1. Diversified vs. Specialized Swine and Grain Enterprises in Iowa Laura Borts, Gary May, and John Lawrence Iowa State University

2. ­Iowa 1980 – 2001 ­Number of farms -22% ­Average acres per farm +23% ­Hog producing farms ­1980 over 53% of farms ­2002 only 11% of farms Background and Justification

3. Research Questions The research committee from the Iowa Pork Producers Association approach ISU with the following questions ­Is there still a role for traditional diversified crop-hog farms? ­Is the trend toward specialization likely to continue? ­Role of public policy

4. Previous Studies ­Purdy, B.M., M.R. Langemeier, and A.M. Featherstone. 1997. Financial Performance, Risk, and Specialization. Journal of Agricultural and Applied Economics, 29,1(July 1997): 149-161 ­Grain operations that diversified into beef cattle production reduced mean return on investment as well as the variability in return on investment. ­Diversification into swine and dairy production increased mean income and decreased variability.

5. What Other Studies Have Said ­Advantages of Diversification ­Complementary characteristics ­Byproduct of one enterprise serves as an input for another ­Matching feed requirements with feed supply ­More efficient distribution of labor and risk ­Advantages of Specialization ­Farm resources may offer an advantage to a specific enterprise ­Productivity improvement from specialized skills ­Volume discounts on larger purchases ­How to have both????

6. The Model ­Whole Farm Budget Comparison ­Cash grain v. diversified grain-hog farm ­Farrow to finish ­Breed to wean ­Wean to finish ­Measures of profitability ­Return to labor, management, and owned assets. ­Rate of return on investment

7. Model Assumptions ­6,000 hours of labor per year ­No seasonal labor constraint ­Corn production = corn demand ­Corn acres = soybean acres ­Manure applied ahead of corn ­Tractors shared between crop and hogs

8. Cash Grain v. Hog-Grain Farms With 6,000 Hours of Labor per Year EnterpriseAcresSowsHogs Sold Cash Grain2,400 Farrow-Finish w/G5501913,270 Breed - Wean w/G22961612,200 Wean - Finish w/G7235,963

9. Data Sources ­Budget coefficients were derived from Iowa State University livestock and crop enterprise budgets ­Crop and livestock prices were derived from USDA-AMS

10. Stochastic Component of the Model ­A simple budget comparison represents a single point in time. ­How does enterprise diversification impact income variability? ­How frequently is one combination of enterprises more profitable than another? ­Monte Carlo simulation is a common method of addressing these issues

11. Input Variables Designated as Stochastic Input Name Dist.TypeMean Std Dev 90 Percent Interval Corn Price ($/bu) Lognormal2.270.421.672.99 Soybean Price ($/bu) Lognormal5.810.964.397.46 SBM Price ($/Ton) Lognormal18535135246 Market Hog Price (Live, $/cwt) Lognormal43.797.2833.0056.46 Weaner Pig Price ($/Head) 1 Lognormal30.665.1222.9939.42 Sow Price ($/cwt) 1 Lognormal32.855.4424.7742.34

12. Input Variables Designated as Stochastic Input Name Dist.TypeMean Std Dev 90 Percent Interval Corn Yield Dev. from Trend (bu/ac) Logistic(0.1)16.9(27.2)26.7 Soybean Yield Dev. from Trend (bu/ac) Logistic(0.1)4.2(6.8)6.5 Nitrogen Price ($/lb) Uniform0.170.030.130.22 Market Hogs per Litter Normal7.800.257.398.21 Weaned Pigs per Litter Normal 9.000.508.179.82 Market Hog Weight Normal 2605252268

13. Role of 2002 Farm Bill ­Compared models that included and excluded farm program payments ­Specific programs we modeled ­Loan deficiency payments ­Counter cyclical payments ­Direct payments

14. Results

15. Net Return to Labor and Management Excluding Government Payments ($/yr) Mean Std Dev 90% Interval Cash Grain 18,414124,520-164,984226,791 F-F w/G 78,80773,283-29,760207,421 B-W w/G 91,55568,697-11,351208,914 W-F w/G 55,49290,643-84,884212,825

16. Net Return to Labor and Management Including Government Payments ($/yr) Mean Std Dev 90% Interval Cash Grain 127,56481,81956,591285,458 F-F w/G 104,11967,4307,490221,214 B-W w/G 102,07966,3444,085216,494 W-F w/G 88,75882,814-30,681236,775

17. Percent of Observations by Rank and that Beat Cash Grain Government Payments Included Profitability Rank Beat Enterprise1234CashGrain Cash Grain 55%8%9%28% F-F w/G 15%44%37%4%39% B-W w/G 20%32%31%17%38% W-F w/G 10%16%23%51%32%

18. Research Questions Revisited ­Is there still a role for traditional diversified crop-hog farms? ­Conclusion: Yes, there appears to be an acceptable return to labor for producers who wish to operate a diversified crop/livestock farm. ­Is the trend toward specialization likely to continue? ­Conclusion: Not directly addressed in this study. ­Our model suggests farm subsidies have trumped the income stabilization benefits of diversification.

19. Summary ­Cost savings from diversification ­Less acres per person with livestock ­Impact of 2002 Farm Bill ­Without: cash grain was lowest average and highest risk ­With: cash grain is highest average and lowest risk

20. Pulling It All Together: Managing Cattle and Crops through Feed and Fertilizer John Lawrence, Iowa Beef Center at ISU Evan Vermeer, Iowa Cattlemens Association

21. Cattle Diet Formation Manure Application Crops Management DGS Commercial Supplement Commercial Fertilizer Crop Sold Manure Export Cattle Bought Cattle Sold Rules & Regulations Information & Records Advice & Service $

22. Guiding Principles ­What goes in comes out ­Everything has a cost or value ­Nutrients only have value if they are needed (applies to feed or fertilizer) ­Influence outputs through inputs

23. Value of Applied Manure Supply and Crop Demand Nutrients have value where they are needed

24. 300 Head Feedlot Example Nutrient Supply, Value * 26#/A available 2nd year #/TPANPrice Supply Value N143,990*0.39$1,556 P1113,2000.26$3,432 K1416,8000.24$4,032 $9,020

25. Feedlot Example C-C Crop Demand, Value N-BalanceRate #/aP-BalanceRate #/a 27 acres88,88965 acres36,923 N$1,556148$1,55661 P$618489$3,432203 K$888622$4,032258 Value$3,062$9,020 Difference$5,958 Cannot apply at low rates so use 3 year rotation

26. Maximize Farm Profit While Balancing Farm Nutrients

27. Iowa Farms - Nitrogen 1.5 to 11.6 to 11.3 to 11.6 to 1In/Out Ratio C-4C-3C-2C-1Farm 173 ac452 ac446 ac160 acCropland 3,300 hd4,000 hd 2,200 hdFacility 69,000115,000158,00067,000Outputs 105,000185,000211,000109,000Inputs 35,00069,00053,00068,000Imbalance

28. Iowa Farms - Phosphorus 1.1 to 11.3 to 11.0 to 11.1 to 1In/Out Ratio C-4C-3C-2C-1Farm 173 ac452 ac446 ac160 acCropland 3,300 hd4,000 hd 2,200 hdFacility 14,00021,00028,00014,000Outputs 16,00028,00029,00016,000Inputs 2,0007,00003,000Imbalance

29. Corn Milk Nitrogen P2O5 Pork Beef Eggs Soybeans K2O Historic Perspective

30. Corn Milk Nitrogen P2O5 Pork Beef Eggs Soybeans K2O Future Perspective EthanolDGS ? ? ? ? ?

31. Profit Advantage Assume: 95% of corn price, $0.10/bushel increase corn price, costs covered, 153 days At Plant 30 Miles 60 Miles 100 Miles

32. Optimum Use Assume: 75% of corn price, $0.10/bushel increase corn price, costs covered, 153 days (Calculated from 2006 U. of Nebraska Analysis) At Plant 30 Miles 60 Miles 100 Miles Source: Dan Loy, ISU

33. Figure 2. Dietary P in Beef Feedlot Diets 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.27% P 85% corn, 0% DGS 0.50% P 40% DGS Future (?) 75% DGS & CGF % diet P (DM-basis) 0.40% P 20% DGS Excreted by animal Retained by animal Animal P Requirement Inclusion rate of DGS and CGF in diet

34. Impact of DGS Inclusion on Nutrient Management ­Great N and P excretion ­Greater land requirements. ­Greater travel distances and time requirements impacting labor, capital and operating costs. ­Book values of nutrient concentration will not be representative.

35. Annual net value of manure, spreading cost and total fertilizer value of manure ($1,000 per year) for a 20,000 head beef open lot under corn-soybean rotation. No DGS Inclusion in Diet40% DGS Inclusion in Diet Basis for Manure Application: N-Based1-Yr P-Based 4-Yr P-Based N- Based 1-Yr P-Based 4-Yr P-Based 20.000 head feedlot Annual fertilizer value of manure $373$430 $563$766 Total value of N $144 $217 Total value of P 2 O 5 $85$286 $346$548 Annual cost $177$344$244$240$669$329 Net value of manure $195$86$185$323$97$437

36. Paradigm Shift ­Do crop farmers buy and apply P 2 O 5 ? ­How much do they pay for it? ­Do livestock producers have enough land for P-Index based applications? ­What is the value of excess P 2 O 5 ? ­Is there an opportunity for these two people? ­What are possible outcomes? ­Win-win: Feedlot sells P 2 O 5 at reduced rate ­Win-draw: Feedlot sells at full price or gives away ­Lose-lose-lose: Cropper imports, Feedlot wastes, and P levels continue to accumulate in Iowa soils or Iowa exports value added potential

37. Natural, Organic, and Grass-fed Beef Production: Economics and Transition Nicolas Acevedo, Margaret Smith, and John D. Lawrence Funded by Leopold Center for Sustainable Ag http://www.iowabeefcenter.org/content/Organic_Natural_Gr ass_Fed_Beef_2006.pdf

38. Scenarios ­Cow-calf to slaughter operation ­Spring born calves ­November 1 weaning date ­Five production systems ­Three grain-fed systems ­Conventional, natural, organic ­Two grass-fed systems ­Natural, organic ­Conventional and CRP conversions

39. Scenarios ­Three grain-fed systems ­Medium frame cattle ­475# weaned calf ­1250# slaughter weight ­Conventional slaughter 1400# with implants ­Two grass-fed systems ­Small frame cattle ­425# weaned calf ­1030# slaughter weight ­18% lower cow feed cost

40. Production Model ­Seasonally available forage ­MIG in all systems ­Animal growth based on the Cornell Net Carbohydrate and Protein System (CNCPS)

43. Long-run Feed and Cattle Prices and Organic Premiums Used in Analysis Production Inputs Conven tionalPremiumPrice Corn grain ($/bu)$2.25160%$5.85 Corn silage -- 50% grain ($/T)$20.25160%$52.65 Soybean meal -- 48% protein ($/T)$195.00210%$604.50 Orchardgrass & Alfalfa Hay ($/T)$100.00 20%$120.00 Choice S&H Live ($/cwt)$79.32 54%$122.15 Choice Natural S&H Live ($/cwt)$85.62 Natural Grass-fed S&H Live ($/cwt)$122.00 73%$137.25

44. OrganicNaturalConvntnl Grass-fedGrain-fedGrass-fedGrain-fed Marketing date2-Nov26-Aug2-Nov26-Aug31-Jul Final weight, lbs1,0291,2521,0291,2511,401 Dressing percent61%63%61%63% Carcass weight, lbs623783623782876 Marketing Date and Weight

46. Estimated Prices, Costs and Returns by System * OrganicNatural Conven tional Grass- fed Grain- fed Grass- fed Grain- fed Grain- fed Lifetime Return $/hd-$10$12-$173$44$67 Sell Price $/lb2.181.94 1.361.26 Breakeven Price $/lb2.201.922.221.301.18 Premium to equal Conventional $/lb0.430.270.400.060.00 * Prices and costs are in $/lb carcass weight

47. Profitability Summary ­Inputs are priced at opportunity cost ­Organic prices and costs near breakeven ­Natural grass-fed premium not high enough for cost ­Grass-fed cost of wintering weaned calf is a challenge

48. Cash Flow Analysis ­100 cow conventional herd ­Five systems modeled ­Stay conventional ­Convert to organic grain or grass over a 3 year period ­Convert to organic grain or grass more quickly using CRP land ­Sell natural while transitioning

49. Estimated Annual Cash Flow

50. Net Present Value at Differing Organic Premiums