The Economics of Forage Management Decisions in Your Beef Operation

AEC 2005-01A
Kenneth H. Burdine and Richard Trimble
April 2005

In 2004, a need was identified to examine the economics of numerous decisions that Kentucky beef cattle producers face as they manage their forage base. These decisions are wide in scope, ranging from pasture fertilization to hay storage. However, they are common decisions that most producers encounter. Some of these practices, such as pasture fertilization, are common practice for serious beef producers. Others are recommendations that are not commonly put into practice but are worth consideration.

The greatest challenge when addressing these questions was conducting a sound economic analysis, considering all the numerous factors that are relevant, while at the same time producing an output that has meaning for the individual producer. In truth, the economic evaluation is quite specific to the individual who is making the decision. All farms are different and therefore, conducting a static analysis based on one set of assumptions may be misleading for many operations in Kentucky.

In an attempt to better address these questions, a set of decision aids has been developed. The spreadsheet based decision aids allow the individual user to input figures specific to his or her operation and receive a recommendation based on the data that he or she provided. This avoids the potential problem of assuming away crucial considerations in the analysis. The following decision aids have been developed and used in this series of fact sheets:

1) Pasture and Forage Improvement Investment Tool

The Pasture and Forage Improvement Investment Tool is intended to evaluate numerous investments that the beef operator may consider. The decision aid can be easily applied to any investment with a multi-year life. The user is prompted to input basic questions about the cattle operation and about the investment they are considering. A Net Present Value calculation is quickly made based on the information entered by the user and the results are displayed. The user sees a statement that reads either, "This would be a worthwhile investment" or "This would not be a worthwhile investment." The aid also shows the net gain or loss to the operator should the investment be made.

2) Hay Storage Decision Tool

The Hay Storage Decision Tool is a simple tool that is designed to help producers determine the best hay storage method for their operation. Users are first asked basic questions about their hay enterprise such as how much they produce, estimated value, and estimated dry matter loss. They are then prompted to input expected cost, useful life, and dry matter loss for various hay storage alternatives. These hay storage alternatives include outside storage on the ground, gravel pad, gravel pad with tarp, plastic wrap, and "under roof" storage. Default values are included for each of these options, but the user is strongly encouraged to change these defaults. Based on the information provided, the user is told which storage option maximizes the net value of the hay produced after storage costs.

The purpose of this publication is to provide needed background for producers as they make these decisions. Admittedly, a single publication addressing a specific forage topic can not provide all producers with all the answers needed to make their decisions. The user must understand that results expressed in this publication series are a set of outputs based on a set of assumptions; as these assumptions change, the associated results and recommendations are also likely to change. In order to better address this problem, many results are expressed in sensitivity tables. Sensitivity tables allow for analysis using multiple sets of assumptions. In other words, the user will see the impact of the decision based on a range of potential costs and benefits and be able to evaluate the potential impact of over or underestimating certain key factors.

For example, if a given investment is expected to increase rates of gain by 0.5 pounds per day, a sensitivity table allows the user to examine the sensitivity of his or her results to that number. If the producer is expecting an increase in weight gain by 0.5 pounds per day, is the investment still worthwhile if the increase is only 0.3 pounds per day? Sensitivity tables are included in an attempt to address the given questions in a more dynamic way.

Regardless, those who use this information are strongly cautioned against solely using results from this publication as they make forage decisions. The user should consider conditions specific to his or her operation. If additional support is needed, the user should contact their count extension agent for agriculture and natural resources.

For More Information

For additional information, please contact, Kenny Burdine or Richard Trimble.

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