Author: Brian E. Mills

Artificial Insemination (AI) is a useful tool that cattle producers can use to help their operation. It offers many advantages to natural service that may benefit even small producers. One major advantage of this technology is that it allows access to superior genetics at a reduced cost compared to natural service. A producer can get access to top-of-the-line genetics without having to spend thousands of dollars on a top-of-the-line bull. AI also allows for more selective breeding where a producer can select for increased calving ease, milk production, heavier weaning weights, etc. This technology has been shown to improve conception rates and shorten the calving interval (Anderson & Deaton 2003; Rodgers et al., 2012). This means that AI can be used to increase a producer’s cow herd genetics through replacement heifers. They can also increase herd uniformity, which could lead to better group marketing opportunities and higher prices received.

Despite these benefits, adoption of AI has been relatively low, with only 11.6% of beef cattle operations using this technology. However, like with many technologies, larger producers were more likely to use this technology, with 29.4% of operations with 200 or more head using AI compared to 8.7% of operations with only 1-49 head (USDA APHIS 2017). The major barrier to adopting AI is the increased management and labor requirements. An AI program is going to take significantly more work than natural service. It also has added costs of drugs, semen, and requires additional handling facilities. Furthermore, there are some knowledge barriers that producers need to overcome to use AI effectively.

The question then is, does AI pay? In typical economist fashion, the answer is: it depends. The factors that impact the profitability of AI are:

1. Herd Size
   1. Larger herds tend to see more profit benefit from AI. 
2. Cow-to-bull ratio
   1. A lower cow-to-bull ratio will produce higher returns to switching to AI.
3. How are the calves marketed?
   1. The more premium for better genetics, performance, and uniformity you can capture, the better off you will be with AI.
4. How much is your time worth?
   1. The more valuable your time, the more expensive the increased management and labor costs become, and AI becomes less profitable.
   1. AI programs will vary in labor intensity. 

As with any farm decision, the most economical choice is not going to be the same for everyone. It is important to evaluate your options to determine what is best for your farm. One way to do this is to construct a partial budget. A partial budget is a way of evaluating two different decisions to determine which will be more profitable. It does this by comparing the associated costs and revenues of a choice with the associated costs and revenues of another choice. It only looks at the difference between the two options. For example, it can be used to compare the returns and costs of AI to that of natural service, as seen in Table 1. In this example, a herd with 115 head would increase net returns by $9.87/exposed cow by switching to AI. This is dependent on several factors, including the price received for the cattle, the costs of the drugs, semen, technician, and labor, and the price of the cull bull maintenance and sale. For a more detailed explanation of the numbers and assumptions used in Table 1 please see: http://extension.msstate.edu/publications/economic-impact-artificial-insemination-vs-natural-mating-for-beef-cattle-herds. Also, it should be noted that improved herd genetics is going to have benefits over time. This means that the value of AI likely increases when considering more years. But it is important to do these comparisons yourself to determine if AI is right for you. 

References

Anderson, L., & Deaton, P. (2003). Economics of estrus synchronization and artificial insemination. Proc., Beef Improvement Fed, 15-19.

Karisch, B. (2020). Economic Impact of Artificial Insemination vs. Natural Mating for Beef Cattle Herds. Mississippi State University Extension P2486. Available at: http://extension.msstate.edu/publications/economic-impact-artificial-insemination-vs-natural-mating-for-beef-cattle-herds

Rodgers, J. C., Bird, S. L., Larson, J. E., Dilorenzo, N., Dahlen, C. R., DiCostanzo, A., & Lamb, G.C. (2012). An economic evaluation of estrous synchronization and timed artificial insemination in suckled beef cows, Journal of Animal Science, Volume 90, Issue 11, 4055–4062, https://doi.org/10.2527/jas.2011-4836

USDA APHIS. (2017). Beef 2017. Available at: https://www.aphis.usda.gov/animal_health/nahms/beefcowcalf/downloads/beef2017/Beef2017_dr_PartI.pdf

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Picture by Tara Winstead. TN

In forage production, whether that is establishing a forage system or simply maintaining it, it is important to understand what costs are involved and how these can impact your break-evens. A break-even is the price/yield needed in order to cover your total costs. Depending on the type of forage system you have, the costs can be relatively expensive. Developing an enterprise budget is one way of examining and comparing these costs.

Figure 1 shows the costs per acre from forage enterprise budgets developed at Mississippi State for four different forage maintenance systems: 1) conventional alfalfa hay, 2) permanent summer pasture, 3) mixed grass hay, and 4) hybrid bermudagrass hay. The conventional alfalfa and the hybrid bermudagrass systems had the highest costs per acre at $957.63 and $954.22, respectively. Permanent summer pasture maintenance had the lowest costs per acre at $282.24/ac.  Fertilizer, herbicide, and machinery costs make up a large portion of the costs in each system. Machinery costs include fuel, repair and maintenance, and interest costs. 

Figure 1. Costs per acre for forage maintenance production systems in Mississippi

Figure 2 shows the break-even curves for each of the four forage production systems. Break-even curves show the price and yield needed to cover total specified expenses. Price/yield combinations below this curve would result in losing money, and any combination above the curve would generate a profit. The market price shown in the figure was the average hay price received by producers in Mississippi for 2022 at $126/ton. Hay prices and costs can vary significantly from state to state, so again, it is important to adjust for your situation. However, the basic idea is that production systems with higher costs need a higher price, yield, or both to be profitable. For example, at the Mississippi 2022 market price and assumed costs, a permanent summer pasture system would need to produce 2.2 tons/ac to break-even. A mixed grass hay system would need 4.9 tons/ac to break-even. A conventional alfalfa hay system and a hybrid bermudagrass hay system would each need to produce around 7.6 tons/ac given a price of $126/ton. As such, permanent summer pasture and mixed grass hay are two of the more popular forage systems in Mississippi.

Figure 2. Forage maintenance break-even curves in Mississippi

More information on these costs, as well as over 20 additional forage maintenance and establishment budgets for Mississippi, can be found at: https://www.agecon.msstate.edu/whatwedo/budgets.php. It is important to determine what your specific costs are, and these can vary significantly from state to state and by production system. Below are links to enterprise budgets developed by agricultural economists for each state in the Southern Region.

Alabama: https://www.aces.edu/blog/tag/profiles-and-budgets/?c=farm-management&orderby=title

Arkansas: https://www.uaex.uada.edu/farm-ranch/economics-marketing/farm-planning/budgets/crop-budgets.aspx

Florida : https://fred.ifas.ufl.edu/extension/commodityenterprise-budgets/

Georgia: https://agecon.uga.edu/extension/budgets.html

Kentucky: https://agecon.ca.uky.edu/budgets

Louisiana: https://www.lsuagcenter.com/portals/our_offices/departments/ag-economics-agribusiness/extension_outreach/budgets

North Carolina: https://cals.ncsu.edu/are-extension/business-planning-and-operations/enterprise-budgets/

Oklahoma: http://www.agecon.okstate.edu/budgets/

South Carolina: https://www.clemson.edu/extension/agribusiness/enterprise-budget/index.html

Texas: https://agecoext.tamu.edu/resources/crop-livestock-budgets/

Tennessee: https://arec.tennessee.edu/extension/budgets/

Long-term loans are a valuable financial tool that producers can use to purchase large capital investments, including farm equipment, land, or housing. These types of loans are typically paid off over a period of time lasting longer than one year. Long-term loan payments are made up of principal and interest. The principal is the original amount of money borrowed. Interest is set by the terms of the loan and accrues over the lifetime of the loan based on the interest rate, the principal balance remaining, and the length of the loan. 

Loan amortization is the schedule for how payments will be made over the lifetime of the loan. The loan amortization schedule tells borrowers the beginning period loan balance, the regular payment, the amount of the payment that goes towards interest and the principal, and the remaining loan balance. A fixed payment schedule is the most common, where each payment is the same amount. 

When considering securing a long-term loan, it is important to consider not just the monthly payments but the overall amount you will be paying over the lifetime of the loan. Since interest accrues on the loan, the amount you pay will be more than the initial loan amount. Table 1 is an example of a loan amortization schedule for a 5-year, $30,000 loan, with a 5% interest rate and payments made annually. In that example, the initial loan was $30,000, but total payments equaled $34,646.22. The loan amount, interest rate, and length of the loan can all have large impacts on how much you end up paying in total. A lower interest rate will decrease the overall amount paid, so it is important to search for a lender that will charge you the lowest interest rate. But, most lenders will likely offer a similar interest rate. A more effective way to reduce the total payment amount is to take a loan with a shorter payment schedule. This will increase the payment made each pay period but will reduce the total amount paid over the lifetime of the loan. Lastly, putting down a larger down payment and reducing the loan amount will also decrease the total amount paid. Since interest accrues based on the principal, a reduction in the loan amount will result in less interest accruing, and the total amount paid on the loan will decrease.            

There are several tools available that can help you evaluate a loan and the total costs involved. Mississippi State University has a free loan amortization calculator Excel tool that can be found at: https://www.agecon.msstate.edu/whatwedo/budgets.php. The Farm Credit Services of America also has a free loan amortization calculator at: https://www.fcsamerica.com/products-services/digital-tools/loan-payment-calculator.Understanding how your loan payments are constructed and what factors impact total payments is essential in getting the right loan for your farm business. 

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Mills, Brian, and Kevin Kim. “Loan Amortization.” Southern Ag Today 3(12.3). March 22, 2023. Permalink

Enterprise budgets are a helpful tool for organizing and understanding what production costs are for the coming year. Producers can use enterprise budgets to examine their farm by crop, variety, irrigation, tillage, or any other production practice. The more specific the enterprise budget, the more a producer can determine where their farm is profitable and where it can be improved. Enterprise budgets are typically developed in the late fall or winter as producers plan their next year’s crop decisions. 

Table 1 is an example of a corn enterprise budget developed at Mississippi State. The budget title should describe what is being examined in as much detail as possible. The income section should be a projection of the prices and yield expected for that enterprise. The costs can be broken down into direct and fixed expenses. Direct expenses are any costs needed in the production of the given crop, such as costs of fertilizers, herbicides, insecticides, seed, labor, etc. Fixed expenses are any costs that would be paid regardless of the production. In the example budget, this would be fixed expenses related to equipment, such as depreciation and interest. Returns above total expenses or break-even prices can then be calculated based on the expenses.

Mississippi State creates yearly enterprise budgets across various crops, like the one presented in Table 1. Costs are obtained from companies across Mississippi, and a multidisciplinary team puts together example enterprise budgets based on the latest trends/recommendations. Since every producer will have different costs and revenues, it is important for each producer to determine their own enterprise budgets that match their farm’s situation. Over 80 example budgets are available to help with this process at: https://www.agecon.msstate.edu/whatwedo/budgets.php. In addition, each state in the Southern Region will have their own version of enterprise budgets, so contact your local Agricultural Economics department for more information (links below).  In times where input costs are especially high, developing an enterprise budget can help in managing those costs and in determining which crop is going to be the most profitable. 

Alabama: https://www.aces.edu/blog/tag/profiles-and-budgets/?c=farm-management&orderby=title

Arkansas: https://www.uaex.uada.edu/farm-ranch/economics-marketing/farm-planning/budgets/crop-budgets.aspx

Florida: https://fred.ifas.ufl.edu/extension/commodityenterprise-budgets/

Georgia: https://agecon.uga.edu/extension/budgets.html

Kentucky: https://agecon.ca.uky.edu/budgets

Louisiana: https://www.lsuagcenter.com/portals/our_offices/departments/ag-economics-agribusiness/extension_outreach/budgets

North Carolina: https://cals.ncsu.edu/are-extension/business-planning-and-operations/enterprise-budgets/

Oklahoma: http://www.agecon.okstate.edu/budgets/

South Carolina: https://www.clemson.edu/extension/agribusiness/enterprise-budget/index.html

Texas: https://agecoext.tamu.edu/resources/crop-livestock-budgets/

Tennessee: https://arec.tennessee.edu/extension/budgets/

Table 1. Example Corn Enterprise Budget

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Author: Brian E. Mills

Assistant Professor and Extension Economist

Delta Research and Extension Center

Mississippi State University

Email: b.mills@msstate.edu

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Mills, Brian. “Enterprise Budgeting.” Southern Ag Today 2(50.3). December 7, 2022. Permalink

Research into cover cropping has shown some benefits to soil health and conservation. However, adoption of cover cropping has been relatively low due in part to uncertainty about its profitability. When considering whether to adopt this practice it is important to understand the associated costs.

            Seed and planting cost make up the bulk of additional costs of cover cropping. Table 1 shows examples of the cost of planting various cover crops from prices obtained in Mississippi. Seed costs range from $18.00/ac for oats to $43.80/ac for Austrian winter peas. Planting costs are estimated at $11.68/ac including direct expenses as well as indirect equipment costs (estimates derived from the Mississippi State Enterprise Budgets assuming a 20’ grain drill). Total costs of cover cropping range from $29.68/ac to $55.48/ac. Your costs will vary depending on local conditions, seeding rates, and equipment.  In some cases, an additional herbicide application is also needed to terminate the cover crop.

Table 1. Costs of Cover Cropping

Crop	Seed Cost $/lb	Seeding Rate lb/acre	Seeding Cost $/ac	Planting Cost $/ac	Cover Crop Costs $/ac
Austrian winter pea	0.73	60	43.80	11.68	55.48
Crimson Clover	1.80	20	36.00	11.68	47.68
Cereal Rye	0.39	60	23.40	11.68	35.08
Tillage radish	2.40	8	19.20	11.68	30.88
Oats	0.36	50	18.00	11.68	29.68
Rye+Clover (89/11 Mix)	0.45	50	22.36	11.68	34.04

For cover cropping to be profitable there needs to be a positive yield benefit to offset the added costs. However, research has shown that cover cropping may have no effect on yield or in some cases decrease yield. The impact on yield is highly dependent on which crop is being grown. Spencer et al. (2021) found that Austrian winter pea and cereal rye decreased corn yield by 37 and 45%, respectively, in the first year of implementing cover crops. In subsequent years there was no significant differences in yield found. But, net returns were significantly reduced in 2 out of the 4 years examined. Bryant et al. (2020) found that, relative to reduced tillage-subsoiling, a cereal rye cover crop had no impact on soybean yield but a radish cover crop reduced soybean yield by 12%. However, these results are atypical for what is usually observed in soybeans under cover cropping. Regardless, the lack of a positive yield response led to lower net returns under both the cereal rye and radish cover crops in that study. Lastly, Denton et al. (2021) found no yield response from cover cropping in cotton. This led to lower net returns of $20.34/ac to $124.64/ac under cover cropping. These studies show why cover cropping may not be profitable in the Mid-South.

One way to help alleviate the lack of profitability would be to secure Environmental Quality Incentives Program (EQIP) payments. As shown in Table 2, payments vary from state-to-state and by cover crop. Producers are only eligible for payments on land that is not currently under cover cropping. There are also limitations on payment amounts and duration. More information on your specific state’s EQIP payments can be found at: https://www.nrcs.usda.gov/wps/portal/nrcs/detailfull/national/programs/financial/?cid=nrcseprd1328426

Table 2. Environmental Quality Incentives Program Payments for Cover Cropping 2021

The results discussed here may differ from what is found on your farm. When deciding whether to adopt cover cropping it is important to test if the practice is profitable on a small area first. Once it is determined if it is profitable for you then larger scale adoption can be implemented. Your local NRCS office can also help with additional information about obtaining EQIP payments.

References

Bryant, C.J., Krutz, L.J., Reynolds, D., Locke, M., Golden, B.R., Irby, T., Steinriede, R., Spencer, G.D., Mills, B.E., & Wood, W. (2020) Conservation Soybean Production Systems in the Mid-Southern USA: II. Replacing Subsoiling with Cover Crops. Crop, Forage & Turfgrass Management. http://dx.doi.org/10.1002/cft2.20058

Denton, S.D., Dodds, D.M., Krutz, L.J., Varco, J.J., Gore, J., Mills, B.E., & Raper, T.B. (2021). Impact of Cover Crop Species on Soil Physical Properties, Cotton Yield, and Profitability. Journal of Cotton Science. 25:68-78.

Spencer, G.D., Krutz, L.J., Locke, M., Gholson, D., Bryant, C., Mills, B.E., Henry, W., & Golden, B. (2021) Corn productivity and profitability in raised, stale seedbed systems with and without cover crops. Crop, Forage & Turfgrass Management. http://dx.doi.org/10.1002/cft2.20142

Mills, Brian. “Profitability of Cover Cropping“. Southern Ag Today 2(32.3). August 3, 2022. Permalink