1. Relative Cost Efficiency of No-Till Farms 2008 Ag Profitability Conference: McPherson Michael Langemeier January 15, 2008

2. Outline of Presentation Introduction KFMA Data Detailed Cost Comparisons Whole Farm Analysis Summary and Conclusions

3. Introduction Using the 2006 Crop Residue Management Survey, the adoption of no-till production has increased from 7.4% of planted acres in 1990 to 31.5% of planted acres in 2006. This paper documents cost differences between farms that have adopted a no-till production system, and those with a conventional or reduced tillage system.

4. KFMA Data Identification of No-Till Farms Participating Associations: Northwest North Central South Central Northeast (Atchison, Jackson, Leavenworth, and Nemaha)

5. KFMA Data Detailed Cost Comparisons (2006 data) North Central South Central Whole-Farm Analysis (2002 to 2006 data) Central Kansas

6. Top Number = Number of Farm Units Per County Bottom Number = Number of Extra Partners or Persons in the Multi-Operator Farm Units Kansas Farm Management Associations 2006 Membership

7. Detailed Cost Comparisons Per Harvested Acre Labor Hired labor and opportunity charges on operator and family labor Machinery Repairs on machinery and equipment, machine hire, gas, fuel, oil, and depreciation on machinery and equipment Crop Seed, crop insurance, fertilizer, herbicide, and miscellaneous costs such as irrigation energy, crop storage and marketing, and crop supplies Improvement Asset Charges Other Expenses

8. Detailed Cost Analysis Total Crop Cost per Harvested Acre

9. Detailed Cost Analysis Historical Total Crop Cost: NC KFMA

10. Detailed Cost Analysis Cost Categories: NC KFMA

11. Detailed Cost Analysis Cost Categories: SC KFMA

12. Detailed Cost Analysis Machinery Cost: NC KFMA

13. Detailed Cost Analysis Machinery Cost: SC KFMA

14. Detailed Cost Analysis Crop Cost: NC KFMA

15. Detailed Cost Analysis Crop Cost: SC KFMA

16. Detailed Cost Analysis Central Kansas Labor cost, machinery cost, and asset charges are relatively lower for the no-till farms. Crop cost is relatively higher for the no-till farms.

17. Whole-Farm Analysis Central Kansas Comparison of Whole-Farm Characteristics Total Acres Crop Acres Crop Intensity (Harvested Acres/Crop Acres) Percent of Crop Acres Planted to Wheat, Feed Grains, and Oilseeds

18. Whole-Farm Analysis Central Kansas Comparison of Whole-Farm Characteristics Value of Farm Production Net Farm Income Labor Cost as a Percent of Value of Farm Production Value of Farm Production per Worker Expense Ratios Operating Profit Margin Asset Turnover Ratio

19. Whole-Farm Analysis Definitions Value of Farm Production Value of farm production (VFP) equals the sum of livestock, crop, and other income computed on an accrual basis minus accrual feed purchased. VFP provides a measurement of value added and if often used as a measure of farm size. Net Farm Income Return to operator’s labor, management, and equity (net worth) computed on an accrual basis.

20. Whole-Farm Analysis Definitions Expense Ratios Total Expense Ratio Total Expense / Value of Farm Production Adjusted Total Expense Ratio (Total Expense + Opportunity Charge on Operator and Family Labor) / Value of Farm Production Economic Total Expense Ratio (Total Expense + Opportunity Charge on Operator and Family Labor + Opportunity Charge on Owned Assets) / Value of Farm Production

21. Whole-Farm Analysis Definitions Operating Profit Margin Ratio (Net Farm Income + Interest – Opportunity Charge on Operator and Family Labor) / Value of Farm Production Asset Turnover Ratio Value of Farm Production / Average Total Assets

22. Acres Farmed and Crop Intensity TillageNo-Till Total Acres1,6262,062 Crop Acres1,2081,645 Crop Intensity100.1%104.4%

23. Crops Planted

24. Yield Comparisons North Central Kansas TillageNo-Till Wheat Yield46.845.3 Grain Sorghum Yield 63.571.9 Soybean Yield24.426.1 Corn Yield73.773.0

25. Value of Farm Production and Net Farm Income TillageNo-Till Value of Farm Production 273,706370,847 Net Farm Income47,42264,519

26. Farm Size Categories

27. Number of Workers and Labor Efficiency TillageNo-Till Number of Workers1.381.56 Labor Cost as a Percent of Value of Farm Production 19.28%16.54% Value of Farm Production per Worker $198,338$237,875

28. Expense Ratios

29. Percent of Farms with ETER < 1 Tillage Farms19.2% No-Till Farms24.5%

30. Financial Performance TillageNo-Till Asset Turnover Ratio 30.54%38.33% Profit Margin8.47%11.14% % of Farms Bottom Quartile 28.33%7.45% % of Farms Top Quartile 23.75%30.85%

31. Size Versus Adoption of No-Till? Correlation Coefficients ETER and Total Acres-0.143 ETER and Value of Farm Production-0.292 ETER and Number of Workers-0.119 ETER and No-Till-0.110 Both size and NT adoption are significantly correlated with the economic total expense ratio (ETER).

32. Economies of Size Significant economies of size exist among KFMA farms. The profit margin for large farms is substantially higher. The economic total expense ratio, one of best indicators of economies of size, is substantially lower for large farms.

33. Performance Benchmarks KFMA Farms with Continuous Data 1,160 Farms 2002 to 2006 5-Year Averages: VFP = $259,095 Expense Ratios: Total Expense Ratio = 0.803 Adjusted Total Expense Ratio = 0.967 Economic Total Expense Ratio = 1.156 Operating Profit Margin = 0.0940 Asset Turnover Ratio = 0.2942

34. Profit Margin Ratio (2002-2006 KFMA Average)

35. Economic Total Expense Ratio (2002-2006 KFMA Average)

36. Economies of Size

37. Summary and Conclusions Cost per harvested acre is relatively lower for farms that have adopted a no-till system. In addition to having a relatively lower cost per harvested acre, on average, the no-till farms exhibited a lower economic total expense ratio, improved labor efficiency indices, and higher operating profit margin and asset turnover ratios. However, it is important to note that some of the no-till farms were in the bottom operating profit margin quartile and that some of the mixed tillage farms were in the top operating profit margin quartile.

38. Contact Information Publications and Data: www.agmanager.info www.kmar105.com E-mail: mlange@agecon.ksu.edu