Relative Cost Efficiency of No-Till Farms

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Relative Cost Efficiencyof No-Till Farms

• 2008 Ag Profitability Conference McPherson
• Michael Langemeier
• January 15, 2008

2
Outline of Presentation

• Introduction
• KFMA Data
• Detailed Cost Comparisons
• Whole Farm Analysis
• Summary and Conclusions

3
Introduction

• Using the 2006 Crop Residue Management Survey,
  the adoption of no-till production has increased
  from 7.4 of planted acres in 1990 to 31.5 of
  planted acres in 2006.
• This paper documents cost differences between
  farms that have adopted a no-till production
  system, and those with a conventional or reduced
  tillage system.

4
KFMA Data

• Identification of No-Till Farms
• Participating Associations
• Northwest
• North Central
• South Central
• Northeast (Atchison, Jackson, Leavenworth, and
  Nemaha)

5
KFMA Data

• Detailed Cost Comparisons (2006 data)
• North Central
• South Central
• Whole-Farm Analysis (2002 to 2006 data)
• Central Kansas

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Kansas Farm Management Associations 2006
Membership
Top Number Number of Farm Units Per
County Bottom Number Number of Extra Partners
or Persons in the Multi-Operator Farm Units
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Detailed Cost ComparisonsPer Harvested Acre

• Labor
• Hired labor and opportunity charges on operator
  and family labor
• Machinery
• Repairs on machinery and equipment, machine hire,
  gas, fuel, oil, and depreciation on machinery and
  equipment
• Crop
• Seed, crop insurance, fertilizer, herbicide, and
  miscellaneous costs such as irrigation energy,
  crop storage and marketing, and crop supplies
• Improvement
• Asset Charges
• Other Expenses

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Detailed Cost AnalysisTotal Crop Cost per
Harvested Acre
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Detailed Cost AnalysisHistorical Total Crop
Cost NC KFMA
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Detailed Cost AnalysisCost Categories NC KFMA
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Detailed Cost AnalysisCost Categories SC KFMA
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Detailed Cost AnalysisMachinery Cost NC KFMA
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Detailed Cost AnalysisMachinery Cost SC KFMA
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Detailed Cost AnalysisCrop Cost NC KFMA
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Detailed Cost AnalysisCrop Cost SC KFMA
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Detailed Cost AnalysisCentral Kansas

• Labor cost, machinery cost, and asset charges are
  relatively lower for the no-till farms.
• Crop cost is relatively higher for the no-till
  farms.

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Whole-Farm AnalysisCentral Kansas

• Comparison of Whole-Farm Characteristics
• Total Acres
• Crop Acres
• Crop Intensity (Harvested Acres/Crop Acres)
• Percent of Crop Acres Planted to Wheat, Feed
  Grains, and Oilseeds

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Whole-Farm AnalysisCentral Kansas

• Comparison of Whole-Farm Characteristics
• Value of Farm Production
• Net Farm Income
• Labor Cost as a Percent of Value of Farm
  Production
• Value of Farm Production per Worker
• Expense Ratios
• Operating Profit Margin
• Asset Turnover Ratio

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Whole-Farm AnalysisDefinitions

• Value of Farm Production
• Value of farm production (VFP) equals the sum of
  livestock, crop, and other income computed on an
  accrual basis minus accrual feed purchased. VFP
  provides a measurement of value added and if
  often used as a measure of farm size.
• Net Farm Income
• Return to operators labor, management, and
  equity (net worth) computed on an accrual basis.

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Whole-Farm AnalysisDefinitions

• Expense Ratios
• Total Expense Ratio
• Total Expense / Value of Farm Production
• Adjusted Total Expense Ratio
• (Total Expense Opportunity Charge on Operator
  and Family Labor) / Value of Farm Production
• Economic Total Expense Ratio
• (Total Expense Opportunity Charge on Operator
  and Family Labor Opportunity Charge on Owned
  Assets) / Value of Farm Production

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Whole-Farm AnalysisDefinitions

• Operating Profit Margin Ratio
• (Net Farm Income Interest Opportunity Charge
  on Operator and Family Labor) / Value of Farm
  Production
• Asset Turnover Ratio
• Value of Farm Production / Average Total Assets

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Acres Farmed andCrop Intensity
Tillage No-Till
Total Acres 1,626 2,062
Crop Acres 1,208 1,645
Crop Intensity 100.1 104.4
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Crops Planted
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Yield ComparisonsNorth Central Kansas
Tillage No-Till
Wheat Yield 46.8 45.3
Grain Sorghum Yield 63.5 71.9
Soybean Yield 24.4 26.1
Corn Yield 73.7 73.0
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Value of Farm Production andNet Farm Income
Tillage No-Till
Value of Farm Production 273,706 370,847
Net Farm Income 47,422 64,519
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Farm Size Categories
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Number of Workers andLabor Efficiency
Tillage No-Till
Number of Workers 1.38 1.56
Labor Cost as a Percent of Value of Farm Production 19.28 16.54
Value of Farm Production per Worker 198,338 237,875
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Expense Ratios
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Expense Ratios

• Percent of Farms with ETER lt 1
• Tillage Farms 19.2
• No-Till Farms 24.5

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Financial Performance
Tillage No-Till
Asset Turnover Ratio 30.54 38.33
Profit Margin 8.47 11.14
of Farms Bottom Quartile 28.33 7.45
of Farms Top Quartile 23.75 30.85
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Size Versus Adoption of No-Till?

• Correlation Coefficients
• ETER and Total Acres -0.143
• ETER and Value of Farm Production -0.292
• ETER and Number of Workers -0.119
• ETER and No-Till -0.110
• Both size and NT adoption are significantly
  correlated with the economic total expense ratio
  (ETER).

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Economies of Size

• Significant economies of size exist among KFMA
  farms.
• The profit margin for large farms is
  substantially higher.
• The economic total expense ratio, one of best
  indicators of economies of size, is substantially
  lower for large farms.

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Performance Benchmarks

• KFMA Farms with Continuous Data
• 1,160 Farms
• 2002 to 2006
• 5-Year Averages
• VFP 259,095
• Expense Ratios
• Total Expense Ratio 0.803
• Adjusted Total Expense Ratio 0.967
• Economic Total Expense Ratio 1.156
• Operating Profit Margin 0.0940
• Asset Turnover Ratio 0.2942

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Profit Margin Ratio(2002-2006 KFMA Average)
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Economic Total Expense Ratio(2002-2006 KFMA
Average)
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Economies of Size
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Summary and Conclusions

• Cost per harvested acre is relatively lower for
  farms that have adopted a no-till system.
• In addition to having a relatively lower cost per
  harvested acre, on average, the no-till farms
  exhibited a lower economic total expense ratio,
  improved labor efficiency indices, and higher
  operating profit margin and asset turnover
  ratios.
• However, it is important to note that some of the
  no-till farms were in the bottom operating profit
  margin quartile and that some of the mixed
  tillage farms were in the top operating profit
  margin quartile.

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Contact Information

• Publications and Data
• www.agmanager.info
• www.kmar105.com
• E-mail
• mlange_at_agecon.ksu.edu