Relative Cost Efficiency of No-Till Farms 2008 Ag Profitability Conference: McPherson Michael Langemeier January 15, 2008

Outline of Presentation Introduction KFMA Data Detailed Cost Comparisons Whole Farm Analysis Summary and Conclusions

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 This paper documents cost differences between farms that have adopted a no-till production system, and those with a conventional or reduced tillage system.

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

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

Top Number = Number of Farm Units Per County Bottom Number = Number of Extra Partners or Persons in the Multi-Operator Farm Units Kansas Farm Management Associations 2006 Membership

Detailed Cost Comparisons Per 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

Detailed Cost Analysis Total Crop Cost per Harvested Acre

Detailed Cost Analysis Historical Total Crop Cost: NC KFMA

Detailed Cost Analysis Cost Categories: NC KFMA

Detailed Cost Analysis Cost Categories: SC KFMA

Detailed Cost Analysis Machinery Cost: NC KFMA

Detailed Cost Analysis Machinery Cost: SC KFMA

Detailed Cost Analysis Crop Cost: NC KFMA

Detailed Cost Analysis Crop Cost: SC KFMA

Detailed Cost Analysis Central 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.

Whole-Farm Analysis Central 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

Whole-Farm Analysis Central 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

Whole-Farm Analysis Definitions 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 operator’s labor, management, and equity (net worth) computed on an accrual basis.

Whole-Farm Analysis Definitions 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

Whole-Farm Analysis Definitions 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

Acres Farmed and Crop Intensity TillageNo-Till Total Acres1,6262,062 Crop Acres1,2081,645 Crop Intensity100.1%104.4%

Crops Planted

Yield Comparisons North Central Kansas TillageNo-Till Wheat Yield Grain Sorghum Yield Soybean Yield Corn Yield

Value of Farm Production and Net Farm Income TillageNo-Till Value of Farm Production 273,706370,847 Net Farm Income47,42264,519

Farm Size Categories

Number of Workers and Labor Efficiency TillageNo-Till Number of Workers Labor Cost as a Percent of Value of Farm Production 19.28%16.54% Value of Farm Production per Worker $198,338$237,875

Expense Ratios

Percent of Farms with ETER < 1 Tillage Farms19.2% No-Till Farms24.5%

Financial Performance TillageNo-Till Asset Turnover Ratio 30.54%38.33% Profit Margin8.47%11.14% % of Farms Bottom Quartile 28.33%7.45% % of Farms Top Quartile 23.75%30.85%

Size Versus Adoption of No-Till? Correlation Coefficients ETER and Total Acres ETER and Value of Farm Production ETER and Number of Workers ETER and No-Till Both size and NT adoption are significantly correlated with the economic total expense ratio (ETER).

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.

Performance Benchmarks KFMA Farms with Continuous Data 1,160 Farms 2002 to Year Averages: VFP = $259,095 Expense Ratios: Total Expense Ratio = Adjusted Total Expense Ratio = Economic Total Expense Ratio = Operating Profit Margin = Asset Turnover Ratio =

Profit Margin Ratio ( KFMA Average)

Economic Total Expense Ratio ( KFMA Average)

Economies of Size

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.

Contact Information Publications and Data: