Jose, H.D.

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Some economic implications of extending crop rotations

University of Saskatchewan Research Archive

- 56 -SOME ECONOMIC IMPLICATIONS OF EXTENDING CROP ROTATIONS* H, Douglas Jose ** In assessing the economic implications of extending crop rotations, the normal prerequisite would be to define exactly what is meant by the term and identify specific crop rota-tions. In one sense, the term probably implies that the per-centage of summerfallow in the rotation is reduced, It also means deriving crop rotations which achieve one or more of the following: (1) increase soil fertility; (2) improve soil texture and reduce soil salinity; (3) maximize the use of available moisture, where available moisture is defined as the moisture entering the soil profile which is in excess of the wiiting point and excludes moisture ~ost through drainage and rainfall; and (4) protect the soil from water and wind erosion. There may be other factors but these seem to be the ones that are most obvious. You will note one point I have not mentioned is diversification, If risk is defined as the variance in income, expanding crop rotations is not a means of reducing risk. Mathematically, total income variance can not be reduced by adding enterprises to the same resource * Paper presented to the Soil Fertility Workshop, Saskatoon, February 12, 1975, ** Assistant Professor and Extension Specialist, Agricultural Economics Department, University of Saskatchewan, -,57 -base, unless the covariance of incomes betw~en the enterprises is negative, Specifying rotations dep~nds on the assessment of the above factors in relation to the objectives of the producer and on the particular location, where location is a collective term for such variables as soil type, amount and incidence of rainfall, wind and local and regional markets. Rather than looking at specific rotations I have chosen a more general approach and will attempt to do the three following things. 1. Investigate the costs of increasing the size of the planting and harvesting components of a machinery complement and the implications for acreage capa-cities of the complements; 2, Investigate the costs of adding haying equipment to a machinery complement, and 3. Discuss the feeding implications for a livestock producer of having forage available. 1. Expanding the capacity of machinery complements, It is ass?med that the planting and harvesting machines are the most critical machines in the complement from the standpoint of timeliness of operations. I have assumed the seeding operation is done with a discer which has a seed and fertilizer attachment. The three sets of machines or sub-complements I have considered are specified in Table 1. \ - 58 -Table 1: Machinery Sub-Complements Analyzed Sub-Complement a Number Discer Swather Combine 1 16 ft. 12 ft. P.T.O, 12 ft. P.T.O. 2 24 ft. 18 ft. P. T, 0. 14-18 ft. S.P. 3 30 ft. 24 ft. P . T . 0 . 24 ft. s. p. aSize of combines is defined as the size necessary to .handle a swath of the size specified. These sets of machines are analyzed on the basis of ownership costs, namely depreciation, interest on investment, insurance and housing and repair costs, The repair costs are based on the normal lifetime repairs on a machine as a percentage of original cost and the expected useful life of the machine in years. The coefficients used to compute the machinery costs are presented in Table 2. Table 2: Machinery Cost Calculation Coefficients Coefficient t1achine Discer Swather PTO Combine SP Combine Life in Years 15 15 12 12 Salvage Value 10% 10% 15% 15% Repairs 110% 50% 30% 40% Field speed in MPH 4. 5 4.5 3.5 4,0 Field efficiency 80% 70% 75% 75% - 59 -The computed performance rates and the original costs of each machine are presented in Table 3, Table 3: Machinery Performance Rates and Original Costs Machine Performance Rate Original in Ac/Hour Di s_ce rs 16 ft. 6 . 5 $4261 24 ft. 9. 8 5566 30 ft. 12.3 6219 Swat hers 12 ft. 4.6 1596 18 ft. 6 . 9 2355 24 ft. 9. 2 3308 Combines Small 3 . 8 13079 Medium 6 . 5 20632 Large 8.7 26432 The annual costs were computed using the following formulas: 1. Depreciation = Original Cost - Salvage Value · Years of Life 2, Interest on Investment = Original Cost + Salvage Value X Interest Rate 2 The interest rate was set at 10% 3. Insurance and Housing = 1% of original value. 4. Repairs = Repair Rate X Original Cost Years of Life Cost - 60 -The costs are summarized in Table 4 by machine size and in Table 5 by machinery sub-complement, Table 4: Summary of Annual Costs by Machine and Machine Size Machine Dep. Int. Ins. & Hous. Repairs Total Discer 16 ft. $ 256 $ 234 $ 43 $ 312 $ 845 24 ft. 334 306 57 408 1105 30 ft. 373 342 62 456 1233 Swathers 12 ft. 96 88 16 53 253 18 ft. 141 130 24 78 373 24 ft. 198 182 33 110 523 Combines Small 926 752 131 345 215 4 Medium 1461 1286 206 688 3641 Large 1872 1520 264 881 4537 Table 5: Summary of Total Annual Ownership Cost by Machinery Sub-Complement Discer, Sub·- Complement Swather Swather Number Discer Swather Combine & Combine & Combine 1 845 253 2154 2407 3252 2 1105 373 3641 4104 5119 3 1233 523 4537 5060 6293 These total costs figures will be more meaningful if put on a per acre basis, The per acre calculations are shown in Table 6, - 61 -Table 6: Total Annual Ownership Costs of Machinery Sub-Complements in Dollars per Acre By the Number of Acres Completed 1 Sub-Complement Number 2 No. of Incl. Not incl. Acres Discer Discer 200 $16.26 $12.03 400 8,13 6.02 600 5,42 4.01 800 4.06 3.01 1000 3.25 2.41 1200 2.71 2.01 1400 2.32 1.72 Incl. Not incl. Discer Discer $20,60 $20.07 12.80 10,03 8.53 6,69 6.40 5,02 5.12 4-.01 4.26 3.34 3,65 2,87 3 Incl. Not incl. Discer Discer $31,47 $25.03 15,73 12.65 10.47 8.43 7,87 6,32 6,29 5,06 5,24 4,22 4,49 3,61 In order to try to relate these figures back to specific rotations in terms of the number of acres, I estimated the capacity of each sub-complement, using the combine as the base of calculation. I assumed that a producer would set his goals at completing the combining of his crop in a total of 14 working days. I also assumed the average length of day to be 10 hours. The capacities of the three sub-complements are then 532 acres, 910 acres and 1218 acres respectively, If you base the capacity on the discer and assume 10 days of 10 hours each, the comparable figures are 650, 980 and 1230 acres res-pectively. The costs per acre presented in Table 6 are presented in graphic form in Figure 1. The horizontal line represents the - 64 -Table 7: Haying Machinery Systems Analyzed Machine Size Cost Life in Salvage Repair Years Value Rate Mowing 1 Mower 7 ft. $ 978 15 10% 40% Rake 7 ft. 980 15 10 35 2 Mower - Cond. 9 ft. 4100 15 10 65 Rake 11 ft. 1200 15 10 35 Packaging 1 Standard Baler 16 T/hr. 3454 15 10 50 Bale Wagon 70 bales 7500 15 10 50 2 Large Round Baler 1500 lb. 4840 15 10 50 Bale Mover (est.)800 15 10 40 The summary of the annual costs of each machine is pre~ sented in Table 8 and in Table 9 the costs are summarized by haying system, In Table 10 the system costs are computed on a per acreage basis, Table 8: Summary of Annual Cost for Haying Equipment Machine Dep. Int. Ins. & Hous. ·Repairs Total Mower $ 59 $ 54 $10 $ 26 $ 149 Rake 7 Ft. 59 54 10 23 146 Mower - Cond. 246 226 41 178 691 Rake 11 Ft. 72 66 12 28 178 Baler - Standard 207 195 35 115 552 Bale Wagon 450 412 75 250 1187 Baler - Large Rd. 290 266 48 161 665 Bale Mover 48 44 8 21 121 - 65 -Table 9: Summary of Total Annual Ownership Costs of Haying Machinery Systems System Number Mower Rake Baler Handling Total 1 $149 $146 $552 $1187 $2034 2 149 146 665 121 1081 3 691 178 552 1187 2608 4 691 178 665 121 1655 Table 10: Total Annual Ownership Costs of Haying Systems by the Number of Acres Completed in Dol~ars per Acre System Number 1 2 3 4 100 20,34 10.81 26.08 16.55 200 10.17 5.40 13,04 8.27 300 6,78 3.60 8,69 5,52 400 5.08 2,70 6. 52 4,13 500 4,07 2.16 5,21 3,31 600 3. 39 1. 80 4,35 2,76 It is of course, imperative at this point that I emphasize that this analysis of forage handling and specific haymaking equipment is very incomplete. I have not included storage costs and labor charges in my analysis, The objective was solely to estimat~ the magnitude of the major costs of adding haymaking equipment to the machinery complement, 3. Economic Implications of Forage Production In addition to the production costs, the market implica-tions are an important consideration in making the decision to grow a forage crop in the crop rotation. Computing the - 66 -costs and weighing these against the returns assumes that a market is in fact available for the product, In the case of hay, the market can be a cash market or it can be home farm utilization; that is, marketing the crop directly through livestock. The latter alternative may necessitate the pur-chase of livestock which opens up a number of economic pro-blems. In addition to the purchase of cattleJ other facilities will have to be provided such as water facilities, fences, holding pens and possibly winter shelter. Including a forage crop in the crop rotation is a relatively long run decision, It probably means an initial commitment of at least four or five years to the proposed plan, although it is not an irrevocable decision and the initial rotational plan can be altered or abandoned, Recently there has been increased discussion of forages replacing. grain as the nutrient source for livestock. For example, at the recent Federal-Provincial Outlook Conference, F,E. Payne stated that if there is a bright spot for beef cattle in Canada, it is where, due to geographic and climatic conditions, farmers are able to grow large quantities of rough-age, If there is no softening of feed grain prices, we will see a great deal more roughage feeding in the future, To put this problem in proper prospective, a brief dis-cussion of the decision making framework faced by the producer is in order. To illustrate, let's assume that a producer can select - 67 ~ various combinations of alfalfa hay and grain to feed beef calves. These combinations are shown on the left hand side of Table 11. These are the combinations of hay and grain that will produce a 300 lb. gain on the calf. The third column shows the substitution ratio or the pounds of grain that can be substituted for 100 lbs, of hay to maintain the same level of output. This then is the physical relationship of the two inputs. The economic problem is to find the least cost com-bination, This can be done by equating the ratio of the prices of the two inputs to the substitution ratio or finding the point where the two ratios are equal (this is easier than computing the cost of each combination and arrives at the same conclusion). The initial question becomes what are the prices of the two inputs going to be? The price ratios are shown in Table 12 for combinations of hay and grain prices where hay ranges from one cent per pound to four cents per pound and grain ranges from three cents per pound to seven cents per pound. Comparing the ratios in Table 11 with those in Table l2, it can be seen that selecting the most economical feeding practise is very much influenced by the relative prices of the inputs, A producer may not, of course, purchase his feed requirements but the prices do represent his opportunity cost of feeding versus selling the crops, if they are home grown, - 68 -Table 11: Grain '"' Alfalfa Hay Combinations Necessary Produce 300 Pound Gain Beef Calves a to a on (1) ( 2 ) (3) Alfalfa Hay Grain b in Pounds in Pounds Substitution Ratio 200 1968 200/200 = l. 00 400 1768 174/200 = . 8 7 600 1594 150/200 = ,75 800 1444 128/200 = . 64 1000 1316 108/200 = .54 1200 1208 88/200 = .44 1400 1120 74/200 = .37 1600 1046 62/200 = ,31 1800 984 52/200 = ,26 2000 932 a The source for the combinations from 1000 to 2000 lbs. of hay is Miscellaneous Paper 98, Oregon State·University Experiment, 1960. The combinations from 200 to 800 lbs. of hay is a hypothetical extension of the experimental data, b Change in grain consumed divided by change in hay consumed. Table 12: Price Ratios for Combination of Alfalfa Hay and Grain Pricesa Grain Price in Hay Price in Dollars Per Pound Dollars Per Pound .01 ,02 ,03 • 04 . 0 3 . 3 3 .67 l. 00 1,33 .04 ,25 • 5 0 ,75 1,00 .05 .20 ,40 ,60 ,80 ,06 .17 ,33 . 50 ,67 • 0 7 ,14 . 29 ,43 ,57 a Price of hay per pound divided by price of grain per pound, - 6~ -In summary, again it needs to be pointed out that the figures in Table 11 represent only one experimental example and were used for illustration purposes, In the long run the apparent economic advantage of producing forage as an alternative feed source for livestock in Saskatchewan may or may not persist. 

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Some economic implications of extending crop rotations

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