is a function of
grazing management, soils, forage species, weather and
fertilization practices. The average pasture yielded 23
pounds of dry matter per acre per day which would adequately
support one 1000 pound animal . One conclusion of the
demonstration is that pastures provide a high level of highly
nutritious forage. Several improvements will be made for
future demonstration. To see the effect of individual species
on pasture quality and to increase practicality to field use,
the major species will be defined more closely. How weather
patterns and soil effect quality and pest infestations of
pasture will be evaluated. On farm sampling will be used to
look at forage availability and barn feeding.

Hearnshaw, et a1 . (1989) looked at genotype effects, the
importance of genotype-environment (pasture quality)
interaction and the implications for beef production under
three extensive grazing conditions on post-weaning growth of
Hereford and first-cross heifers in New South Wales, a
subtropical climate. The study was run over a period of five
years. Post-weaning growth, frame size and body condition of
Hereford x Hereford and three different Hereford crosses,
totaling 375 heifers, were evaluated. One group of heifers
was raised from weaning (8 months) to 18 months on a high
pasture system of Kikuyu, Paspalum, Rhodes grass and white

clover, including supplementation of grains including corn and

92
sorghum. Grains were supplemented at the rate of 1% of mean
live weight per day from weaning to 16 months . Two other
groups were raised to 30 months on low or medium quality
pastures consisting of the same species in the high system
plus carpet grass, and carpet grass, blady brass, blue couch
and native grasses, respectively. Stocking rates for the
high, medium and low pastures were 0.2 to 0.4 ha per heifer,
0.4 to 0.6 ha per heifer and one to two ha per heifer for the

three systems.

Average daily gain between weaning and 18 months was 552, 272
and 97 grams per day on high, medium and low pastures.
Genotype had a significant effect on gain and pasture x
genotype interaction was significant in most cases. Crosses
grew faster and were heavier than.Hereford x Hereford animals
on all pastures. Pasture accounted for the greatest amount of
variation of any factors fitted and in only one case*was there
an overlap between pasture and mean live weight gain. Pasture
systems affected crossbreeds differently; Advantage to
crossbreeds for live weight at 18 months as a percent of
Hereford value, ranges from eight to 12 on high, ten to 17 on
medium.and seven to 25 on low pastures. Adjusting for traits
including frame and pelvic dimensions, condition scores and 30
month subcutaneous fat depth to a common live weight removed
pasture effects. The pattern of genotype x pasture
interaction observed was similar to that found by Parnell,

Hearnshaw and Barlow in 1987.

93
After an initial loss for one month after weaning, live weight
change was linear for the high system and seasonal, including
a period of small or negative changes, for the medium.and low
systems. From‘weaning to 30 months, mean average daily gain
of heifers on medium and low pastures was 283 and 146 grams
per day, respectively. At mating, heifers on high pastures
averaged 268 kg at 14 months and on medium and low pastures

averaged 335 and 231 kg at 26 months, respectively.

2.11 Economics of Grazing

2.11.1 Revenues and Costs Associated With Intensive Grazing

In any business, profits are obtained by maintaining revenues
from an activity above the costs associated with obtaining
those revenues and an allocated fixed cost inherent in the
business over the intermediate or long run. The costs of
agricultural production have increased over recent years.
These costs include capital costs of land investment,
equipment and improvements (Malechek and Dwyer, 1983). In
beef production, variable costs including purchasing, raising
and marketing of stocker cattle, have also increased, Prices
for fed beef have remained fairly static or decreased (Black,
1990). This static revenue, combined with increasing costs,

has reduced the profit margin for beef producers.

It is therefore necessary to look for production alternatives

to increase or steady the profit margin of beef production.

94

Interest in intensive grazing livestock as an alternative to
feeding harvested feed in a feedlot situation has increased.
Grazing systems offer potential to curb the rising costs of
beef production. A profitable system of sustainable
agriculture can be structured around grazing (Conrad and van
Keuren, 1989) . Intensively grazed permanent pasture is
typically one-fourth to one-half the cost of the cheapest
harvested feeds, provides excellent quality and will rival the
output from cropland and will be more profitable (Swayze,
1988).

Cattle are equipped to consume large amounts of roughages and
can gain 1.25 to 2.00 pounds per day profitably using roughage
as a prime feed source 4 to 5 months of the year (Gould,

1989).

The variability of land results in different optimal uses
(Gould, 1989) . Cash crops may not be the best use for a given
unit of land. Grazing offers good potential for increased
profit on under or unutilized land. If resources such as
pasture, fence, facilities, water and capital are already
available, grazing may offer good profit potential. Gould
(1989) recommends a small first year investment and risk
position, including starting with a few head and keeping close

records of costs and returns.

Continuous grazing often results in increased costs associated

95
with fence construction and watering facilities, in addition
to a decreased carrying capacity of the land to allow adequate
range recovery (Malechek and Dwyer, 1983).

Intensive rotational grazing has strong potential to improve
the range naturally through secondary plant succession
(Malechek and Dwyer, 1983) . Use of intensive grazing can
increase carrying capacity of the range almost immediately
(Savory and Parsons (1980) in Walker, et al., 1989) through
the substantial increase in quantity and quality of forage.
The idea behind the intensive grazing method is that
aggregated livestock will use a large proportion of plants,
evenly distributed over the range. Plants are then allowed to
rest for regrowth. Grazing improves the soils nutrient
recycling and.water infiltration. (Malechek and Dwyer, 1983).
This can improve long range production possibilities and thus,

long term realized revenue from the land.

Feed is a major expense in animal or animal product
production. For a beef cow/calf herd to be profitable, costs
of production must be minimized, especially feed costs, to the
optimal level. Strobehn (1989) in Russell, 1990, found that
an average of 45.6% of all per cow costs are for feed and
pastures. He found that the top one-third producers in terms
of profitability fed 27.8% less stored feed.per 100 pounds of
beef that the lowest one-third. Strobehn inferred from this,

that by decreasing stored feed usage, a producer can increase

96

profits. Grazing can be used to reduce stored feed costs.

2.11.2 Case Studies in Econemics of Grasing

Several examples are available to illustrate the economic
impacts of pasturing livestock. The following cases are taken
from research and.popular literature. Through these, the use
of economics as a tool to analyze grazing systems can be

illustrated.

Consider the claim that the use of intensive grazing for dairy
cattle can decrease feed costs. On one dairy farm, a producer
divided a seven acre pasture into 17 paddocks. By allowing
grazing on one paddock per day, he fed almost no forages and
very little grain to his cows saving over $4000 in feed costs

the first year (Jacobs, 1989).

A demonstration in Franklin county, Vermont was conducted in
1984 on several dairy'herdsw ‘A $98 increase in net income per
cow using controlled versus continuous grazing was shown.
This demonstration was conducted with herds from 24 to 47 cows
with a mean milk production of 18,000 lbs. Savings were
equivalent to $.54 per cwt milk (Bartlett, 1991).

Controlled grazing offers the potential to increase carrying
capacity per land unit. An increased carrying capacity can
also reduce risk in nonfeed costs. Potential lost profit risk

from transportation and marketing can be eliminated by

97
additional on farm finishing made possible by additional

carrying capacity (Nation, 1985).

The examples found in the literature and presented above claim
that intensive grazing can increase profits through decreasing
costs. Cost containment is the key. Beef production must be

optimized, not maximized, for the given land resource base.

It is finding this optimal production level through the use of
capital budgeting and break-even analysis that makes up the
body of this thesis. A data set using the results of the
Michigan State University stocker cattle grazing trial is
used. Through the use of budgeting tools, an economic
comparison between three defined grazing systems and

harvesting corn will be made.

2.11.3 The Economic Model

The model to be used in comparing land use systems is similar
to that used by Dowle and Doyle (1988) . Only those costs
which are not considered fixed over the 10 year time frame

will be included.

98
The model as presented in Dowle and Doyle (1988) is as
follows:
Profit margin 2 z - V - Cn - Cf - Ch - Ca
Where
V - Overall value of meat and hay/silage produced
Cn - Total cost of nitrogen fertilizer
Cf = Total cost of supplemental feeds
ch = Total cost of harvesting hay and silage
Ca 8 Other associated costs (e.g. veterinary costs, water
costs...)
Profit is considered a function of the alfalfa yield and
quality, management efficiency, initial animal weight and
condition, environmental conditions, price margins, and input

prices.

Good management is a key to making an intensive grazing
program profitable. If the major enterprises on the farm are
forage crops and ruminants, management needed is inversely

proportional to other input use (Conrad and Van Keuren, 1989) .

To compare grazing systems with cash crops, an estimate of
performance per acre, as well as per animal must be obtained.
A performance per animal estimate is necessary to guarantee
that the minimal overhead costs of owning an animal are
achieved. Performance results of land grazed with proper
management must be available and carefully evaluated before

comparison to that of other land uses.

99

In comparing grazed forage and hay production, the beef gain
per acre in grazing alfalfa must offset the value of alfalfa
for hay or the value of corn for grain for grazing to be a
competitive alternative to cropping that same land. ‘Value is
also obtained from the flexibility offered to shift harvest
dates through grazing as necessitated by dry weather or a need
for high quality feed (Allen, 1985).

In economic terms, an intensive grazing system is
distinguished from other land use alternatives by its unique
capital requirements and the output obtained. Both grazing
and row cropping systems require capital goods. These can
include land, fencing, machinery, establishment and cattle
costs. The purchase of these capital inputs is necessary to
sustain production over time. The evaluation and the
development of long range plans, such as those necessitated by
deciding from among various land use options, can only be
accomplished through the use of capital budgeting and
financial analysis procedures. Capital budgeting is used to
bring future cash flows from the enterprise to a common period
in time. Financial analysis procedures such as partial
budgeting and break-even analysis can then be used to assess
the optimal strategy (Boehlje and Eidman, 1984).

Leung and Smith (1984) used capital and partial budgeting to
analyze the profitability of the conversion from the use of
conventional rotational grazing to an intensive grazing

system. On 358 acres, the intensive grazing system produced

100.
an additional $26,000, or $72 per acre, return above allocated
costs over the conventional system. Output gains from
intensive grazing were higher than the additional input costs
necessary to obtain these gains. Dowle and Doyle (1988) also
used partial budgeting to compare land use systems. Smith, et
al. (1986) describes the use of enterprise budgeting to
compare an intensive grazing system with conventional

rotational grazing. Pasture systems varied among the studies.

2.11.4 Explicit Costs of Beef Production

Forming a representative farm involves reviewing the
literature and forming quantitative guidelines. Literature
was reviewed on the costs of harvested forages and of pasture
and confinement feeding systems. For a complete economic
analysis, revenues and costs need to be made explicit,
quantified and made time neutral . The revenue in this
analysis will be income from beef and cash crop sales for the

grazing and cash crap systems, respectively.

2.11.4.1 Harvested Forages

A large proportion of harvested forage is lost through
harvesting and storage methods. It is not uncommon to lose
30% in outside storage of large bales. (Watson, 1988). Losses
can occur as protein and energy losses in standing forage not
harvested at its peak nutritional value (40% and 20%
respectively in 10 days), after mowing before baling (lo-25%,

mean TDN loss - 15%) and in storage (5-10% Dry Matter loss)

101
(Watson, 1988). Feed makes up a large proportion of the cost
of producing beef. Thus, losses in these three areas can add
greatly to the economic burden of the producer. Murphy (1989)
states that feeding stored forages can cost two to six times

more than pasturing.

2.11.4.2 The Cost of Pasturing

The cost of feeding cattle through pasturing is made up
largely of cost of confining the animals and the cost of
providing water. Cost of confining the cattle depends upon
the existing fencing, the landscape and the control needed.
The specific variables involved are covered in the fencing
section, although cost of confinement is generally fairly

predictable as a function of type of fence and.materials used

(Murphy, 1988).

Cost of watering can vary greatly between farms and is
therefore very hard to generalize. The cost of providing
water can range from nothing were there is a pond or stream
present to low when a well or water line exists to potentially
prohibitively high when a well must be dug, electricity must
be available to pump water and pipe must be laid and

maintained.

Confinement feeding has additional costs of additional
borrowing additional, tilling land, planting, harvesting and

storage of crops over a grazing system (Murphy, 1988).

102
Burkett (1989) states that costs including less wear on the
equipment, less supplemental feed use, less manure handling,
less land use per animal unit, higher quality feed, and a
lower labor requirement can result from the use of intensive

grazing (Burkett, 1989).

Intensive grazing, although requiring a relatively' high
management input, maintains profits while limiting capital
expenses (Bartlett, 1991). Controlled grazing is a managerial
technique that dairy farmers can use to decrease costs of
mechanical harvesting while maintaining production per acre.
Beef and sheep farmers can increase the length of the grazing
season and therefore, increase beef output per acre and
decrease wintering costs. The cost of intensive grazing is
small in terms of money but large in terms of managerial

expertise (Bartlett, 1991).

2.11.5 Risk

The incorporation of risk into the investment and resource use
decision making process is addressed in the literature.
Nicholson (1984) describes risk as the variability of the
outcomes of some uncertain activity. Many factors in any
decision contain uncertainty. In agriculture, uncertainty can
be important for factors such as the useful life of capital
equipment, weather and its affect on yield and death loss in
cattle. It is the researcher's task to decide which variables

are important enough (i.e. significant) to consider in

103
decision making. Hertz (1964) describes risk as a product of
the odds of various events occurring and the magnitude of the

rewards or penalties involved when they occur.

Hertz (1964) criticizes the use of simple expected utility or
'best estimate analysis' for its lack of consideration of
uncertainties inherent in the decision making process.
Through the use of mathematics, the ability to solve problems
with great precision has evolved, although there is a great
deal of uncertainty surrounding the assumptions imputed into

the model.

Various methods have been formed to improve the ability of
models to explain empirical data. Attempts have been.made to
make more accurate forecasts, empirical adjustments to the
model and revise cut-offs rates to stress risk (Hertz, 1964).
Hertz (1964) describes a process by which a decision maker can
explicitly incorporate risk associated with the values
assigned to the various variables (i.e. assumptions). For
each significant factor, a probability distribution function
is created. From these, sets of factors are randomly
selected. The rate of return is calculated for each
combination of factors. From this set of calculations,
probability distributions of the rate of return for a given
action are formed. The use of this method helps the decision
maker identify factors of uncertainty affecting the outcome of

a particular action.

104
Calkins and DiPietre (1983) describe the use of decision trees
to obtain certainty equivalents and stochastic dominance as
methods by which to model uncertainty. They describe the
method of stochastic dominance as a tool for determining the
action which has the best probability distribution. In this
method, outcomes are arranged in order of highest return
(utility, profit) with the associated probability of that
outcome. The probabilities are then added, forming a
probability distribution. From here, the tradeoffs between
risk and maximizing net return can be analyzed given the
particular decision makers risk preference and risk bearing

capacity.

Boehlje and Eidman (1984) define risk bearing capacity as the
ability for the farm operation to withstand financial losses
without being forced into liquidation or insolvency. For a
mature farm, a debt to asset ratio of .3 is desirable. There
are many areas of uncertainty in agricultural production.
Boehlje and Eidman (1984) describe both financial and business
risk. Financial risks are said to be those influenced by
other business risks. They include physical production risk,
price risk, health risk, risk of obsolescence, and risk
involved in innovation, gross returns, net farm income and
addition to retained earnings. Business risk is that which is
inherent in the firm, independent of the method of financing.
Examples of business risk include price and production, death

loss and rate of gain in livestock uncertainty.

105
Boehlje and Eidman define risk preference by defining three
categories in which a decision maker may fall for a given
decision. These are risk averse, risk preferring and risk
neutral. A risk averse decision maker is one who will pay to
face a lower risk. An individual decision maker may not be in
the same category for all decisions, but must consider the
objectives and financial resources of the farm. In addition,

risk attitudes change for a given person over time.

Understanding techniques that have been used for a similar
evaluation help a decision maker adapt the tools of economics

to a specific problem situation.

Boehlje and Eidman describe a methodology for dealing with
risk in enterprise decisions. First, a decision maker needs
to make sure the alternatives considered are relevant with the
goals of the operation and feasible given the operator
resources. All alternative actions should be specified and
events (those happenings which the decision maker cannot
control) identified. Subjective probabilities are then
estimated. A cumulative distribution can be graphed. From
here, several decision rules can be used. These include, but
are not limited to, the maximization of expected utility,
ranking of expected return, maximization of maximum gain,
maximization of minimum gain, or maximization of gain subject

to obtaining a certain level of income.

Chapter 3: Economic Model and Data Sources

3.1 Introduction

The net present value (NPV) approach is used to compare the
economics of three rotational grazing systems of varying management
intensity versus row cropping on soils in the Marlette-Capac-Owosso
Association. The purpose of this chapter is to set forth and
justify the tools and models used in Chapter Four to analyze the
alternative land use options. The NPV approach is used to capture
the implications of the uneven timing of cash flows across years.
Break-even values using the AAR of alternative land use options as
the opportunity cost will be calculated. Risk measures are
incorporated to take into account variability of cattle gross

margins and corn prices.

The soil described is a nearly level to rolling, naturally well
drained to somewhat.poorly drained loamy'soila Three soils.present
are Capac Loam (0 to 3% slope), Sisson fine sandy loam (2 to 6%
slope), and Riddles-Hillsdale sandy loam (6 to 12% slope). This
soil was chosen because it is common in central Michigan and is the
soil onnwhich.the stocker cattle/alfalfa.grazing experiment used as

a data source was conducted.

The budgets are developed for 40 acres. This area is large enough
to capture most of the economies of size present in both fencing

and watering systems and the purchase of cattle.

106

107

3.2 Outline of Chapter

The economic models which will be used to compare the profitability
and the risk adjusted profitability of the four land use systems
will be.describedm The three rotational grazing systems are a four
paddock system with two head per acre (4L) and two 13 paddock
systems, one of two head per acre (13L) and one of four head per
acre (13H). The fourth system is a continuous corn rotation which

approximates the net return from row crop systems.

The specific systems are described in section 3.3. The economic
models are described in section 3.4, including the net present
value (NPV) procedure (section 3.4.1), capital expenditures for
stocker systems (3.4.2), variable costs (3.4.3), prices and gross
margins (3.4.4), partial budgeting (3.4.5), break-even analysis
methodology (3.4.6) and risk considerations (3.4.7). The
assumptions are described in section 3.5, including animal

performance (3.5.1) and economic data (3.5.2).

3.3 System Definitions

Basic assumptions for the three grazing systems are similar. The
gross margin of cattle depends upon purchase weight, sale weight
and purchase and sale prices. The beef weight gain per acre
depends upon the yield and quality trajectory of alfalfa pastures

over time (years) within a grazing system and the grazing system.

108
The establishment of the alfalfa stand and fencing system
constitute the main capital costs associated with the enterprise.
The watering system can represent a third major capital cost,
depending upon systems in place and natural sources. Variable
costs include poloxalene1 (with mineral supplement), labor and

interest on variable expenditures.

Capital costs are those in which the input is purchased in one
period, but yields services over several periods. All input
expenditures are considered variable prior to a decision to
implement a system; however, for purposes of this study, variable
expenditures will be defined as those in which the input is used

entirely within the period in which the expenditure occurs.

Holstein steers are purchased at an average weight of 500 pounds.
The cattle are purchased in late April or early May and sold in
early September. The grazing period begins on approximately May 6
and extends to September 12. This period will vary in its
beginning and ending dates, as well as its duration, depending upon

pasture condition.

A grazing season of 117 days is assumed. A 117 day grazing period

represents; ( 1) three, 39 day rotations within each 13 paddock

 

1 Poloxalene is used as a bloat preventative

2 For purposes of this study, costs and weight gains
associated with the period between purchase date and the beginning
of grazing are ignored.

109
(pasture) system and (2) two full rotations, plus 21 days of a
third rotation for the four paddock system. A final grazing or
cutting of hay is often taken in October after the alfalfa root
reserves are replenished adequately to maintain the next years

stand. These alternatives are ignored in the study.

The 4 paddock grazing system (4L) is a pasture divided into four,
10 acre paddocks, representing a low intensity management system.
The fencing, watering system, alfalfa establishment and variable
expenditures associated with the system are described in Chapter 4.

The layout is shown in Figure 3.1.

<— 660' ——>

I 4‘?

 

 

 

1320

f\
\I

 

 

 

 

he IV

0 Watering Tank

— High Tensile Perimeter Fence
— Subdivisional Interior Fence
-| 16 it. gate

Figure 3.1 Layout of the Four Paddock System

110
The stocking rate is two head per acre. cattle in this system

occupy each paddock for approximately 12 days.

The thirteen paddock grazing systems (13L, 13H) are defined as
intensive rotationally grazed alfalfa pastures consisting of 13,
three acre paddocks. These systems represent high intensity

systems. The layout of the pasture system is shown in Figure 3.2.

l—396.3'-—I I—396.3'—I I— 495.4' —-I

3.0 acres

3.0 acres

 

 

 

 

 

1320'

 

 

 

 

 

 

 

 

 

O Watering Tank

High Tensile Per'meter Fence
— S ubdlvlslonal Interior Fence
—- Polytape Temporary Fence
I- 16 ft. gate

Figure 3.2 Layout of the 13 Paddock System

111
The 13L system's stocking rate is two head per acre. The 13H
system supports four head per acre» Cattle in these systems occupy

each paddock for approximately three days.

The fourth system is corn3. Although a crop rotation scheme would
more accurately reflect Michigan cropping systems (e.g. corn-corn-
soybeans)4, for purposes of this analysis, corn after corn is
chosen to represent row crop productions. Returns from the corn

system are an adequate approximation of earnings from a rotation.

Estimated corn yields are based on historical yields for the field
in which the MSU stocker cattle grazing trial was conducted and

surrounding fieldss.

The costs associated with the growing of corn will be taken from
the Michigan 1990 Estimates for Crop and Livestock Budgets (Nott,
et al., 1990). Adjustments are made in the cost figures for corn

production to reflect the strict corn after corn rotation. Costs

 

3 A similar analysis for the upper peninsula of Michigan could
use hay or barley as the defender crop.

4 Common rotations in the lower peninsula of Michigan may
include corn, soybeans and wheat

5 For simplicity, participation in USDA's ARP program
(required to receive a deficiency payment on corn) is not included
within this analysis.

6 A yield of 120 bushels per acre was chosen to represent the
average expected corn yield on the unit of land on which the MSU
stocker grazing trial was held. This estimate was made to reflect
historical yields on this and surrounding fields (Personal
interview with Barry Darling, Michigan State University campus farm
manager. January, 1991).

112

and revenues are found in chapter four.
3.4 Economic Model Details

Several economic models are used to analyze the four land use
alternatives. Initially, a table will be developed showing the
annual net cash flows for all systems7. The table depicts the
pattern of cash inflows and outflows over the ten year planning
horizon used in the analysis, allowing comparison to relevant
capital constraints on farms. A common denominator (average annual
return) describes these cash inflows and outflows in a common time

period of one years.

 

7 A microcomputer spreadsheet, Quattro Pro, is used to perform
relevant calculations.

8 For comparing different systems, the average annual return
per land unit is often used. Generally, when using economics to
compare two systems, the procedure differs slightly depending upon
whether or not a defender system is currently in place. The
alternative system(s) being considered is (are) called the
challenger system(s) . The highest discounted average annual return
over the life of the challenger(s) is (are) calculated and compared
to the discounted next years return of the defender systems If the
next years return from the defender system is higher than the
discounted average annual return of the challenger, the defender
system is kept in place. This simple economic comparison does not
consider such intangibles as management preference and risk, which
are considered in light of the economic comparison.

As imposed within this analysis, if no system is currently in
place, the discounted average annual return of the alternative
systems are compared. This comparison will simply indicate the
land use option with the highest expected discounted average annual
return above costs for the land unit. Then, additional factors,
including variability, will be considered.

113
3.4.1 Net Present Value Procedures for the Comparison of Land Use

Alternatives

NPV will be used in order to capture the effect of annual net cash
flows of establishing and maintaining a grazing system over ten
years. The NPV will be computed in 1989 dollars and is the sum
(total) of the discounted cash flows in each year over the ten year

planning period when present value is described by;

1989
W1989 g E ”t
N=10 _
t=1 (l+r)t
Where:
1989
PVN=10== Present value of system operated for
N years in 1989 dollars
N = Number of years
t = Year in which cash flow occurs
CF%989=: Cash flow in period t in 1989 dollars
r - Real interest rate

Present values can represent costs, returns or net returnsg.

Present values of a system can also be described on an equal
annual value basis. The equivalent average annual value (AAV) is
found.by multiplying the present value (PV) times an annuity factor
(AF). It represents an equivalent equal annual cash flow (e.g.
cost, return, net return) for a system over the N year planning
horizon in constant, in this instance, 1989 dollars (Boehlje and

Eidman, 1984). In equation form:

 

9 In this analysis, tax considerations are ignored.

Where:

AAV
PV
AF

114

AAVfiPViAF

Average annual value
Present value
Annuity factor

I

1
1—______
( (1+!) ‘)

 

The annual cash flow for the grazing systems can be represented

using the following Equation:

cpf'i'“ = (( [Paws] - [P,*W,] - [I*D*P,*W,] ) ,- [vcswl 4!.)

Where:

CFtcattle

= Cash Flow ($/acre)
Sale Price ($/cwt)
Sale weight (cwt)
Purchase Price ($/cwt)
Purchase weight (cwt)
Interest (%/100)
Fraction of a year
Variable cost/hd associated with the
stocker operation (e.q. poloxalene)
Number of Head
Cash flow associated with the pasture
(i.e. fencing, alfalfa establishment,
labor...)

The component ([PS*W0]-[Pp*WI]-[rtD*Pp*WI]) is frequently called

gross margin .

Sometimes interest on the feeder,(R*D*Pp*WI), is

subtracted from the gross margin before developing comparisons.

The average annual net cash flows to land and other unallocated

costs that are the same across systems for the corn system can be

represented using the following formula:

115

CF°°m = [Putya] -LB-Vc-0c

Where:

CFcorn = Cash flow in 1989 dollars($lacre)

Pcorn = Market price ($/bu)

Ycorn = Yield (bu/acre)

L = Labor cost

C = Other variable costs ( i . e seed ,

fertilizer)

0C = Other ownership costs (i.e. building
depreciation, maintenance and interest)

Within this analysis, the cash flow for the corn system is assumed
to be identical in each year. Therefore, the cash flow for any
given year represents the average annual return to the system in
1989 dollars or cash flows per period (cash inflow minus cash
outflow). This average annual return also equals the net present
value (over the ten year period) times the appropriate annuity
factor or annual return (cash inflow) minus (NPV of cash outflow *

Annuity factor) or average annual costlo.

An Example
The following’graphs will demonstrate the concept.of converting un-
even cash flows into a single measure of NPV or AAV for the four

paddock stocker system.

Figure 3.3 shows the actual cash flows as they occur over the ten
year period for the 13 L grazing system and Figure 3.4 shows the

associated AAV summarizing these cash flows over the entire period.

 

1° The annuity approach used to calculate average annual costs
on durable inputs (e.g. tractors, fence) is approximated in many
analyses by depreciation and interest on average investment charge.

116

 

 

 

 

 

 

Net Cash Flow ($)

 

 

 

 

 

 

'7000 I I T r r I T v I
1 2 3 4 5 6 7 8 9 10

Years

 

Figure 3.3 Actual Cash Flows Over a Ten Year Period (13L)

 

 

 

 

1000

 

 

~1000

 

-2000

AAR ($)

-3000

 

 

-4000

 

-5000

 

 

 

 

-7000
1 0

\1-1
m-
0‘

Is 6
Years

.1.
N-
0)-
.h.

Figure 3.4 Average Annual Return for a Ten Year Period (13L)

117
3.4.2 Components of Capital Expenditures for Stocker Systems
Capital expenditures, those costs occurring in uneven increments
but providing services over each year of the system, include
establishment and maintenance of the alfalfa stand and the fencing

system.

3.4.2.1 Alfalfa Stand

Due to its nutrient quality, the pasture crop representing the
focus of this study is alfalfa. The forage stand costs are
determined using RESEED (Hesterman, et al., 1989). The life of the
stand is defined at five years. Seeding and fertilizer costs are
calculated. The ten. year planning cycle used as a common
denominator throughout this analysis represents two alfalfa

establishments and stand lives.

The costs involved in establishing and maintaining the stand
include a complete seeding in years one and six and fertilization
during the other years. Respective cash outlays by year for
establishing and maintaining the stand are presented in Chapter

Four.

3.4.2.2 Fencing System
Costs associated with the lifecycle of the fencing system include
the high tensile perimeter fence, the interior subdivisional fence,

polytape, an energizer and sixteen foot gates.

Fence maintenance costs vary greatly and tend to be relatively high

118
in labor costs and low in material cost“ Therefore, material costs
for maintenance are not considered in the analysis. Maintenance
labor costs are included in the general labor costs. If
significantly large, material costs and/or additional labor costs
of a particular farm operation can be included on the spreadsheet.
Respective cash flows for the fence installation and maintenance
are presented in Chapter Four. The high tensile perimeter fence,
the energizer and the gates are purchased in the first year. An
interior subdivisional fence is purchased in years one and six.

Polytape is purchased every other year.

3.4.3 Variable Costs

As the length of the planning horizon increases, the number of
costs which are considered variable, or those which should be
carefully considered when making a long term production decision,
increases. Within the ten year time frame of this analysis, all
costs are variable“. For this study, the term variable costs
will be used to represent those costs which are used up in the same
period in which.they arejpurchased, For the grazing systems, these
costs include labor, mineral supplement, and cattle and interest on
cattle costs. For the corn system, all costs are variable. ‘Within

this analysis, both capital and variable costs are deterministic.

 

11 The available management resource base may be considered
fixed and a constraint is put on available land.

119
3.4.4 Prices Used in the Analysis
Two price series were used in the analysis; an average yearly corn
price for Michigan and a gross margin on feeder calves using a
Dodge City price series. The purchase price for calves was an
average of 400 and 500 lb steer calves for April and May of each

year.

The average gross margin of cattle is calculated by subtracting the
total purchasing cost (average purchase weight times price of
feeder calves times the number of cattle purchased) and the
interest charge on cattle (total purchase cost times the nominal
interest rate times (117/365) year) from the total sale price
(average sale weight times price of feeder steers in September
times number of cattle sold)”. For purposes of this thesis,
gross margin will not include a charge for interest on cattle, but
will simply represent the total sale price minus the total purchase
price. Gross margin is included as a per animal cost throughout

the analysis.

3.4.5 Partial Budgeting Procedures
Partial budgeting is appropriate to compare systems which have
major inputs in common and differ in the use and amount of use in

others. Each of the four systems in this study have an identical

 

12 Gross margin is then discounted to 1989 dollars by taking
the gross margin for year t and dividing it by the CPI for that
year using 1989 as a base (CP189 = 1.00). This is also referred to
as normalizing the data for the year 1989.

120
acreage of land as the major input and uses labor, management and
planting machinery and other cropping inputs. Cash expenditures

and inflows vary by system.

3.4.6 Break-even Analysis

Break-even analysis is used to calculate the minimum benefit
required from an enterprise in order to justify proceeding with it
over an alternative enterprise competing for the same fixed
resources. It can be used for either short or long term decision

making.

The average annual net return of the defender system to land and
other unallocated costs that are the same for the defender and
challenger is calculated.and.can.be'considered'the opportunity cost
of a challenging system. This opportunity cost is compared against
a specific variable holding the value of all other variables fixed.
For example, the value of beef gain per acre from grazing alfalfa,
less associated costs, must offset the value of corn grown per
acre, less associated costs, for grazing to be a competitive

alternative with cropping that same land.

For the systems used in this analysis, the opportunity cost can
take the form of many variables including corn or alfalfa yield,
beef production, stocking rate or carrying capacity of a pasture,
gross margin of beef, and price of corn. The break-even number
indicates the threshold at which the systems competing for a given

set of fixed resources become competitive.

121
The following break-even values are calculated:

(1) Break-even Price and Break-even Gross Margin
(a) Break-even price of corn
(b) Break-even gross margin of cattle
(2) Break-even yields
(a) Break-even yield of corn
(b) Break-even gain of beef
(i) Break-even total gain
(ii) Break-even average daily gain per animal
(iii) Break-even stocking rate

The break-even threshold of the defending system can be described

by the following formula:

AARtAACFAOC==0

Where:
AAR = Average annual return
AAC = Average annual variable costs
AOC = Opportunity cost (AAV of the next best

alternative system)
When variables are present for which the costs or revenues depend
upon input or production level, the equation can be written as

follows:

AAR—(V,+(VC,*H) +AOC) = 0

Where:
This formula can be manipulated to obtain the following break-even

values:

(1) Break-even Price and Break-even Gross Margin

(a) Break-even price of corn

(Ymt Pm”) - (AACgAOC) = 0

122
Where:

AOC = Opportunity cost (AAR of next best
alternative land use system)

. AAC +AOC
Break-even price of corn = (—S——)

YC‘ORN

(b) Break-even gross margin on cattle

Gross Margins“, = (Vs+ [VCstH] +I +1106)

Where
AOC = Opportunity cost (AAR of the next best
alternative land use system)
Interest on feeder cattle 3

H
II 11

Interest on feeder cattle = (rtDtPPItWI'tH)

(2) Break-even Yields

(a) Break-even yield of corn

AAC +AOC
Break-even yield of corn = {—5—}

PmRN

(b) Break-even gain of beef

To reiterate, to calculate a break-even value, all variables within

the analysis other than that which defines the break-even point,

 

13 Although interest charge is dependent upon purchase price,
weight and number of head, these values are fixed in the analysis.
Therefore, interest charge can be summarized using one number.

123
remain fixed. Therefore, the break-even sale weight will be found
with purchase price and weight and sale price fixed14. Likewise,
the break-even purchase price will be found with purchase weight

and sale price and weight fixed.

The equation which defines the break-even point between a grazing

system as the challenger and its defender is;

0

WS*PS- (( (1+DL) *Wptpp) +( (I*D) *Wptpp) )*H- (AACS+A0C)

Where:

DL Death loss

(i) Break-even total gain

 

Ws ___ ((( (1+DL) *wpapp) +( (no) *WP*PP))*H+(AACS+A0C))
PS*H

Once the break-even sale weight is calculated, break-even total

gain can be calculated as follows;
(ii) Break-even total gain = (Ws-WP) *H

From this equation, break-even gain per acre for system =
Break-even gain per system/40 acres,

(1.1.1.) Break-even ADG/hd a (break-even total gain)

(HWDAYS)

Where:
DAYS = Number of days on pasture

 

14 Implicit within this technique is the assumption that the
sale price is independent of the sale weight over the relevant
range.

124

and

 

Break-even stocking rate/acre = break-even total gain )

(break-even ADG*DAYS*ACRES)

(b) Break-even purchase price

 

, FV*£" AACVtAOC
Break-even purchase price =( 3 s ( s ) )

((1+DL) + (rw) ) *w,

3.4.7 Risk Considerations in Analysis Model Formulation

Each producer makes decisions based on expectations of the net
return of the alternative enterprises, given available information;
experience; enterprise preferences and risk preferences and risk
bearing capacity. Producers never have complete information with
regard to production, input performance, commodity prices and
access to market, input prices and availability, borrowed capital
price and availability, technology, labor, legal issues,
institutional changes, and macro economic factors, such as interest
rates. .All of these factors create income and cost uncertainty for

the producer.

There are methods available to minimize uncertainty, including
obtaining more information to generate estimates of such variables
as risks and returns associated with the forementioned factors,
diversification of enterprises, crop insurance, forward
contracting, and production practices such as irrigation and weed

and pest control.

125
Although there are numerous sources of risk in stocker cattle
operations and.methods for their control, only specific sources of
risk and methods for control will be considered in this thesis.
Input prices and availability, commodity access to market, borrowed
capital.price anduavailability, technology, labor, legal issues and
institutional changes will all be taken as deterministic.
Production including yield per acre for corn and beef per acre for
cattle will also be assumed deterministic. uncertainties about
commodity prices (purchase and sale price) and the implications of

these uncertainties will be explored.

Economists have used several.methods to incorporate risk into their
analysis. For capital purchase decisions, such as in this
analysis, expected benefit of various alternative decisions is

often calculated.

The method is referred to as the expected benefit model (Freund,
1956 Robison and Barry, 1986) . In this method, the expected
benefit of each alternative land use option is calculated by the

following formula:

3(3) =E(AAR) -1/2 (CARA(VARm))

Where:
E(B) = Expected benefit
E(AAR) = Expected Annual average return
CARA = Coefficient of absolute risk aversion
VARAAR = Variance of average annual return

CARA takes on different values representing relative degrees of

risk aversion with:

126

CARA = .00005 is slightly risk averse,
CARA = .00010 is fairly risk averse, and
CARA = .00015 is moderately risk averse.

The expected benefits of the alternative land use options are then
ranked. The expected benefit model carries with it the strong
assumption of the expected utility model that a given decision
maker“maintains an identical level of absolute risk.aversion across

all decisions.

A second method used.to incorporate risk is through the analysis of
cumulative probability distribution functions. In this model, the

strong assumption of the expected benefits model is relaxed.

Cumulative probability distribution functions of average annual
returns in 1989 dollars using gross.margins over the period 1975 to
1989 are formed. The use of this method assumes independence
between yearly net returns, but does not require them to be

normally distributed.

Risk considerations are addressed as management options to decrease
gross margin uncertainty for individuals with various risk
preferences and risk bearing capacities. Risk bearing capacity can
be defined in part by liquidity, capital constraints and non farm

income. Likely outcomes over several systems are discussed.

127

3.5 Information/Assumptions

3.5.1 Animal Performance Data

Average daily gain data for the grazing systems will come directly
from the Michigan State University stocker cattle grazing trial.
The results of the trial cover two grazing seasons, 1989 and 1990
(Schlegel, 1991) . Because only 2 years of data are currently
available, an average daily gain, averaged for this period will be
used to simulate a 10 year time period for each system. .A ten year
time frame was selected as the least common denominator for the

useful life of purchased capital equipment.

The results of the MSU stocker cattle grazing trial and past
literature could be integrated as data sources to form budgets
representative of Michigan (stocker cattle operations. This
integration would add reliability to the use of two years of data
to estimate a ten year time period. This will be addressed in

future analyses.

3.5.2 Economic Data

Gross margins for steers are an inflation adjusted average for the
period 1975 to 1990. The gross margin, defined for purposes of
this study is a function of the interest rate and calf and yearling
prices from Dodge City; The price margins are assumed the same for
Dodge City and Michigan. Therefore, prices are not basis adjusted.
Corn price is an inflation adjusted average for Michigan for the

period 1975 to 1989 for the initial corn systems.

128
In addition, the same analysis was run using a break-even corn
price defined as the economic threshold for participation in the
ARP program (base acre considerations aside). This was done to
more accurately reflect a forecast of the corn price over the next
10 years versus that provided by an inflation adjusted average for
the past 15 years. The current estimated break-even price for
participation in the government program for corn used is $2.55

(Hilker, 1991).

Cash outflows for the grazing systems (e.g. gates, fence) were
obtained from several agricultural suppliers in Ingham County,
Michigan. Costs associated with the establishment and maintenance

of the alfalfa stand were calculated from RESEED (Durling, 1989).

A nominal interest rate of non-breeding livestock is used
(Agricultural Finance Databook. Federal Reserve Board). The
nominal interest rate is used as the effective interest rate for
the purchase price of cattle. Individuals who are in a tight cash
position will have a higher effective interest rate, while others
in a very strong cash position may have a lower effective interest

rate. The CPI index is be used to reflect inflation.

4 Economic Analysis

The economic analysis presented in this thesis is based on
information from a stocker cattle experiment at Michigan State

Universityl.

4.1 Description of the Michigan State University

Stocker Grazing Trial

In 1988, researchers at Michigan State University initiated a
two 'year stocker' grazing' experiment (Schlegel, 1991) to
determine; (1) the impact of stocking rate and intensity of
rotational grazing on weight gain per acre and on persistency
of alfalfa pastures; (2) the nutritive value of alfalfa
throughout the grazing season under different grazing
intensities; ( 3) the daily dry matter intake of animals
grazing alfalfa and a nutrient value for alfalfa and (4) the
expected and risk-adjusted average annual net return to land
and other unallocated costs that are the same across systems.
Researchers included animal scientists, crop and soil

scientists and agricultural economists.

4.1.1 Experimental Methods (Animal and Plant Component)
In the fall of 1988, twenty-two acres on a Michigan State

University farm with a loam, fine sandy loam and sandy loam

 

1 See also Schlegel, M.L., 1991. Grazing Schemes for Direct
Seeded Alfalfa Pastures, a companion thesis

129

130
soil types with a pH of 6.7 were direct seeded to alfalfa.
The land was previously in wheat. The pasture was divided into
ten, 1.88 acre plots (Figure 4.1). The experiment was a two

by two factorial with two replications (Table 4.1).

Plot number
1 2 3 4 6 8 7 8 9 1o 11 12

 

 

 

 

 

 

 

 

m

e
g z r
o 3 E
, > 8
E g E (a
9 9 -
r r :s
x
> § E
g m
a F E
-' 9i

v
t 1440 ft. 4

Figure 4.1 MSU Grazing Trial Pasture Layout

-Table_4°1 $V°_P¥TV° Fa9§°rial Arranaa§9n#,°f ExPer1399? ,

     
 

Stocking Rate

Number of Paddocks ”*”
Low (2 hd/acre) High (4 hd/acre)

 

4 4L 4H

 

 

 

 

 

 

131
Plots one through five served as the first replication and
plots six through ten, the second. Plots five and ten were
mechanically harvested twice each year as haylage to estimate
forage production. The remaining plots were utilized to
evaluate rotational grazing systems with two different grazing
periods (4 versus 12 days) and two stocking rates (2 versus 4
head per acre). Each of the 4 treatments was randomly
assigned within each replicate. The experiment is replicated

over two years.

The four paddock system consisted of four plots, each grazed
12 days and allowed 36 days of regrowth, The thirteen paddock
system consisted of 13 plots, each grazed three days and

allowed 36 days of regrowth.

In the first year, seventy-two holstein steers were purchased
in April of 1989 at approximately 400 lb. The steers were
weighed, ear-tagged, dehorned, vaccinated and treated for
parasites. Steers were placed on a diet of alfalfa haylage
and mineral supplement one week prior to grazing to accustom
cattle to a high forage diet. The ‘mineral supplement
contained dicalcium phosphate, magnesimm oxide, trace

minerals, selenium 200 and poloxalene, a bloat preventative.

Before grazing, steers were weighed on two consecutive days,

132
implanted with estradiol2 and divided into two weight groups.
Each group of steers were divided randomly within the
replications. Initially, the days grazed for the four and 13
paddock systems were two and eight days, respectively and the
stocking rates were three and six head per acre. After 24
days, the grazing duration was increased to 12 and 3 days for
the 4 and 13 paddock systems, respectively and the stocking
rate was decreased to two and four head per acre. The change
was made because it became clear that their was not adequate
forage available to support the most intensive systems. The
stocking rate and duration of grazing remained at this level
for the remainder of 1989 and these revised stocking rates

were used for the entire 1990 grazing season.

Cattle were weighed every 24 days. When all of the available
forage within a paddock was consumed prior to the scheduled
move to the next paddock, cattle were moved to supplemental
pasture until the next move. Grazing was discontinued on

approximately August 30 of both years.

Forage samples were collected by hand clipping three quadrants
(2.69 ftz) from each receiving plot every time cattle were
rotated from one paddock to the next (either every three days
or every 12 days) to give measures of quantity and quality of
alfalfa available to the cattle. Canopy heights were

 

2 CompedoseR, A product of Elanco Animal Health. Indianapolis,
IN.

133
recorded. Before cattle were released in a paddock, two
steers fitted with esophageal canulas were allowed to graze to
estimate composition of forage consumed. During the second
half of the second year, dry matter weights of three quadrants
of remaining forage after the cattle were removed were
measured from each plot to obtain a more accurate indication

of dry matter intake3.
4.2 Results from the MSU Stocker Cattle Grazing Trial

Results from the MSU stocker trial are presented for 1989,
1990 and an average for both years. As indicated in the
previous section, cattle were moved to supplemental pasture
when the available forage in the paddock was exhausted.
Cattle were moved to the next scheduled paddock at the
appropriate time. Average daily gain calculation for each

group of cattle reflects the total gain of the cattle,

 

3 A companion experiment was run on an adjacent alfalfa sward
to provide data to develop an intake versus growth rate curve. The
purpose of the development of this curve is to judge intake levels
of the cattle participating in the first trial. Two rotational
grazing plots with three and 12 day grazing durations and 36 rest
days were established. The stocking rate was four head per acre
resulting in 8 head for each of the 1.88 acre plots. Three groups
of two animals in each plot were allowed to graze for six, ten and
twenty-four hours to simulate three intake levels (70, 85 and 100
percent ad libitum) . Cattle removed from the pasture were
maintained in vegetation free holding pens until the next day.
Fecal collection bags and harnesses were used during a portion of
the first year to predict digestibility and forage intake. A
regression on live weight gain per day will be conducted (Schlegel,
1991). The resulting equation will be used to estimate intake of
steers in trial one from daily weight gain.

134
including the time spent on supplemental pastures‘. Using
this ADG, weight gain on supplemental pasture is subtracted
from total gain to reflect system gain. The daily gains are
biased upward because they include the expected higher gain

while grazing ad libitum on supplemental pasture.

Tukey's test was used to test for interaction between paddock
system and stocking rate. There was no significant
interaction present between paddock system and stocking rate
for animal performance (Schlegel, 1991). Animal performance
could then be averaged across paddock system and across
stocking rates. For purposes of the economic analysis of this
preliminary data, means of the three relevant systems (4L, 13L

and 13H) were used.

4.2.1 MSU Grazing Trial Results (1989)

Average daily gain and gain per acre for each system in 1989
are summarized in Table 4.2. The average daily gain and gain
per acre with a low stocking rate was higher than with a high

stocking rate in both systems.

 

4 ADG is calculated across both system and supplemental
jpastures. The strict 24 day weighing schedule does not allow for
separating trial pasture and supplemental pasture gain. Any
attempt to separate the gains results in additional assumptions
such as effects of movement between plots on gut fill and changes
in the diet (from a sparse diet one day to a plentiful diet the
next) and in estimating gain while on supplemental pastures.
Defining the movement of the cattle as endogenous results in more
uncertain variables.

135

Table 4.2 MSU Grazing Trial Results (1989)

 

I'm“
System ADG (lbs/day) Gain Per Acre
(lbs)

4-L 1.30 300

 

 

 

 

 

 

 

 

During 1989, paddock system (four versus thirteen) was not
significant for average daily gain or adjusted gain per
acres. Gain per acre was a function of stocking rate,
average daily gain and days on pasture. Quality and quantity
of forage available was similar for steers in both paddock
systems during the first two pasture rotations. During the
third rotation, steers in the 4 paddock system had a slight,

but significantly greater forage availability than those in

the 13 paddock system.

Due to higher average daily gains, steers in the low stocked
pastures had greater final weights than those with a similar
number of paddocks in the high stocked pastures due to less
available forage per animal for animals in the high stocked

pastures.

Total forage production per acre was similar for each of the

four treatments and for the mechanically harvested plots

 

5 Total gain attributed to each acre of the test plot was
adjusted for days cattle spent on supplemental pastures.

136
(Schlegel, 1991). This implies that differences in gains
between like stocking rates may be attributed to differences

in paddock system design or implementation.

Death loss due to bloat was 7% (5 out of 72). This occurred
in the fall after movement of cattle on supplemental forage
(dry hay) overly lush, immature pasture. During this period,
steers were consuming poloxalene at the rate of 257 grams/day
(four times the recommended amount). This shows the important
of taking multiple precautions to prevent bloat (see Chapter

2, section 2.5.4).

4.2.2 MSU Grazing Trial Results (1990)

Average daily gain and total gain per acre for each system in

1990 are summarized in Table 4.3.

[ ADG (lbs/day;

IL 4-L II 1.65 374
H 4-H ll 0.91 336
II II 1.87 430

 

 

 

Steers in the 13 paddock system had a higher average daily
gain than those in the feur paddock system under the same
stocking rate and demonstrated a higher gain per acre than

those in the 4 paddock system under either stocking rate.

137
Death loss was 0% (0/48) during 1990. This can be attributed

to more experienced management.

4.2.3 MSU Grazing Trial Results (Average of 1989 and 1990)
The average daily gain's and total gain per acre for each
system combined over 1989 and 1990 are summarized in Table

4.4.

Table 4.4 MSU Grazing Trial Results (Average of 1989 & 1990)

 

 

 

 

 

 

 

 

 

System ADG (lbs/day) Gain Per Acre (lbs)
4-L 1.47 337
4-H 0.69 246
l3-L fl 1.71 381
13-H H 0.64 273
I 0:95

 

Stocking rate is significant for both ADG and gain/acre
(p<.01) . Given this limited data set, the evidence isn't
strong enough to reject the null hypothesis that paddock
systems are the same for ADG (p=0.116) and gain/acre
(p=0.073) . The level of significance is chosen conservatively

because only two years of data are available.

Averaged over both years, the average daily gain is higher for
the low stocking rate systems. Likewise, gain per acre is

higher for the low stocking rate systems.

138
The averaged death loss over both years is 4.1%. The death
loss of 7% (including cannulated steers) in 1989 can be
largely attributed to mismanagement. Therefore, a much more
conservative number of two percent death loss is assumed in

the economic analysis (Rust, 1991).

4.3 Integration of Data Sources

Past studies indicate that gain per acre on pasture can reach
700 pounds per season depending upon management, breed of
cattle, weather, and forage stand (Clark, 1990). In the 117
day grazing season assumed in this study, that translates into
a gain of 3.0 lbs/day on forage with a two head/acre stocking
rate and 1.5 lbs/day with a four head per acre stocking rate.
For our purposes, break-even gain/acre calculations will be
used to indicate the threshold at which a grazing system is
equally profitable as a 120 bu/acre corn system, all else
equal. A synthesis of data found in the literature and that
found in the Michigan State University stocker cattle/ alfalfa

grazing trial is left as future analysis (see Chapter 5).

4.4 Corn Systems

4.4.1 Specifics of the Corn Systems
Budgets were formulated for a continuous corn system.
Previous corn crops on grazing experiment land have yielded

110 to 120 bushels/acre (Darling, 1991). Budgets ‘were

139
developed for three expected yield scenarios (80, 100 and 120
bu/acre). Michigan crop budgets (Nott , et al., 1990) and
custom hire machinery rates (Schwab and Nogaard, 1988) were

used.

Revenue was from the sale of no. 2 corn in Michigan. Annual
costs include seeds, nitrogen, phosphorous, potash, limestone,
insecticides, herbicides, building and equipment repairs,
drying fuel, gasoline, fuel and oil, utilities, trucking and
marketing. custom rates are used to represent capital and
labor costs. The specific assumptions associated with these

costs are described in Appendix A.

All costs are in 1989 dollars. The price of corn used is a
fourteen year average (1976-1989) in 1989 dollars. Table 4.5
shows the price of corn in nominal and 1989 dollars, in
Michigan over the 1976 to 1989 period. Figure 4.2 shows the

real price of corn in 1989 dollars.

140

Table 4.5 Real Corn Price: Michigan 1976-1989

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

r- Michigan Corn Price
Year' Nominal Price Price in 1989 Dollars
1976 2.04 4.43 n
1977 1.92 3.92 n
1973 2.22 4.19 n
1979 2.48 4.20 n
1980 3.07 4.58
1981 2.35 3.22
1982 2.48 3.18
1983 3.20 4.00
1984 2.56 3.05
1985 2.14 2.46
1986 1.43 1.63
1987 1.97 2.14
1988 2.52 2.65
1989 2.34 2.34
Average 2.34 3.29
Std 0.44 0.88

 

 

141

0'1

 

is
in
>

 

 

b

\V/—/\ 5
/\

00
0'1
/

 

 

(a)

 

N
(n

 

REAL PRICE PER BUSHEL (1989 $)
to

\ A:
\/\;
\/

7257'77'87'9838'18'2838'48'58'68'76809
YEAR

 

_a
U"

 

Figure 4.2 Real Corn Price Per Bushel (Michigan)

4.4.2 Corn System Analysis Results

Results of the corn system analysis are presented in Table
4.6 The first set of corn budgets use a fourteen year
average, inflation adjusted Michigan corn price of $3.29/bu.
One management level yields 120 bu/acre. The following returns
summarize its profitability7. The net present value (NPV) of

this system (120 bu/acre) is $35,5581 or $890 per acre in 1989

 

6 Input prices and corn yields were treated as variables with
fixed values.

7 Profitability levels are returns to land and unallocated
costs.

142

dollars. The average annual return (AAR) is $5,066 or $127

Table 4.6 AAR for Corn: Average and Standard Deviation ($)

   

 

 

 

 

 

 

 

 

Expected Corn Yield/Acrea
80 bu 100 bu 120 bu
Corn Price ($/bu) AVG STD AVG STD AVG STD
AVG (1976-1989) 35 71 86 84 127 106
Projected (1990)1D -24 12 38

 

a Weighted average

b Based upon participation in the 1990 USDA Farm Program
per acre in 1989 dollars. The standard deviation (SD)8 for
the net return of the 40 acres over the ten year life of the

system is $4,237 or $106 per acre.

Similar calculation were made for 80 bu/acre and 100 bu/acre
management levels. The results have potential to be used for
break-even and sensitivity analysis of corn yield in future
analysis. For the 80 bu/acre yield, the NPV is $9,875 or $247
per acre in 1989 dollars. The AAR is $1,406 or $35 per acre
in 1989 dollars. The SD for the 40 acres over the life of the
system is $2,824 or $71/acre. For the 100 bu/acre system,
the NPV is $24,034 or $601 per acre in 1989 dollars. The AAR
is $3,422 or $ 86 per acre in 1989 dollars. The SD, due to
price variation, for the 40 acres over the life of the system

is $3,531 or $88/acre.

 

8 Since an average annual cost was used, standard deviation
reflects only variability in price or gross margin.

143
The second set of corn budgets use a 1991 break-even corn
price for participation in the government program of $2.55
(Hilker, 1991). The NPV for the 120 bu/acre management level
is $10,633 or $266 per acre in 1989 dollars. The AAR is

$1,514 or $38 per acre in 1989 dollarsg.

Similar calculation were made for 80 bu/acre and 100 bu/acre
management levels. The results have potential to be used for
break-even and sensitivity analysis of corn yield in future
analysis. For the 80 bu/acre yield, the NPV is -$6,757 or -
$169 per acre in 1989 dollars. The AAR is -$962 or -$24 per
acre in 1989 dollars. For the 100 bu/acre system, the NPV is
$3,244 or $81 per acre in 1989 dollars. The AAR is $462 or

$12 per acre in 1989 dollars.
4.5 Grazing System Budgets
4.5.1 Specifics of the Grazing Systems
Budgets were developed for both a conventional rotational
grazing system (4 paddock system) and an intensively grazed

system (13 paddocks).

Budgets were developed for one four paddock system at two head

 

9 Standard deviation measures are not relevant here as no
price variability measure was readily available.

144
per acre10 and two thirteen paddock systems, one at each of
two and four head per acre using an average of the 1989 and

1990 MSU stocker cattle rates of gain as performance measures.

In the budgets, the MSU 1989-90 stocker cattle grazing trials
were scaled up to better approximate farm conditions; 40 acre
plots were used as a frame of reference. All systems assumed
a 117 day grazing period, from May until the last week in
August. The August restriction was placed to allow adequate
regrowth and replenishment of root reserves prior to the first
killing frost. This 117 grazing day restriction is
conservative, since it does not provide an allowance for fall
grazing. The additional gain/acre realized by late fall
grazing may increase beef sold and thus, average annual net
returns. A producer may be limited from fall grazing due to
inavailability or infeasibility of holding stocker cattle or

profitably obtaining a second set of stockers.

Average daily gain is assumed deterministic. Purchase and
sale prices of beef are taken as the inflation adjusted
average of the Dodge City feeder cattle price series for 1975-

1990.

The economic analysis details are presented in the appendices.

 

1° The four paddock system, with a stocking rate of four head
per acre, was not included because number of days on pasture for
this system was significantly different than days on pasture for
the other three systems.

145
In Appendix A, the assumptions defining the source of costs
and revenues for each stocker operation are presented.
Revenue includes income from the sale of feeder cattle. Costs
include fencing, watering system and associated costs, costs
of establishment and maintenance the alfalfa stand, labor,
mineral supplement (containing bloat preventative),
transportation and interest charge on cattlell. The cost of
the alfalfa stand establishment includes a machinery and a
labor charge, seed, fertilizer and pest control. Stand
maintenance includes a fertilizer charge. For simplicity, no
charge is assessed for processing cattle, although this may
bias the continuous corn versus grazing system analysis in
favor of the grazing systems" Death loss is assumed to be two

percent.

The analysis assumes 80 or 160 head of cattle for the 40 acre
pasture (two or four head per acre) for the low and high

systems, respectively.

A ten year planning cycle was used as a common denominator,
reflecting the life of the fencing system. Appendix B depicts
the cash flow of the three grazing systems using MSU stocker

grazing trial gains. The values appearing in the table are

 

11 A land charge representing opportunity cost (often
approximated using depreciation, taxes and interest under a wide
range of assumptions) is not used, as it does not vary between
systems. Therefore, net returns reported are considered a return
to land and management.

146
the respective cash flows by year for each of the systems.
They are depicted in the tables in 1989 dollars. A variable
interest rate is used to coincide with the historical gross
margins”. Individuals who are in a tight cash position
will have a higher effective interest rate, while others in a

very strong cash position may have a lower effective interest

rate.

The USDA.price series is used for the purchase (an average of
April and May Dodge City calves at 400 to 600 lbs) and sale
(August Dodge City feeder steers) price. Table 4.7 shows the

gross margins for the three grazing systems considered.

Figure 4.3 depicts gross margins (1975 to 1990) for each of
the grazing systems. Although attempts have been make to
define a cattle cycle, it is difficult to pinpoint a series of
years which lie on comparablejpoints (e.g. peak to peak). For
the purposes of this analysis, the price series from 1975 to

1990 is assumed to be representative of a cattle cycle.

In other words, it is assumed to accurately represent.both the
inflation adjusted average and standard deviation of feeder

cattle prices, and not be overly influenced by a period of

 

12 Interest rates for the purchase of non breeding livestock
were used throughout the analysis (with the exception of the
calculation of average annual returns, where 7% was used) (Walraven
and Rosine, 1991). The consumer price index was used to represent
inflation.

147

Table 4.7 Gross Margins for Grazing Systems 1975-1990 ($/hd)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

“ Year Grazing System

4L 13L 13B
1975 195 237 111
1976 3 13 -73 n
1977 84 90 3 I
1978 198 204 79
1979 99 73 -43 fl
1980 154 141 41 n
1981 69 88 -19
1982 91 105 8 fl
1983 8 20 -62
1984 75 91 1 n
1985 32 29 -35 fl
1986 118 123' 46 H
1987 142 122 38 fl
1988 58 56 -27 n
1989 104 102 18 H
1990 71 79 13 “
AVG 93 98 5

 

 

 

 

 

 

148

 

 

 

 

 

 

 

 

 

 

 

8’8 250

é

0 2m:

9.

j 150

E

E 100

95

CL 50

E

g 0

‘2‘

a) '50

(D

o

I G l l l l l f I I l’ l T l l l l i
o 75767778798081828384858687888990

YEAR

 

—— 4 PAD LOW SR ”- 13 PAD LOW SR —- 13 PAD HIGH SR

 

 

 

Figure 4.3 Gross Margins of Cattle

unusually low or high prices. The use of one cattle cycle
will suffice for the purpose of this thesis, an initial look
at the profitability of grazing systems. Relaxing the
assumption of a 16 year price horizon and adopting a
considerably longer period and performing a closer analysis to
more precisely reflect the historic price series are

directions for further research.

The alfalfa stand is maintained for five years; the sixth year
reflects establishment costs for the second alfalfa stand in

the ten year cycle following removal of the animals.

149
The net cash flows in Appendix B are comparable to net cash
flow information you would use in developing a line of credit
with a lender. The discounted net cash flows were converted
to 1989 dollars using the same techniques lenders use to
discount future returns back to the present. Net present value
is the sum of the 1989 dollars discounted net cash flows in
each year over the 10 year planning period. The net present
values were converted into an equivalent average return/year
because it is the measure that is most understandable by a

wide audience.

4.5.2 Grazing System Analysis Results
Results of the grazing systems analysis is presented in Table

4.8.

Table 4.8 AAR for Grazing: Average and STD ($)

AAR ($/acre) Grazing System Definitions “

 

 

 

 

 

 

 

4L 13L 13H H
Average 40 46 -178 J
l Standard Deviation 110 117 194

For the four paddock system, the net present value is $11,332
or $283 per acre in 1989 dollars. The average annual return
is $1,613 or $40 per acre in 1989 dollars. The standard
deviation for the 40 acres over the life of the system is

$4,411 or $110 per acre.

150
For the low stocking rate, 13 paddock system, the net present
value is $12,946 or $324 per acre in 1989 dollars. The
average annual return is $1,843 or $46 per acre in 1989
dollars. The standard deviation for the 40 acres over the

life of the system is $ 4,684 or $117 per acre.

For the high stocking rate, 13 paddock system, the net present
value is -$49,956 or -$1,249 per acre in 1989 dollars. The
average annual return is -$7,113 or -$l78 per acre in 1989
dollars. The standard deviation for the 40 acres over the

life of the system is $7,753 or $194 per acre.

4.5.3 Grazing System Analysis Conclusions

The net returns to land and management were positive for both
the four and 13 paddock, low stocking rate grazing systems.
There is potential for these numbers to be higher, as average
daily gains were lower than expected (and lower than those
indicated by both the literature and state stocker cattle
producers) given the forage quality and quantity available.
The thirteen paddock low stocking rate system yielded a higher
net. present 'value ($12,946) than ‘the four’ paddock, low
stocking rate system ($11,332). The thirteen paddock system
had both larger revenues, due to a higher average daily gain,
and larger costs than the four paddock system. The net
present value was negative for the 13 paddock, high stocking

rate system, reflecting the low average daily gain.

151

4.6 Comparison of Land Use Alternatives

The average annual return, average annual return per acre,
standard deviation and range lower and upper bounds of AAR.are
presented in Table 4.9.

Table 4.9 AVG AAR, STD and Range for Corn (historical price)

 

System Definition

 

 

 

 

 

 

 

 

 

 

 

 

Grazing Corn (Historical Price)
System 13-L 120 bu 100 bu 80 bu
Yield Yield Yield
AAR 1,613 5,066 3,422 1,406
IIAAR/acre 40 127 86 35
“ STD 4,684 4,237 3,531 2,824
Range 17,383 14,194 11,828 9,463
Lower -4,429 -2,926 -3,238 -3,922
Bound
Upper 12,954 11,268 8,590 5,541
Bound
—

 

 

 

 

In this section, the descriptive statistics of each of the
three grazing systems and the corn system at each of three

levels are used to compare land use alternatives.

Average annual return is over the 10 year time frame in 1989
dollars. The average annual return is highest for the 120
($5,066) and 100 bu ($3,422) corn systems. The four ($1,843)

and 13 paddock ($1,613) grazing systems showed lower,

152
but still positive, average annual return per acre13. The
corn system producing 80 bu/acre followed closely with an AAR

Of $1,406.

The 13 paddock, high stocking rate system, had a large and
negative average annual return (-$7,113) due largely to poor

animal performance in this system.

The net present value per acre allows easy comparison between
land use options that may be of different size and reiterates

the results represented by the average annual return.

The range of annual returns describes the variation in returns
over the ten year time period. The lower bound figure
represents the highest loss or lowest gain achieved from a
system over a given period. A producer may compare this
figure with the amount of loss the operation can expect to
sustain in any one given year. Downside risk for the six
systems lies between -$19,562 for the 13 jpaddock, high
stocking rate system and -$2,926 for the 120 bu/acre corn
system. The continuous corn systems show the smallest
downside risk, indicating a strong potential for a risk averse
individual to choose that system which offers a comparatively

high AAR. The downside risk for each corn system (using MI

 

13 The $46 and $40 per acre average annual return that the 13
and four paddock, low stocking rate systems, achieved,
respectively, are lower than per acre rent payments on land with
this productive capacity.

153
corn prices) is less than that of the grazing systems due to
larger volatility of feeder cattle gross margins over corn
price. The downside risk of corn decreases as yield

increasesl4.

The upper bound represents the highest gain or lowest loss
achieved from a system in a given time frame. The upper bound
of inflated net revenue ranges from $ 5,541 for the 80 bu/acre
corn system to $ 11,268 for the 120 bu/acre corn system. Corn
provides a high annual return upper bound over all three
yields, although all three grazing systems provide a higher

upper bound than either 80 or 100 bu/acre corn.

The standard deviation of the annual net returns to each
system help a decision maker assess the risks. The standard
deviation ranges from $ 2,824 in the 80 bu/acre corn system to
$ 7,753 in the 13 paddock high stocking rate system. Standard
deviation for the corn systems increases with the
profitability of the system, as the effect of price volatility
increases with yield, and is smaller over all yields of corn
than for any grazing system. The standard deviation is
similar for the 80 bu/acre corn system and the two low

stocking rate grazing systems.

 

1'4 This is not surprising, as in the analysis, all costs other
than those associated with revenue from corn or gross margin of
cattle (i.e. price series for corn and cattle and interest rates)
are common between like systems. For example, only the revenue
from corn is variable for the corn systems, with price series
variability being the same in all systems.

154
The use of a current estimated break-even price for corn for
participation in the government program of $2.55 versus the 15
year Michigan average price of $3.29 changes the picture.
Table 4.10 depicts the average AAR for a 40 acre corn system

at break-even corn prices.

Table 4.10 AVG AAR for Corn (Break-even price)

 

System Definition

 

 

 

 

 

Corn (Break-even Price)
System 120 bu 100 bu 80 bu
Yield Yield Yield
AAR. 1,514 462 -962
AAR/acre 38 12 -24

 

 

 

While a continuous corn system yielding 120 bu and 100 bu
again provide positive AAR's, $1,514 and $462, respectively,
both are less than those provided by the 13 and 4 paddock low
stocking rate systems, $1,843 and $1,613, respectively. A
continuous corn system yielding 80 bu/acre selling at $2.55/bu
provides a negative AAR ($962) . The use of a break-even price

does not permit an analysis of price variance.

4.7 Calculation of Break-even Performance

Break-even were calculated to represent the minimum

performance required from one enterprise for it to be at an

equivalent economic threshold with an alternative enterprise.

155
The following break-even figures were calculated;
(1) Break-even Price and Break-even Gross Margin
(a) Break-even price of corn
(b) Break-even gross margin of cattle
(2) Break-even yields
(a) Break-even yield of corn
(b) Break-even gain of beef
(1) Break-even total gain
(ii) Break-even average daily gain per animal
(iii) Break-even stocking rate
4.7.1 Break-even comparison of 13 paddock low stocking rate
grazing system to continuous corn
(1) Break-even price/gross margin
(a) Break-even gross margin of beef/acre
Versus 120 bu/acre corn: $277
Versus 100 bu/acre corn: $236

Versus 80 bu/acre corn: $186

The break-even gross margin of cattle describes the gross
margin per head at which the grazing system with the highest
average annual return (13L) is equivalent to a corn system

with fixed prices.

(b) Break-even price of corn
At 120 bu/acre: $2.62/bu
At 100 bu/acre: $2.90/bu

At 80 bu/acre: $3.43/bu

The break-even price of corn describes the price per bushel of

corn at which a continuous corn system and the grazing system

156
providing the highest average annual return given a fixed

gross margin are equivalent.

(2) Break-even yields

(a) Break-even yield of corn: 95.5 bu/acre

The break-even yield of corn describes the yield per acre of
corn at which a continuous corn system and the grazing system
providing the highest average annual return given a fixed

gross margin are equivalent.

(b) Break-even gain
(1) Break-even total gain:

2.53 cwt/hd or 5.06 cwt/acre15

The break-even total gain of cattle describes the total weight
gain at which the 13L grazing system and the 120 bu/acre corn
system are equivalent holding purchase and sale price and

purchase weight fixed.
(ii) Break-even average daily gain: 2.16 lb/day
The break-even average daily gain describes the average daily

gain at which the grazing system with the highest average

annual return (13L) is equivalent to a corn system with fixed

 

15 When: P8 = 88.28/cwt, PP = 100.7/cwt and WP = 500 lb

157

prices and fixed gross margin.

(iii) Break-even stocking rate:

2.53 hd/acre (101 animals on 40 acres)

The break-even stocking rate describes the stocking rate at
which the grazing system with the highest average annual
return (13L) is equivalent to a corn system with fixed prices

and fixed gross margin.

(c) Break-even purchase price: $93.15/cwt

4.8 Risk Assessment

4.8.1 Cumulative Distribution Analysis
Cumulative distributions were developed to compare the risk

associated with each system.

Cattle prices are approximately normally distributed over the
fifteen year time frame. Therefore, a sparse data set rule is
used to plot cumulative distributions. The procedure is as
follows: the yearly inflation adjusted net revenues are listed
in ascending order by size. From this, the Kth observation is
an estimate of the (n/(n+1)) fractile, where N is the number

of observations in the set16.

 

16 See Anderson, et al., 1977

158
Valuable information can be derived from a visual analysis of
Figure 4.4 and Figure 4.5. Figure 4.4 shows the cumulative
distribution of the stacker grazing systems. Implications can
be drawn assuming the rate of gain approximates that found in
the MSU stocker cattle/ alfalfa grazing trial. A Producer
faces considerable downside risk in the 13 paddock, high
stocking rate system, expecting negative returns (returns to
land and other unallocated costs) in each year. Comparatively,
the low stocking rate systems offer a higher upside potential,

expected a loss in approximately one-third of the years.

 

 

  
     
 

///////////////////////

r_//////////////_

 

   

I///////////. “'

//// ”154/(gnaw,
’//////////////////. F

 

 

RETURN PER YEAR
(Thousands)

//// ///////////////////{/.

 

 

a
I//_{///////////4/////////(///44(({

 

 

 

9T18'27'36'45'54'63‘72'81'90'
PERCENT

 

- 4 PAD LOW SR - 13 PAD LOW SR 13 PAD HIGH SR

 

 

 

 

Figure 4.4 Cumulative Distribution of Stocker Cattle Systems

159
Figure 4.5 shows the cumulative distribution of the corn
systems. There is minimal downside risk and large upside
potentials for all corn systemsl7. High yield corn clearly
offers both the largest expected returns and less downside

risk than any of the grazing systems.

 

12
10

    

 

 

 

 

  

 

 

  
 

a

7/////(///////,

-
Z//////////__/_/////; I
hi

(//////g//////////// “

    

 

 

(Thousands)

      

{////(///////
/////////////
I//////////////,

I

 

RETURN PER YEAR

 

 

 

 

9118,27'36145fi54fi63'72181'90
YEAR

 

\\ 120 BU CORN - 100 BU CORN \\\\\ 80 BU CORN

 

 

 

 

Figure 4.5 Cumulative Distribution of the Corn System

 

17 The magnitude of both the up and downside risks for the
corn systems are closely related to the yield per acre of the
system. As discussed previously, this can be largely attributed to
the notion that, in this analysis, yield is known with certainty
and price variation is the same between systems.

160
4.8.2 The Expected Benefit Model
The expected benefit model was used to calculate the expected
benefit of a system, incorporating risk preferences. The land
use alternatives were then ranked according to expected

benefit, where;

E(B) = E(ARR) - l/ZCARA(VA.RARR)

Where:
E(B) = Expected Benefit
E(ARR) = Expected Average Annual Return
CARA = Coefficient of Absolute Risk Aversion
VARARR = Variance of Net Revenue by Year

The incorporation of a coefficient of absolute risk aversion
resulted in expected benefit reflecting the amount a decision
maker would pay (or accept as lower revenue) for decreased
risk. The ranking of systems in the expected benefit model
for a fairly risk averse individual (CARA - .0001) except the
80 bu/acre corn system, which moves up above all grazing
systems, are identical to the ranking of systems by comparing
AAR's in Table 4.9. The low corn system was discounted less
for risk relative to the grazing systems as price variability

was less.

Table 4.11 Expected Benefit

 

 

 

AAR 1,613 1,843 - 7,113 5,066 3,422 1,406

 

 

 

 

 

 

 

 

 

 

E(B) 640 746 -10,119 4,168 2,799 1,007
Rank 5 4 6 1 2 3 I

 

Chapter 5: Summary and Conclusions

5.1 Summary

Data from two years of a Michigan State University stocker
cattle grazing experiment was used in an economic analysis
to assess the economic viability of intensive grazing versus
row crop systems on soils capable of averaging 110 to 120 bu

corn per acre.

Annual net cash flows were developed and average annual
return (ARR) to land and unallocated costs of a 40 acre
enterprise were calculated from the annual net cash flows
for (1) each of three grazing systems using alfalfa as the
prominent pasture species and (2) a corn system at three
yield levels using both a USDA Michigan price series and a

break-even price for participation in a USDA ARP program.

The 100 and 120 bu/acre corn yields, using the 1976 to 1989
average real price, resulted in the highest net return. AAR
for the 13 and four paddock, low stocking rate systems were
37 and 32 percent of the 120 bu/acre corn system,
respectively. The AAR for the 80 bu\acre corn was slightly
below that of the two low stocking rate grazing systems.
Average annual return was positive for all of these systems.
The average annual net return for the 13 paddock, high

stocking rate system was negative and large.

161

162
Using a break-even price for participation in the ARP
program ($2.55) as an estimate of current corn prices
resulted in positive net return to land and unallocated
costs for the 100 and 120 bu/acre yield systems less than
that offered by the two low stocking rate grazing systems.
The 80 bu/acre corn system had a negative AAR. The
objective of using a break-even corn price was to more
closely estimate what a producer might see in the 1990's.
Therefore, this analysis indicates a growing comparative
advantage of stocker systems over continuous corn production

on similar land.

Including risk did not substantially change the results of
the analysis. A review of cumulative distributions of net
returns to land and unallocated costs helped to show the
downside risk associated with grazing systems that yield low
animal performance. The analysis did not discount the
possibility of strong economic potential for grazing systems
due to higher gains/acre than those resulting from the MSU
trial as indicated in the literature review (e.g. Clark, et
al., 1988) that yield greater animal performance to compete

with moderate yield corn.

5.2 Implications of the Analysis

In order to operationalize this information, a producer must

determine whether, given the resource base, the operation

163
can sustain productivity similar to that found in the MSU

stocker grazing trial.

This can be accomplished in two ways. The least risky
method, if practical, is to look at the results of grazing
systems of other producers in the same area or in an area
with similar soils and weather patterns. These results will
help indicate the practicality of grazing productive land,
as well as provide an indication of the most efficacious
grazing system. The second method by which a producer can
judge 'whether' grazing systems ‘will be jprofitable is to
implement a simple initial system. The results of the
analysis do not exclude the possibility of large losses,
resulting from low animal productivity and explicitly state
the long run commitment to building a grazing system such as
those seen in the 13H system. Therefore, a producer should

start with a smaller enterprise.

It is not clear from ‘this analysis that there is any
significant advantage to intensive rotational grazing over
rotational grazing. Although returns were slightly higher
at the low stocking rate in the more intensive system,
initial costs, and therefore commitment to the system, are
also higher. Flexibility must be maintained; a more or less
intensive system can evolve with the results of initial

experience.

164

5.3 Computer Model

This study was done using numbers and variables unique to
one or a finite number of situations. While considerations
of three of the four grazing treatments have provided
considerable insight into the costs and returns to a grazing
system, latitude in defining implications to an individual
producer could be expanded through the development of a

computer model.

This is for two reasons. First, land use alternatives may
not fit one of these systems due to resource, capital and
management constraints and/or personal preference. For
example, a producer may be fixed to a wagon wheel design due
to the current fencing in place. Second, the costs and
returns, while fixed in this analysis, will vary across time
and among operators. Through the use of a computer model, a
decision maker can change these assumptions to more closely
reflect actual systems, costs and returns or run the model
to test various combinations under consideration, using

predicted costs and returns.

This economic analysis includes a large number of system
specific assumptions in an effort to take an initial look at
different management intensities for grazing systems and to
compare grazing system returns to those of row crops.

While the assumptions given for the analysis are realistic

165
as a case beef operation, there are several decisions a
manager must make throughout the planning and implementing
phase of the operation that will depend on many unique
variables (e.g. labor, management, climate,...). A computer
model could assist a producer through explicitly considering

specifics of a given operation across several areas;

(1) The relaxation or endogenization of the strict
assumptions which consider variables in these areas
exogenous. Sensitivity analysis could then be used to
determine which of these decision factors is important to

the profitability of the operation.

These factors may include decisions on marketing such as the
use of price options, forward contracting and time of
purchase and sale of cattle. Environmental conditions (i.e.
rainfall), market conditions and the type of system
implemented (e.g. put and take versus fixed stocking rate)
influence the marketing behavior of producers. There are
more options in a stocker operation to consider versus a
feedlot operation in terms of flexibility of sale date.
Date of sale of cattle may be a function of labor or
management availability and the cash flow of the operation.
Other decisions may include whether to supplement feed, when
and if to take conservation cuttings and the application of

fertilizers and pesticides.

166
(2) Development of a broader data base. In this analysis,
grazing of an alfalfa pasture was compared to a corn system
of three yields at two price levels. While the implications
of the research and the analysis are useful across a wide
range of situations, a broader data base including various
plant species (both row crops and pasture species), crop
rotations, management schemes, cattle species and climates
would. greatly improve the jpotential for forecasting' the
viability of a grazing system on any one farm operation.
Both research and case studies would be considered for this

data base.

(3) More precisely indicating Michigan specific conditions.
To get an indication of how the improvement and increased
use of grazing can impact Michigan agriculture, conditions
throughout Michigan must be more closely studied. For
example, the defender system in the upper peninsula will be
different than that in the thumb area. In addition, the
price series can be improved to better reflect cattle and

crop markets in Michigan.

( 4) Considering the expansion of this analysis on stocker
operations to include the whole farm operation, including
vertical integration of the cattle enterprises and/or use of
cropping enterprises to supplement the pastures. This is
important for producers who share resources across several

enterprises.

 

167
The model could be as simple as a spreadsheet model or as
complex as a full scale simulation model including
sensitivity analysis parameters. Another option for the
research community is to convert an existing research model
to a user friendly model for use by Michigan cattle

producers

5.4 Limitations of the Analysis

To gage to extent to which recommendations should be made
given the research and analysis performed, it is necessary
to consider several limitations: ( 1) The analysis is based
on only two years of experimental data. Although the
methods of economic analysis presented will hold for future
experiments, several additional years of data are necessary
on the biological changes within the pasture. The two years
of data offer compelling evidence for performance of the low
stocking rate (2 hd/acre) over the high stocking rate (4
hd/acre) in both net return and gain/hd. This two year
period does not offer sufficient evidence of a difference
between grazing systems (number of paddocks). While it is
often adequate to look only at treatment differences when
comparing grazing systems, level of profitability becomes
the measure when comparing grazing systems with alternative

land uses (e.g. continuous corn).

168
(2) This analysis is based solely on the MSU experimental
data. A thorough review and integration of grazing studies
performed to date must be considered to provide a synthesis
of the available knowledge. This will allow applicability

across a larger number of unique farm situations.

(3) Economic data and risk considerations are limited.

5.5 Future Research Objectives

There are several research. objectives to overcome 'these
limitations. Future research objectives are aimed toward

pasture performance and economic and risk analysis.

5.5.1 Pasture Performance

(1) Continue the grazing trial over several years and
include the results and implications of several long term
studies to give a clearer picture of the ecological
evolution of pastures overtime. It is clearly important in
pasture studies to get a notion of the steady state pastures
will reach under various conditions (e.g. grazing pressure,

grazing system, climate...).

(2) Determine how one approximates a intensive grazing
system from an experimental paddock system. Within this
study, a 13 paddock system was used to approximate intensive

grazing. A clearer picture will evolve on how these results

169
can apply to situations in which a stricter definition of

time control is practiced.

(3) Including harvesting a portion or all of the first
cutting as an alternative will add depth and applicability
to the analysis.

5.5.2 Economics

(1) The gross margin estimates for cattle are a simple first
cut. The use of a 16 year price series from a single source
for a limited specification of cattle is not adequate to
obtain strong precision on calf or short yearling prices for
Michigan producers. The data base on gross margins must be

expanded and include basis and transportation costs.

(2) Within this analysis, a single number ‘was used. to
represent each of the cattle gross margin, corn price and
costs over a ten year period. More data is needed to obtain
a more precise picture of the cyclic behavior of and
correlation between cattle gross margins, corn prices and

other agricultural inputs and outputs.

5.5.3 Risk Analysis

(1) Corn was used as the defender crop throughout this
analysis. Corn price was the only variable within the corn
system for which variability (uncertainty) existed. Yield

and government program variability/uncertainty must also be

170
included to more accurately reflect the uncertainty faced by

producers.

(2) For this analysis, gross margin was the only source of
variability within the grazing systems. In reality, plant
yield, animal performance given plant yield, morbidity,
mortality, processing and gross margin risk are present and

thus, their inclusion within future analysis is warranted.

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APPENDICES

APPENDIX A

Assumptions of the Analysis

I. System definitions
A) Grazing systems
1. Days grazing
4 Paddock system (two complete cycles «1» 21 days)
13 Paddock system (three complete cycles)
2. 40 Acre grazing system
3. Head of cattle
Low stocking rate (two head/acre; 80 head)
High stocking rate (four head/acre; 160 head)
B) Crop production
40 Acres continuous com

11 External information
A) USDA Dodge City feeder cattle prices (1975 to 1989)
1. Purchased 500 lb steer calves in April

2. Sold yearling feed steers (600 to 800 lb) in September

117 Days
117 Days

B) USDA Michigan average corn price (1975 to 1989) and Break-even corn price for

government program participation in 1991.
C) Real interest rate

1. Nonbreeding livestock interest rate (Agricultural Federal Reserve Bank)

2. Adjusted average of historical data (r=.07)
D) Inflation rate
1. Consumer Price Index

180

181

Table A.1 System Investment: 4 Paddock Grazing System

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     

 

1 Fencing installation labor expenditure included.

2 Maintenance and repair costs not included.

 

 

Description Expenditure lifespan (years) II
Fencing Expenditures1 ll
Perimeter (5264 ft @ $0.85/ft) 5 4,474.40 10 years ll
Interior Subdivision (2640 ft @ $0.15/ft) 3 396.00 5 years
Polytape 3 0.00 2 years
Energizer $ 416.00 10 years
16 ft gate (1 @ 3135/ gate) 3 135.00 10 years
Watering System Expenditures2
150 gallon steel tank (1 @ $106.65/tank) 3 106.50 10 years
Complete float set (1 @ $11 /set) 8 11.00 2 years
3/4" plastic hose (100 ft @ $0.30/ft) 8 30.00 10 years
Hose installation (100 ft @ SS/ft) 3 500.00 10 years
Electricity (117 days @ 1 hr/day @ $0.05/hr) S 5.85 1 year
Labor (30 minutes/day for 117 days + 15 minutes/day 3 455.63 1 year
for 9 days @ $7.50/hr)
Alfalfa Establishment
Complete Establishment (40 acres @ Sl45/acre) 3 5,800.00 5 years
Fertilizer (in nonestablishment years) (40 acres @ 3 1,840.00 1 year
$46/acre)
Bloat Guard ((80 hd - 1/2death lossB) @ (5/16)lb/day 3 916.11 1 year
for 117 days @ $10.44/331b
Transportation Expenditure (80 hd ‘ 5 CM @ $2/cwt) 3 800.00 1 year

 

3 The use of the term ’1 /2 death loss’ represents the assumption that, on average, death loss

occurs in midseason.

182

Table A.2 System Investment: 13 Paddock Grazing Systems

Description

 

Expenditure

 

Fencing Expenditures

Lifespan (years) I
II

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Perimeter (5248 ft @ $0.85/ft) $ 4,460.80 10 years ll
Interior Subdivision (5644 ft @ $0.15/ft) 3 846.60 5 years II
Polytape (2675 ft @ $0.03/ft) 3 80.25 years
Energiz' er 3 416.00 10 years
16 ft gate (2 @ $13mate) 3 270.00 10 years
‘ Watering System Expenditures4
150 gallon steel tank (1 @ $106.65/tank) 3 106.50 10 years
Complete float set (1 @ $11/set) $ 11.00 2 years
3 /4" plastic hose (100 ft @ $0.30/ft) 3 30.00 10 years
Hose installation (100 ft @ $5/ft) 3 500.00 10 years
Electricity (117 days @ 1 hr/day @ $0.05/hr) 3 5.85 1 year
Labor (30 minutes/day for 117 days + 15 minutes/day 3 511.88 1 year
for 39 days @ $7.50/hr)
Alfalfa Establishment
ll Complete Establishment (40 acres @ $145/acre) 5 5,800.00 5 years
II Fertilizer (40 acres @ $46jacrg) $ 1,840.00 1 year
Bloat Guard5 ((80 hd - 1/2death loss) @ (5/ 16) 3 916.11 1 year
1b/day for 117 days @ $10.44/33lb
Bloat Guard6 ((160 hd-1/2death loss) @ (5/16) lb/day 3 1,832.22 1 year
for 117 days @ $10.44/331b
Transportation Expenditure7 (80 ‘ 5 cwt @ $2/cwt) 5 800.00 1 year
H Transportatiorn Expenditures (80 " 5 cwt @ $24M) i$_1,__.0_00 __ 1 year

 

 

4 Maintenance and repair costs not included.
5 Low stocking rate system
6 High stocking rate system
7 Low stocking rate system
8 High stocking rate system

   

 

183
Table A.3 System Investment: 80 bu / acre Corn Yield

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Expenditures Expenditures
Seeds and plants (22.0 K ker @ $0.90/lb)/acre 3 792.00
Nitrogen Anhydrous (90.0 lb @ $0.12/Ib)/acre $ 432.00

ll Phosphate p205 S 0.00
Potash k20 (70.0 lb/acre @ $0.11/lb)/acre 3 308.00
II Limestoneg ($12.00/acre) s 480.00
Insecticides10 ($15.00/acre) S 600.00
Weed sprays ($15.75/acre) 3 630.00
Building repairs ($2.50/acre) 3 100.00
Equipment ($18.00/acre) $ 720.00
Irrigation labor and fuel 3 0.00
Drying fuel ($24.00/acre or 96th @ $0.0225/pt) $ 960.00
Gas, fuel and oil ($9.80/acre) 5 392.00
Utilities, phone (32.00/acre) 3 80.00
Trucking, freight ($16.00/acre) $ 640.00
Marketing (0.80/acre) 3 32.00
Capital costs (custom rates with labor)
Spread potash (3.60/acre) 3 156.96
Moldboard plow (3 1200/2ch 5 523.20
Fitting with field cultivator (3620/ acre) 3 270.32
Planting with fertilizer attachment (S 1040/ acre) 3 453.44
Anhydrous ($6.40/acre) 3 279.04
Spraying (3.90/acre) 3 170.04
Cultivation ($4.60] acre) 3 200.56
Harvest (20.70/acre) 3 902.52

 

 

 

9 Adjusted from $7.50/acre to reflect a continuous corn system

10 Adjusted from $3.00/acre to reflect a continuous corn system

184
Table A4 System Investment: 100 bu / acre Corn Yield

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

fl Cash Expenditures Expenditure

II Seeds and plants (22.0 K ker $0.90/1b)/acre 5 792.00

I Nitro en Anhydrous (110.0 lb @ $0.12jlb)/acre $ 528.00
Phosphate p205 $ 0.00

ll Potash k20 (90.0 lb @ $0.11/lb)[acre 3 396.00
Limestone (S 12.00/acre) 3 480.00
Insecticides ($15.00/acre) 3 600.00

II Weed sprays ($15.75/acre) 3 630.00
Buildingfipairs ($2.50/acre) 3 100.00
Equipment ($18.00/acre) 3 720.00
Irrigation labor and fuel 3 0.00
Dm’ g fuel (1200 pt @ $0.025 or $30/acre) $1,200.00
Gas, fuel and oil ($9.90/acre) 3 396.00

ll Utilities, phone ($2.50/acre) 5 100.00
Trucking, freight ($20.00/acre) 3 800.00
Marketing ($1.00/acre) $ 40.00

Capital costs11 (custom rates with labor) I.

Spread potash 3 156.96 II
Moldboard plow ‘ 3 523.20 I
Fitting with field cultivator 3 270.32
Plantingwith fertilizer attachment 3 453.44
Anhydrous 5 279.04
Spraying 3 170.04
Cultivation 3 200.56
Harvest 3 902.52

 

 

11 Capital Costs are identical for all three corn systems

185

Table A5 System Investment: 120 bu/ acre Corn Yield

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Expenditures Expenditures

Seeds and plants ((25.0 K ker @ $0.90/1b)/acre 3 900.00
Nitrogen Anhydrous ((140.0 lb @ $0.12[lb)/acre 3 672.00
Phosphate @5 (30 lb @ $0.18/lb)/acre $ 216.00
Potash k20 (110.0 lb @ $0.11/lb)/acre 3 484.00
Limestone (”2.00/acre) 3 480.00
Insecticides ($15.00/acre) 3 600.00
Weed sprays ($15.75/acre) 3 630.00
Building repairs ($2.50/acre) 3 100.00
Equipment ($18.00/acre) 3 720.00
Igigation labor and fuel 3 0.00

, DEE! g fuel (1440 pt @ 0.025/pt)[acre; 336/2ch $1,440.00
Gas, fuel and oil (“0.00/acre) 3 400.00 |
Utilities, phone ($3.00/acre) 3 120.00
Truckingz freight ($24.000/acre) 3 960.00 I
Marketing ($1.20/acre) 3 48.00 ll

Capital costs (custom rates with labor)

Spread potash 5 156.96
Moldboard plow 5 523.20
Fitting with field cultivator 3 270.32
Planting with fertilizer attachment 3 453.44 I
Anhydrous 3 279.04
Spraying 3 170.04
Cultivation 5 200.56 I

 

 

 

, Harvest 3 902.52 n

 

APPENDIX B

Grazing System Net Cash Flows

Table B.1 System Net Cash Flows (4L)

YEAR 1
” Tbitoen PM Swen ”
[DWSI‘OGUNG RATE (2 llDlACRE)
Fencing
High Tensile Perimeter Fence “60.80
Inter-or Subdiviatonal F enoe “6.60
PM aw
Enerpzer 4 tom
Sateen lt. Gates now
Total lenong coat 6073.65
Alfalfa Stand
Complete Sandbag Coat 51mm
Top dies (maintenance) cost non
Total all all a coat 51mm
Water-t; Wt
One 150 1!) gallon ateel tank 1000
Complete Flat Set 11.“)
Total utenng ooau 117.50
Eleanoty to pump $.86
Cat of boae moo
Coat of hate installation sonoo
Total Catt of Water-tn; System 770.85
Labor Cost 5 11.88
Bloat Guard BloekZbdaae 91M!
Tramponauon Expendsture mam
AVERAGE GROSS MARGIN OF CA 7869.38
Net Cash flow for year
Net Revenue by Year Jill.“
Net Revenue by Year (discounted) 45A”
Rename Coat Flo- 14872.49
Non Cab Flow tduaoounted) 13099.52
Net Proent Catt (233.54
Average Annual Coat 6025.21
Net Preaenr Value Pony aaea
Eighty Head 12015.69
Average Annual Return Forty acres
Eoghly Head 1513.17

YFAR:

coo
(100

01!)
0.0)
0.00

non
1mm
180.“)

am

can
$.85
non
coo
5.6

$11.88
916111

”All
7869.38
3793.55
3315.18

4073.34
3558?}

Per acre
311.64

peracre
«.05

YEAR 3

am
cm
”1‘
am
000
80.25

0.00
mom
1mm

MI)
1U!)
11.“)

3.35

0.00

can
27.86

311.88
916.11

moo
7069.38
3693.30
”It”

417600
”93

YEAR‘

non
1840.”
1mm

can
0.“)
am
5.85
0.!!!
(mo
5.“

511.88
916.11

3107.91

186

YEARS

[1.25

can
mum
1840.1!)

aoo
11.11)
11.0)
5.86
(too

27.85

511.38
916.11

3693.30
2633.27
mam
2977.49

YFJUI 6

non
“060
um
am
0.00
“660

mm
aoo
smoo

IMO
am
1“.”
3.85
coo
0.07
21396

511.88
91611

7869.38

424.“
£15.“
”93.“
6059.34

0.“)
01D
”.25

0.00
K125

non
mam
moon

am
11.00
11.00
5.85
am
0.01
37.5

$11.68
9161'.

8011.00

7569.38

3693.30

4176.09
ma

YEAR? YEAR!

not.
000
am
0.00
am
cm

0.00
1mm
IMO 0;

0th
00'
0.0'
5.85
(10‘-
“(It
5.6.7

511.83
91h 21

tum

3795..“

073.8:
371.01

YEAR 9

0.“)

$0.25
0 '1'
om
an 1‘

(100
1540.“?
IMO!“

om
1U!)
11m
0.10
0.00
27.86

511.58
91011

500‘

780.35

3693. 30

4170.00
2171.51

YEAR 1(-

om
0,“)
0 (7'
(Ital
0 m
0 (ll

um
mom
1M0 00

no":
om
0 [II
5.16
cm
(MI:

5.5

$11.65
“lttl'.

81! ll'
7869.38
3795.35
1929.46

4073.54
2070.93

”Tbiteen Paddock Svatem "

187

Table B.2 System Net Cash Flows (13L)

YEA!”

[DWSTOCKING RATE (2 HDIACRE)

Feno'ng

High Tenaile Perimeter Fence
Intencr Subdiv'uional Fence
Polytape

Energizer

Sateen (t. Gales

Total [along coat

AlialIaStand

Complete Seeding Coat

Top dress ttnatntenance) coat
Total alfalfa coat

Watering Emnpmmt

One 150m plon ateel tank
Complete Float Set

Total meme coats
Salary to pump

Coat of hoae

Coat of hue matallauon

Total Coat of Watenng System

LaborCoat
Bloat Guard Block Zhd acre

Tmponauon bpendnture
AVERAGE GROSS MARGlN OF CA

Net Cash flow {or year

Net Revenue by Year

Net Revenue by Year ldtacounted)
Nonattle Coat How

Non Caab How ldncounted)

Net Patent Coat

Average Annual Coat

Net Preaent Value
Eighty Head

Average Annual Return
Eighty Head

4460.8)
“60
can
neon
270111
6073.65

511.88
916.11

8111.“?

7869.38

.7003.“
4.544%
14872.49
13099.52
42325.54

6026.21

Forty acre:
1295.69

Forty acrea
1843.17

0.00
1840.“)
mom

um
um
um
5.85
0.00
0.00
5.86

511.88
916.11

300.00
7869.38
3795.55
33 15. 18

4073.84
3558.23

Per acre
313.6!

peraere
460$

YEARI YEARJ

am
can
am
am

80.2.3

non
1340.00
lacuna

can
1 UK)
11.1!)
5.85
am
«on
27.35

511.85
916.11

3693.30
”14.83
417609
”93

YI-Jmt

YFAR S

000 «too
0.“) am
om 80.25
am 0.00
0.01 0.00
0.1!) 00.25
0.“) non
1mm tmoo
154nm mom
QM IN
um um
am 11.00
5.85 5.35
0.1!) can
am am
5.83 27.85
511.88 31 1.88
916.1 1 916.11
M.” canon
7869.38 7869.38
3795.55 3693.30
2895.60 2633.27
4073.34 4176.09
3107.91 2977.49

YEARS

106.50
5.85
am
000

21385

511.88
916.11

7869.38

4224.“
415.61
”93.44
6059.34

YEAR?

0.00
am
can
0.00
can
80.25

am
tmao
moon

coo
1 1.0)
1 1.1!)
5.”
too
0.4!)
27.85

511.88
916.11

3693.30
man
4176.”

YEARE

0.1!)
tmoo
mam

(too
00'!
0.0?
0.0.l
0.1!)
S.Ef

51116
9162'.

”Ml

7869.3?

3795.5 F

073.64
2371.01

YEAR 9

0.0)

5:125
cm
0 ('1

50.25

am
mom
1840.1”

3118‘
91611

8'!) (ll
76:69.35
3693.30
21118.91

4176.09
271.51

YUR 1“

0.0)
cm
00"
01"
(Hit
OOJ

0.1!)
1840.1“
181011!

511.55-
010.11

M!”
7869.35-
3795.55
19:11.41.

4073.84
2070. 93

“Thateenl’addockSv-uem "

188

Table B.3 System Net Cash Flows (13H)

YEAR]

HIGH STOCKING RATE (4 HDIACRE.‘

Fenn’n;

High Terile Perimeter Fence
ulterior Subdiviaaonal Fence
Polytaoe

Emmet
SmaenlLGatea
Total lendngooat

Allalla Stand

Complete Sanding Coat

Too dre- tmaintenance) out!
Total allalla coat

Watering Equpment

One 150-180 gallon ateel tank
Complete Boat Set

Total valenng coau

Electricity to ptmtp

Catt ol bme

Coat of boae irutallauon

Total Coat of Water-tn; Salem

LaborCcat
BtcatGmrdBloekZbdaae

Tranapcrtaucn warm
AVERAGE GROSS MARGIN OF CA

Net Cash flow for year

Net Revenue by Year

Net Revenue by Year (dracounted)
Non-tattle Coat Float

Non Caah Flow (dracounted)

.\et Pretent Coat

Average Annual Coat

NetPreaentValue
One HundredSury Head

AveraaeAmualReturn
One Hundred Scary Head

6460.“)

3125
85.1!)
zmoo
5742.65

511.88
1833.22

1600.00

733.56

45524.01
~145£Il4nl
1637.60
1519-101
551%.37
7306.19

Forty acret
49956.15

Fern-acre-
.711263

YEARI

0.1!)
0.00
0.“)
non
0.1!!
0.1!)

0.”
1mm
1840M

0 00
0.1!)
0.1!)
5.8.5
0.1!)
0.“)
5.8.5

68150
182.2

lemon
733.56
-5 227.01
4565.47

5960.57
52%. 19

Per Ace
4248.”

peracre
477.02

YEAR3

0.“)
con
”.25
0.01
am
”.25

0.00
tmoo
mum

0.00
11.0)
11.131

5&5

non

uoo
27.85

682.50
1912

1mm
733.56
6329.26
4350.26

“1 82
4949.07

YFJtR4

too
am
am
(100
0.00
0.“)

non
1mm
mom

0m
(ton
aou
5.85
000
can
5.85

682.50
1833.22

14mm
733.56
-53'.‘ 7.01
0957.66

was?
4547.29

YEARS

am
am
K125
0m
01!)
.125

0m
1840.“)
1840.1!)

cm
11.1!)
11.00
5.8.5
0.0.)
0.“)
27.85

68150
1832.22

lemon

733.56

$329 26
379969

60:18:
4322.71

YEARo

toaso
0.00
111.50
5.85
am
000
218.85

683.50
1832.22

1600.00
733.56
4034661
$827.75

109m17
7316.55

YEAR?

am
can

can
too
”.25

non
moon
180.”

000
11.01
1101

5&5

um
27.&5

682.50
18.312

160600
733.56
632926
331380

«X182
3775.62

YEARS

am
0.11)
am

am
00)

600
1840.03
1840.11)

682.50
1833.22

1030'
733.56
.5370!
$013.13

59w."
3469.21

YEAR 0

am
0.11)
80.25
am
80.15

0.1!)
1840.1!)
1310.1!)

”(rt
mm
11.0.

557

0.00

27.55

6.52.50
183.22

2533")"

.2‘9‘ 7“

var. in

am
000
am
0 N!

am

om

1mm
111-lam

681.50
1832.:

16111.0“

733.50

-“‘~.n'

~16" 1:

5w] .-
30301-7