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Diversity pays off on cash grain farms (Research Brief #44)

Posted September 1999

Cash grain farmers can improve their bottom line by diversifying crops and reducing chemical inputs, according to a cropping systems trial now in its eighth year of economic analysis. Diversified grain systems at two sites have shown better financial returns than a high-input continuous corn system every year since 1992.

These are the results from the Wisconsin Integrated Cropping Systems Trial (WICST), which compares three cash grain cropping systems ranging in use of chemical inputs and species diversity. This 12-year study is under way at southern Wisconsin sites in Columbia and Walworth Counties. (See CIAS Research Brief #43 for a complete discussion of the WICST project.)

Trial collaborators include the UW-Madison College of Agricultural and Life Sciences, the Center for Integrated Agricultural Systems (CIAS), the Michael Fields Agricultural Institute, UW Cooperative Extension, and area farmers.

Gross margins

CIAS Director Rick Klemme and economist Don Schuster and Josh Posner from the UW-Madison Agronomy Department analyzed the economic results from the trial. “The economic analysis is crucial information for farmers considering alternative crop rotations,” Klemme says. “It has been critical from the outset that field conditions and our assumptions be realistic.”

The economic analysis includes costs that reflect as closely as possible the costs that southern Wisconsin farmers incur. Financial results date from 1992, the first year that a full rotation had been completed.

The researchers compared the three cash grain cropping systems in terms of gross margins. “Gross margins is a good measure to use rather than net returns, because it does not include overhead costs which can vary tremendously between farms,” Schuster says. Gross margins show the amount available to cover the farmer’s cost of labor, land, management, and capital (including machinery costs and interest). It is calculated by subtracting variable costs of production, like seed, fertilizer, chemicals, drying costs, repairs, supplies, and fuel from gross revenue. Gross revenue is based on yield, quality, and price when harvested. The gross margins for individual crops are summed to determine the gross margins for each system.

The table below shows that average gross margins for the continuous corn system are less than those of the multi-crop systems. Also, average variable input costs per acre decrease as rotation complexity increases at both sites.

Average and ranges for gross margins, variable costs, and yields, Arlington and Lakeland, 1992-1998
Gross margins ($/acre) CS 1 CS 2 CS 3
average $172 $104 $203 $175 $198 $156
range 102-266 -55-280 116-313 68-271 98-304 49-308
Variable input costs ($/acre)
average 163 171 126 127 76 80
range 145-194 144-236 104-150 103-190 69-101 54-155
Corn yield (bushels/acre)
average 149 124 164 133 137 111
range 124-196 42-177 130-213 41-184 83-198 45-187
Soybean yield (bushels/acre)
average 49 54 50 45
range 30-64 39-68 38-63 27-59
Wheat yield(bushels/acre)
average 51 50
range 29-68 22-77
Straw yield (tons/acre)
average 1.08 1.14
range 0.34-1.55 0-1.87

Although the maximum gross margins per acre are similar at both sites, the range in average gross margins per acre for all cropping systems has been greater at Lakeland than at Arlington. “The poorly drained soils at Lakeland appear to be more sensitive to weather extremes, resulting in more yield variation,” Schuster explains.

Typically, a cash grain farmer needs gross margins of $155 to $240 per acre to cover $35 to $40 per acre for labor and management; $80 to $140 per acre for land rent; and $40 to $60 per acre for depreciation and interest costs for owned machinery and drying equipment. Any amount over and above these figures is the farmer’s profit.

The table above shows gross margins per acre for the three cropping systems at both sites from 1992 through 1998, with a target gross margin level of $200 per acre. While gross margins at the Arlington site have been at or above this level regularly, those at the Lakeland site have
frequently been below it.

The corn-soybean system had the highest average gross margins per acre from 1992 through 1998: $203 at Arlington and $175 at Lakeland. The corn-soybean-wheat/clover system had average gross margins $5 per acre less than the corn-soybean system at Arlington, and $19 less at Lakeland.

The continuous corn system has never had the highest gross margins at either site. The continuous corn system did have higher gross margins than corn-soybean system in 1994 at Arlington, and in 1994 and 1995 in Lakeland. However, in those three cases, thecorn-soybean-wheat/clover system had the highest gross margins.

At both sites 1998 was the first year since 1992 that the corn-soybean-wheat/clover system did not have higher gross margins than the continuous corn system. “This is because the prices for all three crops-corn, soybeans, and wheat-were low in 1998,” Schuster says. Usually a low price for one crop is offset by better prices for another.

Grain prices and yields

The research team uses the October regional average reported by the Wisconsin Agricultural Statistics Service for corn and soybean prices. Over the 1992 to 1998 period, corn prices ranged from $1.81 to $2.88 per bushel, and averaged $2.29 a bushel. Soybean prices ranged from $4.98 to $6.80 per bushel, and averaged $5.75 per bushel. They base wheat prices on the cash price from the local elevator at the time of harvest, and from 1992 to 1998 those prices ranged from $2.25 to $4.08 per bushel, and averaged $3.17 per bushel. Wheat straw prices are based on general market prices, and raned from $50 to $60 per ton.

Corn yields in the corn-soybean-wheat/clover system are relatively low, raising questions about whether this system provides adequate nutrients for corn. This also affects the system’s gross margins. The corn-soybean system has had the highest gross margins over half the time from 1992 through 1998 at both sites.

Gross margins per acre at Arlington and Lakeland, cash grain systems, 1992-1998
Location Arlington Lakeland
Year CS 1 CS 2 CS 3 CS 1 CS 2 CS 3
1992 $115 $116 $98 $81 $131 $88
1993 102 179 149 -13 151 127
1994 193 119 211 150 146 208
1995 266 313 304 280 272 308
1996 179 219 228 -55 68 70
1997 139 232 205 127 248 240
1998 210 244 187 158 207 49

Economics only one piece

The purpose of WICST is to compare alternative agricultural land management strategies using the performance criteria of productivity, profitability, and environmental impact. Ongoing work by WICST researchers includes documenting weed seed bank changes, and measuring fall nitrate levels, soil fertility, and water percolation.

But these measures will be of little use if the systems are not profitable. “If the systems can’t make money, it’s hard to justify why farmers should use them,” Schuster says. Positive economic results from the diversified systems mean that their environmental benefits can be realized.

Published as Research Brief #44
September, 1999