1. ECONOMICS OF IMPROVED GRAZING SYSTEMS Dr. Tommie Shepherd, Dr. John McKissick and Dr. Curt Lacy Extension Economist-Livestock University of Georgia

2. Will Improved Grazing Management Pay? It depends!! Additional revenue Reduced cost Additional expense Reduced income

3. Speaking of costs Variable Costs Aka direct costs  changing these impacts level of production. Fertilizer Seed Feed Vet Fixed Costs  Aka Indirect costs  changing these has no impact on production Depreciation/interest or principal and interest payments (prorated establishment costs) Taxes insurance

4. Important Considerations Include only changes Make sure expected production increases are relevant to your scenario Take into account the start up period Don’t base calf prices on today’s prices Think it through!!

5. The One Question How do I figure fixed costs? – Depreciation + Interest – Principal + interest

6. Depreciation + Interest AKA “Economic” method of determining fixed costs. Best way to calculate economic fixed costs. Ignores cash position, requirements, and cash- flow. Uses: – Purchase price – Salvage value – Useful life – Intermediate interest rate

7. Depreciation + Interest on Average Investment

8. Purchase a $35,000 hay baler Economic Method $35,000 purchase price $10,000 salvage value 7 years useful life Interest rate = 6% Amortization Method $35,000 purchase price $0 down 7 year financing Interest rate = 6%

9. Depreciation + Interest

11. Additional Costs Reduced Revenue Additional Revenue Reduced Costs Total additional costs +reduced revenue = A Total additional revenue +reduced costs = B Total Profit = B-A Increased conception Increased weaning weights Higher stocking rate EQIP/CSP??? Lower fertilizer costs Reduced equipment costs Reduced feed needs Reduced Herd Size Additional fencing costs Increased fertilizer costs Increased labor costs Additional Cow investment Additional Equipment Investment Reduced stocking rate Reduced weaning weights Partial Budgeting Form for Analyzing Grazing Profitability

12. EXAMPLE 1

13. Eliminate Hay Enterprise Hay Enterprise 200 acres of fescue- bermuda pasture 35 acres of hybrid bermuda hay ($500/acre VC) 3 pastures of 60,70, and 70 acres Currently 2 acres pasture per cow (100 cows) Cows currently consume 1.50 tons of hay/cow/year 90% calf crop with 500# calf @$225/Cwt. No Hay Enterprise Fence in hay field with perimeter fence of 5- strand high-tensile fence. 2.35 acres per cow. Cows consume 1.00 tons of hay/cow/year Hay cost = $100/ton Sell Equipment? Avoid Buying New Equipment

14. Additional Costs Reduced Revenue Additional Revenue Reduced Costs Total additional costs +reduced revenue =$16,558 Total additional revenue +reduced costs = $17,500 Total Profit = $942 35 acres of hay @ $500 per acre = $17,500 Purchase 100 tons of hay @ $100/ton = $10,000 Fertilize 35 acres of pasture @ $175/acre =$6,125 Fencing = $5,000 @ 4% for 15 years = $433 Total additional costs = $16,558 Purchasing Instead of Raising Hay

15. Inside the numbers $942/100 cows = $9.42 per cow $942/450 CWT = $2.09/cwt. reduction in cost. Breakeven price for hay Hay PriceTotal Profit $75/ton$3,442 $100/ton$942 $109/ton$0 $125/ton($1,558)

16. EXAMPLE 2

17. Continuous to Rotational Grazing Continuous 200 acres of fescue- bermuda pasture 3 pastures of 60,70, and 70 acres Currently 2 acres per cow Cows currently consume 1.50 tons of hay/cow/year 90% calf crop with 500# calf @$225/Cwt. Rotational Add 2 cross fences per pasture of 4-strand high- tensile fence 1.45 acres per cow Purchase 38 cows @ $2,500 each Cows consume 1.04 tons of hay/cow/year Hay cost = $100/ton

18. Additional Costs Reduced Revenue Additional Revenue Reduced Costs Total additional costs +reduced revenue = A Total additional revenue +reduced costs = B Total Profit = B-A Increased conception Increased weaning weights Higher stocking rate EQIP/CSP??? Lower fertilizer costs Reduced equipment costs Reduced feed needs Additional fencing costs Increased fertilizer costs Increased labor costs Additional Cow investment Reduced stocking rate Reduced weaning weights Partial Budgeting Form for Analyzing Grazing Profitability

19. Additional Costs Reduced Revenue Additional Revenue Reduced Costs Total additional costs +reduced revenue =$27,526 Total additional revenue +reduced costs = $39,123 Total Profit = $11,597 38 additional cows with 90% calf crop, weaning 500 pound calves @ $225/Cwt. = $38,475 Total additional revenue = $38,475 Net difference in hay costs 100 cows consuming 1.50 t/yr of hay @ $100/t = $15,000 (continuous) 138 cows consuming 1.04 t/yr of hay @ $100/t = $14,352 (rotational) Reduced costs = $648 Depreciation and interest on 38 additional cows @ $2,500 each 4% interest for 6 years = $11,603 Depreciation and interest on 1 additional bull @ $3,500 @ 4% interest for 3 years = $673 Additional variable costs for 38 cows = $14,250 Fencing - additional annual cost = $1,000 Total additional costs = $27,526 Continuous to Rotational Grazing – Adding Cows

20. Inside the numbers Breakeven cow price for 138 cows Cow PriceTotal Profit $225/Cwt$11,597 $200/Cwt$7,322 $157/Cwt$0 $150/Cwt($1,228)

21. Additional Costs Reduced Revenue Additional Revenue Reduced Costs Total additional costs +reduced revenue =$1000 Total additional revenue +reduced costs = $4,600 Total Profit = $3,600 Net difference in hay costs 100 cows consuming 1.50 t/yr of hay @ $100/t = $15,000 (continuous) 100 cows consuming 1.04 t/yr of hay @ $100/t = $10,400 (rotational) Reduced costs = $4,600 Fencing - additional annual cost = $1000 Total additional costs = $1000 Continuous to Rotational Grazing – No additional cows