PRODUCTION ECONOMICS
TOOLS FOR FARM MANAGEMENT
AAE 320
Paul D. Mitchell
Learning Goal
• Many tools for farmers exist, review a few for WI
• Show how they work
• Show that the production economics principles
we learned underlie them
• Mostly show in class on computer
• Links on class web page
• Some accessed as part of problem sets
• Play with the tools on your own
Corn Seeding Density
• Getting A Handle on Corn Seed Costs (Problem Set #1)
• Guidelines for Managing Corn Seed Cost
• Both require calculating the price ratio: seed:corn as
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$/1,000 seeds to $/bu
WHY?
2014: about $300/bag or 300/80,000 x 1,000 = $3.75/1,000
seeds and $5.50/bu, so 3.75/5.50 = 0.682
• 0.682 is about half way between 0.50 and 0.75
Figure 1 in Getting a Handle: 34,500
Figure 2 in Guidelines: 35,000 seeds/ac for non-Bt corn
and 37,000 seeds/ac for corn borer Bt corn
Corn yield response to seeding rate is a quadratic function
(See Stanger and Lauer 2006, Agron. J.
http://corn.agronomy.wisc.edu/pubs/JL_JournalArticles/914.pdf)
Corn and N Fertilizer
• Corn Nitrogen Rate Calculator or Mobile App
• In Wisconsin, choose your soil type and previous crop
• Choose fertilizer type & price ($/ton) combo, and the corn
price ($/bu), tool determines N Price
• Why do the prices matter?
• Tool reports optimum and range
• Yield response to nitrogen is a quadratic response and
plateau: rises as a quadratic parabola until it hits the
maximum, then yield stays at this plateau at higher
nitrogen rates
Soybean Seeding Density & Seed Treatments
• Economic Risk & Profitability of Soybean Seed Treatments
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at Reduced Seeding Rates (Gaspar et al. 2014)
Figure 1: Yield response to soybean seeding rate an
exponential function, with a shift due to seed treatments
Figure 2: Net returns at different seeding rates with
different seed treatments and soybean prices
Table 1 and Table 2: economically optimal seeding rates
with & without seed treatments for $9 & $12/bu soybeans
Insecticidal seed treat: 94,000 or 100,500 seeds
Untreated or fungicide only: 111,000 or 119,000
Dairy: Corn Feeding Strategies
• Spreadsheet: Enter milk & corn price, calculates
price ratio: WHY?
• Holding other feeds fixed, how much corn to feed?
• Estimates DMI (dry matter intake) based on %
alfalfa (hay) & % corn in ration & week of lactation
• Pick your ration and lactation week on this table
• “Marginal Milk Production to Corn (lbs milk/lbs
corn)”
We call this the Marginal Product
• MP estimated based on experiments
• Tessman et al. (1991) & analysis Earleywine (2001)
Dairy: Corn Feeding Strategies
• “Marginal Value of Milk to Corn ($)”
= (p x MP)/r
What is this?
• Economic optimum: p x MP = r
• Divide by r to get (p x MP)/r = 1.0
• Economic optimum is the 1.0 dotted line, above means
VMP > r, below means VMP < r
• Example: $24/cwt milk and $3.50/bu corn, 21st
week of lactation: what’s the optimum?
• 48% alfalfa and 34% corn (top right) and 18 lbs of corn
(bottom right)
Income over Feed Costs
• Enter Milk $24/cwt, alfalfa $180/ton, corn $3.50/bu and
soybean meal $475/ton
• Plots show income over feed costs for a variety of
lactation weeks and set diets
• Diet 1 “best”: 48% alfalfa, 40% corn, 10% soybean meal
• Documentation: shows is profit max problem, with
quadratic production function in protein intake