A quarterly news publication of The Ohio State University Extension, Editors: Clif Little and Mark Sulc
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Contents:

• Nitrogen Management for Pasture
• Economy of Lime
• Major Cost Items on Ohio Grazing Dairy Farms

[top] Nitrogen Management for Pasture - Clif Little, Extension Educator, Guernsey County

In general nitrogen has the greatest potential to influence pasture production, or dry matter (DM) production. The economics of nitrogen (N) application can be influenced by many factors, such as legume content, temperature, soil moisture content, grass species, timing of application, form of nitrogen applied, organic matter content, and phosphorus and potassium levels, to name a few.

When is it economical to utilize nitrogen on a pasture? The answer is, when you need more forage and when the legume content of the pasture sward is less than 35 percent.

When is the best time to apply nitrogen to a pasture? Plants will utilize available nitrogen when they begin actively growing. We know that cool season grass pastures will produce 60-70 percent of their total annual production in the spring with fall being the next major bump in growth. Therefore, consider these time periods when making an application of nitrogen to grass pastures.

How much nitrogen do I apply? I’ll answer this question with another; how valuable is the forage you are producing?

For example:

Let’s break the growing season and timing of nitrogen applications into three periods, May, June and August. Applying nitrogen at each of these time periods will result in a different yield potential and therefore a different level of economic efficiency. If we expect a fescue/orchardgrass pasture with ten percent legume to yield the following:

20 lbs. of DM/lb. of N applied – in May
10 lbs. of DM/lb. of N applied – in June
14 lbs. of DM/lb. of N applied – in August
(These yield estimates will vary)

If urea is $500/ton and we value comparable hay at $100/ton, how do the economics work out?

$500 ÷ 920 lbs. of N in a ton of urea = 54¢/lb. of N

We will utilize 50 units of actual nitrogen. 50 lbs. x .54 = $27 per acre to apply fifty units of nitrogen, not including spreading.

Based on our example here:
The May application could result in 20 lb. DM x 50 units N = 1,000 lbs. DM.
The June application will result in 10 lbs. DM x 50 units N = 500 lbs. DM
The August application will result in 14 lbs. DM x 50 units N = 700 lbs. DM

We said comparable hay was worth $100/ton and is 87% DM. Therefore our value of this forage is $100/.87 = $114.94/ton of DM or 5.7¢/lb. of DM.

How do the economics compare on these three different applications?

The May fertilization resulted in:
1000 lbs. DM x $.057/lb. = $57 less $27 cost of N = $30

The June fertilization resulted in:
500 lbs. DM x .057/lb. = $28.50 less $27 cost of N = $1.50

The August fertilization resulted in:
700 lbs. DM x .057/lb. = $39.90 less $27 cost of N = $12.90

If you need more pasture growth and can utilize nitrogen, consider utilizing it in 50 unit increments of actual nitrogen and during periods of when you need forage growth. For more information on pasture fertility management ask your local Extension Office for a copy of “Fertility Management of Meadows,” ANR-5-99.

[top]Economy of Lime- Clif Little, Extension Educator, Guernsey County

Soil pH identifies the active acidity, or alkalinity, of a soil solution. The pH measurement is expressed as a measurement of hydrogen ion activity or concentration in a solution. The pH scale is from 1 to 14. A neutral solution of soil has a value of 7.0. The ability of lime to neutralize pH is measured by the Effective Neutralizing Power (ENP). The effective neutralizing power of lime is expressed on the basis of pounds per ton as a percentage of the fineness index, multiplied by the total neutralizing power and percentage of dry matter.

Buffer capacity (buffer pH) or cation exchange capacity of the soil best explains differences in lime requirements. The buffer capacity of a soil reflects the resistance to a change in pH. The amount of clay and organic matter influences buffer capacity. This simple notion explains why soils of the same pH may have a different lime requirement. For instance, much more lime may be required to raise the pH of a clay soil than will be required to raise the pH of a sandy soil.

Liming materials vary significantly in terms of purity, fineness, and moisture. These factors help us select the most economical source of lime and determine the application rate of lime. Fortunately, state law, sections 905.51 to 905.66 of the Ohio Revised Code, requires lime manufacturers to label lime products. The most important item on the lime product label for determining application rate and value is the Effective Neutralizing Power (ENP).

The lime application recommendation is usually provided on the soil test recommendation as a calcium carbonate equivalent basis (CCE) and is specific for the crop, soil, lime history, and tillage depth indicated on the test submission form. This means that we must adjust the application of the liming material up or down based on its ENP. Listed below are seven lime products from OSU Extension factsheet ANR-9-02. The factsheet takes the price for each product then calculates the amount of each product needed to equal an application of 1 ton per calcium carbonate equivalent.

Source: Understanding Value in Lime, OSU Agriculture and Natural Resources factsheet, ANR-9-02

The table illustrates that significant value differences exist between liming products. To read the entire factsheet go to http://ohioline.osu.edu/anr-fact/0009.html.

[top]Major Cost Items on Ohio Grazing Dairy Farms- Tom Kriegl, U.W. Center for Dairy Profitability.*

Cost management should receive regular attention on any farm. Focusing on the largest cost items and categories is an important tactic in controlling costs. (Important. See cost definitions further down).

In this four year average:

• Basic costs represented 77% of allocated costs and 62% of income .
• Non-basic costs represented 23% of allocated costs and 18.6% of income.
• With 81% of income used up by allocated costs (basic plus non-basic), 19 cents of every dollar of income was left for net farm income from operations (returns to unpaid labor, management and equity). Without non-farm income, NFIFO (plus depreciation taken) is the annual source of family living funds.

The Big Four! (Represent about 55% the total allo-cated cost and about 45% of the income for Ohio grazing dairy farms.)

1. Purchased feed = 32.1% of allocated cost and 25.9% of income
2. Paid labor and management = 10.6% of allocated cost and 8.6% of income
3. Non-livestock depreciation = 6.5% of allocated cost and 5.3% of income
4. Repairs = 6.1% of allocated cost and 4.9% of income

Purchased feed was easily the highest cost category each year. Paid labor and management, non-livestock depreciation and repairs were the other three of the four major costs for Ohio grazing dairy farms. These three cost categories together typically account for another 23% of allocated costs and 19% of income on Ohio grazing farms. Paid labor and management and non-livestock depreciation are non-basic costs. Purchased feed and repairs are basic costs. For the Ohio graziers, the four year average purchased feed cost was slightly less than total non-basic costs.

Paid labor and management is a non-basic cost and was the second highest cost category in all years. Repairs is a basic cost and was third highest in two of four years but fourth highest on average.

The Second Big Four!

1. Interest = 5.9% of allocated cost and 4.7% of income
2. Marketing and Hedging = 5.1% of allocated cost and 4.1% of income
3. Livestock depreciation = 3.6% of allocated cost and 2.9% of income
4. Other Livestock Expenses = 3.5% of allocated cost and 2.8% of income

Collectively, the second “big four” accounted for about another 18.1% of allocated cost and 14.5% of income. Interest is a non-basic cost and was the fifth largest cost item for Ohio grazing herds even though it spent one year in four at third, fourth fifth and sixth place.

Livestock depreciation is a basic cost and was slightly smaller than non-livestock depreciation. It averaged almost three percent of income for Ohio graziers. Herds that increase or maintain size by purchasing replacements experience higher amounts of livestock depreciation. If livestock depreciation were added to non-livestock depreciation, its third place ranking among cost categories would be close to second place.

“Marketing and hedging” and “other livestock expense” are basic costs and are more difficult to interpret since each one can contain a wide variety of individual items.

Two cost items that often are thought of as being major, contributed a much smaller part of allocated cost than most people would suspect. These two items are veterinary and medicine expense and property tax. Property tax typically represented about 1.0% of allocated cost and 0.8% of income. Veterinary and medicine typically represented about 2.9% of the allocated cost and 2.3% of income.

Cost of Production (COP) Table

The four year (2001-2004) simple average COP report is shown in Table 1 below in two ways. First, costs are shown in the COP sequence used in AgFA to show the calculation of allocated, basic, non-basic and total cost. Secondly, cost items are ranked from highest to lowest to help understand and control costs. Individual year performance was also examined in these ways from an average of 6 farms per year.

Columns show each cost item per hundredweight equivalent, as a percent of allocated cost, and as a percent of a dollar of income. Careful readers of the tables will notice that all of the percentages in a column add up to more than 100%. That is because the tables include major cost categories such as allocated, basic, non-basic and total, in addition to the individual cost items that make up these larger categories. For example non-basic costs are paid labor and management, interest and non-livestock depreciation. Because of rounding, other small mathematical differences might be found in the tables.

Definitions

Total cost includes all cash and non-cash costs including the opportunity cost of unpaid labor, management and equity capital. The total cost concept is needed to determine the minimum revenue required to meet long-run financial obligations of the business. All long-run financial obligations include a satisfactory reward for the owners’ unpaid labor, management and equity capital (opportunity costs).

In the calculation of NFIFO, all costs are accounted for EXCEPT the opportunity cost of unpaid labor, management and equity capital. All costs combined except opportunity costs are called total allocated costs. Total allocated costs are subtracted from total income to calculate NFIFO. When opportunity costs are calculated and added to total allocated costs, the result is what economists call total costs. A simple definition of opportunity cost is: “The return to unpaid labor or unpaid management or equity capital in its best realistic alternative use.”

In large companies such as publicly traded companies, there are NO opportunity costs of unpaid labor, management and equity capital, because all work and management is performed by paid employees, and dividends are paid to the stockholders which own the equity. Total income for such businesses must regularly exceed total costs to be considered profitable. Most industries are dominated by businesses that are able to pay total costs.

However, in the case of many dairy farms, one person or family supplies all of the unpaid labor, management and equity capital. In such cases, the value of unpaid labor, management and equity capital must be estimated to determine if total income exceeds total cost.

The total cost of production for businesses that have no unpaid labor, management and equity capital is more accurate than those which have unpaid costs because there isn't a universally agreed upon best method for calculating the opportunity cost of unpaid labor, management and equity. Therefore, special caution is required when interpreting total cost data from businesses such as small family farms when you do not know the method used to calculate the opportunity costs or the amount of those costs.

NFIFO is the return to the resources that farm families contribute to the farm business. The resources are unpaid family labor, unpaid family management, and the family's equity (net worth) in the farm business. Quite often, NFIFO is less than the opportunity cost of unpaid family labor, management and equity capital. NFIFO is seldom all cash.

For the farm family without non-farm income, NFIFO (plus depreciation taken) is the source of funds for family living expenses, including housing and furnishings, food, medical expenses, children's education, the family car, entertainment, social security taxes, income taxes, and other personal items. It also represents money to pay principal on borrowings for land, buildings, and equipment and is a source of funds for new business and personal savings.

When there is no outside source of income and NFIFO is less than the family living expenses, equity will decline, whether or not NFIFO exceeds opportunity costs. The cash to pay for living expenses above NFIFO may come from loans, savings, or from the portion of net farm earnings allocated to capital items or inventory adjustment. When the latter happens, it is often said that the family is living off of depreciation. This is a way in which cash flow can hide a lack of profitability.

Allocated Cost equals total cost minus the opportunity cost of unpaid labor, management and capital supplied by the owning family. Allocated cost also equals total income minus NFIFO.

Non-Basic Costs include interest, non-livestock depreciation, labor, and management. Allocated cost minus basic cost equals non-basic cost.

Basic Costs are all the cash and non-cash costs except the opportunity costs and interest, non-livestock depreciation, labor, and management. Basic cost is a useful measure for comparing one farm to another that differs by: the amount of paid versus unpaid labor; the amount of paid versus unpaid management; the amount of debt; the investment level; and/or the capital consumption claimed (depreciation).

You may access the entire report at http://cdp.wisc.edu/Great%20Lakes.htm#glgn

* Lead author. The following have led the project in their respective states: Jim Endress (Illinois); Larry Tranel and Robert Tigner (Iowa); Ralph Booker and Ed Heckman (Indiana); Sherrill Nott, Bill Bivens, Phil Taylor, and Chris Wolf (Michigan); Margot Rudstrom (Minnesota); Tony Rickard (Missouri); Jim Grace (New York); Thomas Noyes and Clif Little (Ohio); Jack Kyle and John Molenhuis (Ontario); J. Craig Williams (Pennsylvania); and Tom Kriegl and Gary Frank (Wisconsin).