|
April 1955
Station Bulletin 623
Preface
North Central
Regional Publication
No. 48
The objective of this publication is to provide a logical basis for evaluating pas-
ture and other forage assets.
We have done this by facing with farmer Ivan Jones his forage evaluation prob-
lems. We then reason through a flexible system for arriving at forage values. Tllis
system is necessarily broad, for it must cover a wide range of economic, technical
and farm situations.
Examples are used to illustrate the suggested system of evaluating forage assets.
Values shown in these examples must be viewed purely as illustrations, not as an-
swers. As improved estimates of yield responses and other physical relationships
become available, it will be possible to compute more definitive answers.
For the first reading, some may elect to skip the detailed development of the
frame of reference, pages 6-12. The order of presentation is from problem to con-
ceptual framework to examples. Understanding the concepts in Figure 1, however,
is essential for the examples to have their full meaning.
Agricultural Experiment Stations of Illinois Indiana Iowa
Kansas Kentucky Michigan Minnesota Missouri Nebraska
North Dakota Ohio South Dakota Wisconsin U. S. Depart-
ment of Agriculture and the Farm Foundation Cooperating
PURDUE UNIVERSITY
Agricultural Experiment Station Lafayette, Indiana
North Central Farm Management Research Committee
Administrative Adviser
C. M. Hardin, Dean, School of Agriculture, Michigan State College
East Lansing, Michigan
Secretary
Joseph Ackerman, Farm Foundation, Chicago, Illinois
State Members
Illinois .......... .. P. E. Johnston, University of Illinois
Indiana ............ Lowell S. Hardin, Purdue University
Iowa ............... Earl O. Heady, Iowa State College
Kansas ............. J. A. Hodges, Kansas State College
Kentucky ........... Harald Jensen, University of Kentucky
Michigan ........... Glenn Johnson, Michigan State College
Minnesota .......... George A. Pond, University of Minnesota
Missouri ............ R. Johnson, University of Missouri
Nebraska ........... A. W. Epp, University of Nebraska
North Dakota ....... Cecil Haver, North Dakota State College
Ohio ............... John H. Sitterley, Ohio State University
South Dakota ....... C. M. Johnson, South Dakota State College
Wisconsin .......... P. E. McNall, University of Wisconsin
U. S. Department of Agriculture, Agricultural Research Service
Production Economics Research Branch
C. W. Crickman, Washington, D. C.
Subcommittee on Pasture Evaluation
Lowell S. Hardin, Purdue University, Chairman
R. H. Baker, Ohio State University
Earl O. Heady, Iowa State College
Glenn L. Johnson, Michigan State College
P. E. Johnston, University of Illinois
P. E. McNall, University of Wisconsin
Karl T. Wright, Michigan State College
2
Contents
Page
Introduction ............................................ 4
An Evaluation Framework Needed ............. 4
Broad Uses For Forage Value Estimates .................. .... 4
Why Forage Evaluation Is So Complex ................... ... 5
Purchase (Acquisition) and Sale (Disposal) Prices Are Not The
Same .................... ................... .... 5
Forage Investment Yields Joint Products ................... 5
Use Value On An Individual Farm Often Differs From Market
P r ic e . . . . . .. .. . . .. . . . .
The Frame of Reference ... .. ... .......... 6
Forage As An Individual Input Or Product ................. 6
Durable vs. One-Use Assets and Purchase vs. Farm Production. 7
Forage As One Of Two Inputs Or Two Products.... ....... 8
Use Of Frame Of Reference In Specific Short-Run Forage Evalua-
tion Problem s ............ ... ...................... 12
Pricing Forage To Livestock As A Feed Input............. 12
Pricing Forage As A Crop Output ... ....... ... .... 13
Short-Run Situation With Very Favorable Or Unfavorable
Weather ......... ......... ..................... 14
Use Of Frame Of Reference In Long Run Forage Evaluation And
D decision M making .. . ............. .... ........... 15
Estimating Dollar Values In Long-Run Situation ............ 16
What Was Jones' Pasture Worth.... .................... 17
Su m m ary . .. .. .. . .. ... ... . .. . .. .. . .. .. .. . .. 19
Economics of Forage Evaluation'
by GLENN L. JOHNSON, Michigan State College,
and LOWELL S. HARDIN, Purdue University, in
cooperation with other members of the North
Central Farm Management Research Sub-Com-
mittee on Pasture Evaluation.
"What's my forage worth?" cen-
tral corn belt farmer Ivan Jones
wanted to know.
"You need more information?
O.K. Here's my story," Jones con-
tinued.
"Our level crop land is in a corn-
oats-meadow rotation. The seeding
is a mixture of alfalfa, ladino clover
and timothy. We pastured the
meadow with mixed livestock.
Some fellows at the college helped
and here's what we figured it pro-
duced last year. Through animals,
we harvested about 2,250 pounds
of total digestible nutrients per
acre. That's about 140 cow days of
pasture. We got back about 3,300
pounds of milk to the acre when
we put it through our dairy cows.
On similar pasture our neighbors
got about 240 pounds of beef per
acre.
The confusion which Mr. Jones
describes is not limited to farmers.
Most of the possible values he gives
-and others-have been quoted by
researchers, educators and the agri-
cultural press.
Why isn't there general agree-
ment as to what forage is worth?
Primarily because the problem is
"Had we harvested the crop as
hay, it would have made about 2.8
tons.
"We could have rented some
bluegrass pasture from a neighbor.
Carrying capacity equal to an acre
of our meadow would have cost
about $17.50. And my direct costs
of producing an acre of our mead-
ow including seed, land charge,
lime, fertilizer, labor and clipping
were about $18.
"Now what I want to know is
this," Jones concluded. "What was
an acre of my good meadow worth
last year? Some say $132-3,300
pounds of milk at $4 per hundred-
weight. But only about half the
cost of producing milk is feed, so
$66 might be a better figure. Still
that's a lot to charge a cow for
pasture. And it costs to keep the
cow all winter so that she's around
for summer pasture. I have the
An Evaluation Framework Needed
extremely complicated. To unravel
it we need a picture or framework
into which values can be fitted.
Such a framework should establish
the logic behind the different values
and their use. We should know
why several forage values are need-
ed and the appropriate uses for
the different values.
same problem when I figure 240
pounds of beef an acre at 20 cents
a pound and get a $48 value.
"Others say those 2,250 pounds
of nutrients are worth their cost in
corn. That is $70-the price of 50
bushels of corn at $1.40. Is it worth
the purchase price of 2.8 tons of
hay-$56? Or maybe it's worth no
more than the $17.50 I'd have paid
to rent pasture?
"One fellow even suggested my
pasture was worth less than noth-
ing. He reasoned that I could make
$50 clear if the meadow acres were
in corn. If it costs me about $18
to produce an acre of pasture worth
only $17.50 at rental rates, I'm only
breaking even on meadow. So if I
could be raising corn but produce
meadow instead, every acre of
meadow loses me $50 or has a
worth of minus $501"
The objectives of the following
analysis are, therefore, to establish
the framework called for above and
to illustrate its use. The task is
difficult. If it were easy, the frame-
work would have been developed
years ago.
Broad Uses For Forage Value Estimates
Correct pasture evaluation con-
cepts would help produce estimates
of forage values for at least three
broad uses.
1 Primary attention is given here to the
problem of evaluating pasture and pas-
ture-producing stands. The analysis is
designed to apply to all forage, however,
hence the use of the broader term.
First, what is forage worth as a
feed input for animals? A price on
forage is needed in deciding what
combination of feeds meets nutri-
tional needs at lowest cost. And
forage must be priced if we are to
do enterprise cost-of-production
work.
Second, the worth of the quanti-
4
ties of forage produced in experi-
mental work with crops needs to
be established. As new seeding mix-
tures, different rates of fertilization,
and different cultural practices such
as irrigation or pasture renovation
are tried, the changes in produc-
tion which result must be matched
against the costs.
Third, most farmers need a value
on forage as an aid in deciding
whether to expand, contract or
leave unchanged their forage acre- need to change rotations on their
ages. This is especially important crop land.
to men like Mr. Jones who may
Why Forage Evaluation Is So Complex
Purchase (Acquisition) and
Sale (Disposal) Prices
Not The Same
Harvested forage, forages in the
field and forage stands have the
common characteristic of being
costly, bulky items to move. The
cost of baling loose hay and haul-
ing it to market can easily account
for half of its market price. For
chopped hay and silages, handling
costs are even higher relative to
their market prices. The cost of
purchased hay and silage laid down
at the barn door may exceed their
market price by more than a fourth.
In effect, the farmer ordinarily faces
two prices for hay and silage-one
when he buys them and one when
he sells them, the difference be-
tween the two being due in large
part to the cost of transferring them
from field to storage to market to
farm. To utilize forage as pasture
means grazing it where it is-in its
particular location during the sea-
son when it is available.
A farmer with an excess of forage
in the field may get a small cash
return for it by renting it out as
pasturage or by selling it to some-
one desiring to put it up for hay.
If allowances are made for the
value of fertilizer nutrients re-
moved from the farm, the realized
net return may approach zero.
Robbins2 estimated the market
value of the N, PsO,, and IGO re-
moved from the farm in 2.81 tons
of alfalfa hay or equivalent pastur-
age (1 acre in his study) as $32.92
when sold as hay and $9.86 when
sold as rental pasture. Prices used
were N, 14.5 cents per pound; P.O.,
8.5 cents per pound; KO, 6 cents
2 Robbins, P. R., "An Economic Evalu-
ation of Pasture in Central Indiana," un-
published Ph.D. thesis, Purdue University,
1953, p. 71.
per pound. On the other hand,
the person who rents the forage
stand for hay or pasture often finds
the gross cost of the feed obtained
to be high in terms of what it
would have cost to produce the
feed from regular forage stands.
This is especially true if account is
taken of the hauling costs and of
the costs of driving livestock to and
from a rented pasture. On certain
small intensive farms, however, the
earnings of forage may be so high
and the cost of establishing more
forage-producing stands so high
that rental is justified.
Forage stands display these same
characteristics in an even more pro-
nounced way. For instance, a new
stand of fescue-ladino in western
Kentucky may cost $35 an acre to
establish (acquisition price). Yet,
once the resources represented by
this $35 are invested in fescue-la-
dino production, they may have
little or no disposal or salvage
value-that is, no net value in alter-
native uses or on the market.
Forage Investment
Yields Joint Products
An investment in a forage stand
yields two products: (1) feed, an
output of the forage enterprise
(which becomes an input to the
livestock enterprise); and (2) above
-as well as below-the-ground-"fer-
tility" outputs (which may become
resources or inputs to succeeding
crops). The difficulty of identify-
ing and measuring these two prod-
ucts has undoubtedly contributed
to inaccuracies in estimating their
single and joint values and costs of
production.
Use Value On An Individual Farm
Often Differs From Market Price
In a perfect market, price of
forage feed would tend to equal its
marginal value products (MVP)s
which would be equal in all feed
uses. The MVP (use value) of feed
forage on a given farm is what it is
worth at the margin in producing
livestock and livestock products.
The MVP of the fertility contribu-
tion of forage may be similarly de-
fined in terms of its worth at the
margin in crop production.
Evidence exists to support the
hypothesis that the MVP of forage
both as a feed and as a fertilizer
falls as more forage is used and ad-
ditional uses are adopted within a
given farm organization. Use value
on a particular farm, therefore, de-
pends on that farm's organization-
its enterprise combinations, pro-
duction relationships, markets-at
or during a particular period. This
use value may be greater than the
acquisition price, less than the dis-
posal price, or somewhere in be-
tween. The relationship between
use value and the two market
values is important in decision
making. If a farmer's use value ex-
ceeds the acquisition price, logical-
ly he enters the market to obtain
more. If his use value is less than
disposal price, logically he sells.
For an individual farmer, use
value rarely equals either of the
two market prices. His own ap-
praisal of the differentials that
exist for him between use values
and the two market prices guides
him in his decisions to enter the
market as a buyer, seller, or not at
all. The spread between acquisition
(cost) price and off-farm disposal
(sale) price for his forage main-
tains itself over time because of
high transportation and handling
3 MVP is the addition to gross income
resulting from using one more unit of an
input.
costs and fixed pasture locations.
Further, weather and price levels
are seldom perfectly forecast at the
time production plans are made.
Thus realized forage production on
an individual farm is often greater
If, in fact, cost of production or
acquisition price equaled disposal
price equaled marginal value pro-
ductivity, forage assets or forage
(either harvested or in the field)
could be evaluated from estimates
of any one of the three. Actually
the three figures usually differ.
Thus, researchers who attempt to
compute one of the three-or for
that matter all three of them-
without a systematic frame of refer-
ence for interpreting and using the
estimates, are in danger of getting
into and remaining in the same
confusion that confronted Ivan
Jones.
Forage As An Individual
Input or Product
A decision-making frame of ref-
erences is presented graphically in
Figure 1. This figure applies to a
given farm as organized at a given
time whether the farm is well or
poorly set up. It often combines in
each value concept the worth of
two products of the forage invest-
ment-feed and fertility. Similarly,
it sometimes lets the use of other
inputs-such as grain-influence the
value or earning power of forage.
Figure 1 contains three lines that
represent concepts of basic impor-
tance in evaluating forage and for-
age-producing stands.
The most important of these
three lines is the marginal value
product (MVP) line. This line
represents successive additions to
the gross income of the farm busi-
ness that result from using succes-
4 In the sense that
MVP FORAGE
Acquisition Cost of a unit of Forage
Acquisition Cost of a unit of Forage
or smaller than would be ideal4 for
the price relationships and farm
organization that exist at harvest.
As a result, the individual farm
business is usually long or short on
forage in any particular year. Over
The Frame of Reference
sive additional quantities of the
asset being evaluated. In general,
beyond some limit within a given
farm organization, additional
quantities of an asset tend to be
used less efficiently in a given use
and/or devoted to less efficient uses;
hence, a portion of the MVP line
slopes to the right.
Two other important lines ap-
pear in Figure 1. One of these is
labeled "acquisition cost," the
other "salvage or disposal value."
Acquisition cost is the cost of ad-
ing one more unit of the asset to
the business. Salvage or disposal
value is what could be realized
from one unit of the asset now on
hand, if it were to be disposed of
either within or outside the busi-
ness. Although the acquisition cost
and salvage value lines are drawn
straight and parallel in Figure 1,
they may vary as to level and in
relation to each other. Acquisition
cost is the marginal factor cost
(MFC) if the asset is purchased. In
the case of uniform assets bought in
a competitive market, the price of
the asset and the MFC are the
same. For non-uniform assets pur-
chased in an imperfect market,
MFC may differ from the price of
the asset; it may be either a nega-
tive or a positive function of quan-
tity. Acquisition cost is the mar-
ginal cost (MC) of produce more
of the asset ifts setf gstod-ued
on the farm. In some instances
both MFC and MC are relevant as
the asset may be both purchased
and farm-produced. (For a more
detailed discussion of cost consid-
erations, see page 12.)
many years this balance improves
little because many causes of poor
adjustment occur continuously in
an unpredictable pattern.
If, as in Figure 1, a farm has
a quantity, Qi, of an asset on
hand, that quantity has an MVP
of Q1M1 which is greater than
Q1P1 (the revenue realized by
salvaging another unit of the asset)
and less than Q1Ps (the cost of ac-
quiring another unit of the asset).
In this case there would be no
reason to acquire more of the asset
or to dispose of it. The asset is
fixed. Its value, under these condi-
tions, is its use value (MVP). In
this case the MVP is greater than
salvage value and less than acquisi-
tion cost. In this situation, the
asset is worth more to the farm con-
cemed than if placed on the mar-
1eTt, though less than the cost of
Bfiing it from the market and
^eting jtAtQo hfEfaxm
If, on the other hand a quantity,
Q2, were on hand, an MVP of Q2
M2 would result which is greater
than QP2, the acquisition cost. In
this case it would be advantageous
to acquire more of it. Under these
conditions the asset must be re-
garded as variable. It is unreason-
able, however, to value the asset at
its MVP, as this value exceeds the
price at which the market stands
ready to supply additional quanti-
ties. One cannot say or assume that
the asset is wbrteh7more than the
price at which one can have it de-
livered to the business.
To explore the framework still
further, what are the consequences
of having a quantity Q. on hand?
Such a quantity would have an
MVP of Q,M. which is less than Q.
P1, its salvage value. In this case, it
would be advantageous to dispose
of at least a portion of the asset as
-1
Asset
Figure 1.
the market would_ y more for it
than the businessman t out of it.
Disposal of part of it would in-
crease its MVP to a level equal to
its salvage value. It would be un-
reasonable to value the asset at its
MVP if such is less than its salvage
value. The market stands ready to
take the asset at a value higher than
its MVP and it is worth at least
what the market will pay for it.
From a decision-making view-
point, two of the three cases just
analyzed call for reorganization of
the business by changing the quan-
tity of the asset used. In the other
case, the asset remains fixed even
though other changes in the busi-
ness are called for, such as in the
introduction of a technology. Such
changes could easily shift the MVP
line to the right or left, thus in-
creasing or decreasing QIM1 in
Figure 1.
Durable vs. One-Use Assets and
Purchase vs. Farm Production
Thus far, the frame of reference
has not distinguished between dur-
able and one-use assets. As one-use
assets do not produce a MVP for
"mToithan one time period, their
use value is simply their MVP. By
contrast, the use vaIiueo-fa durable
asset is the present value of the
stream of MVP's which it is capable
of producing during its lifetime. In
order to handle durable assets, dis-
counting procedures are required
and the result is referred to as
oDISISC. MVP. As
the general frame of reference
developed to this point does not
handle in detail the cost of produc-
ing assets on the farm, it also needs
expansion to handle this problem.
In Figure 2, twelve versions of
Figure 1 are presented. The dif-
ferent versions permit the reader to
envision each of the three cases de-
scribed above for each of the fol-
lowing:
Durable assets which are pur-
chased-for example, an acreage of
land seeded to bluegrass.
Durable farm-produced assets-
for example, an established stand
of pasture.
One-use assets which are pur-
chased-for example, hay in the Oc-
tober-March period.
One-use farm produced assets-
for example, a crop of pasturage al-
ready on hand.
These twelve figures provide an
initial framework for use (1) in
understanding pasture evaluation
problems and (2) in identifying
and interpreting estimates pur-
porting to establish the value of
forage assets.
The topmost of the three rows of
diagrams in Figure 2 deals with
assets which are fixed. These assets
are fixed in an economic sense. The
quantity (Qi) of them on hand is
7
producing an MVP greater than
salvage value (SV) and less than
the cost of acquiring the asset from
the market or the marginal cost of
producing it. In such cases the
appropriate value of the asset is its
MVP, or the closest approximation
one can make toit.
The middle row presents an ex-
pansion situation. In such in-
stances, the value of the asset is the
cost of acquirng yven though its
marginal value productivity as the
business is now organized would
support a higher valued the point is
that the present situation is un-
stable. Profits can be increased by
expanding the use of the asset. Such
profitable expansions would
eventually reduce the MVP of the
asset to a point at which it would
just support the acquisition cost
(MFC or MC, as the case may be).
The figures in the bottom row
differ from those in the other two
in that the quantity (Qs) of the
asset on hand is so large that its
MVP is smaller than the salvage
value (SV) of the asset. All figures
in the bottom row indicate that it
would be profitable to reduce the
use of the asset by disposing of part
of it at its salvage value. In such
instances, the value of the asset is
its salvage value which is higher
than its MVP.
The preceding discussion has
concentrated on the difference be-
tween the rows of Figure 2. At this
point attention is redirected to-
ward the differences between the
columns of the same figure.
The four columns of Figure 2
are divided into two pairs. The
first pair deals with one-use assets
whose "value-in-use" is simply their
MVP in a single use. The second
pair of columns deals with durable
assets whose "value-in-use" is the
present value of the stream of
MVP's which they are capable of
generating over time.
For both one-use and durable as-
Figure 2. Diagrams For Use In Explaining The Evaluation Of Assets:
Fixed And Variable; One-use And Durable; Purchased And Farm
Produced.
sets, two cases are considered. One
of these involves purchased assets,
the other farm-produced assets, as
it is recognized that both purchases
and production may be involved in
some cases.
Forage As One Of Two Inputs
Or Two Products
That portion of the frame of
reference discussed thus far has
dealt with forage as an individual
input. When the cost of producing
it was discussed, it was considered as
a single product. It is recognized
that the MC of producing forage
depends upon the amounts of other
products produced and that the
MVP of forage depends on the
amounts of other inputs. These
considerations, however, were not
made a specific part of the geo-
metric frame of reference. To do
this two additional tools of analysis
need to be incorporated.
The first of these new analytical
tools is an iso-cost (opportunities)
map for two products and/or pur-
chased inputs, one of which is a
forage asset. The second is an iso-
value product map for two inputs,
one of which is a forage asset. The
method of analysis used is that cur-
rently used in the theory of rota-
tions, plus sufficient extensions to
cover (1) the existence of two prices
(acquisition and salvage), and (2)
the possibility that the asset can be
purchased and/or farm produced.
The case in which assets can be
purchased only is not treated sep-
arately.
The first step in presenting this
frame of reference is that of devel-
oping the iso-cost map. Figure 3
shows all combinations of a forage
asset, Xi, and another asset such
as corn or a group of assets as
grains designated by X2 obtain-
able at a series of different costs.
As such, it reflects whatever degree
of complementarity or competitive-
ness may exist in the production of
the two assets. For instance, the
line AB in Figure 3 shows all com-
binations of X, and X. obtainable
for a given cost from their least-cost
source, whether that be the market,
farm production or some combina-
tion of the two.
The line CD shows all combina-
tions of X1 and XL obtainable at a
given cost. Cost in this case is by
purchase, as the quantities of XM
and X. are not large enough to be
farm-produced at a MC less than
their market prices. On the other
hand, the combinations of Xi and X
X. obtainable for the cost repre-
sented by the line EF are more eco- / '
nomically farm-produced than pur-
chased. The line AB is the first of I
the iso-cost lines in the diagram to
represent both farm production H
and purchases; that is, part of L
either asset can be farm-produced, -
but the law of diminishing returns
makes it impossible to produce the
last units of either as cheaply as '
they can be purchased. This situ- o
ation is probably quite common on i
farms.
The second step in presenting
the frame of reference for forage
assets as one of two products or in-
puts is that of developing the iso-
value product map. Figure 4 is
such a map. All points on each
curved line (not converging on H)
represent combinations of X1 and G
Other Assets X2
Figure 4.
XI
X2 capable of producing a given
gross income or value product. As
such, it reflects the degrees of sub-
stitutability and/or complementary
existing between forage as an input
and other inputs.
On each of the iso-value product
lines in Figure 4 can be located a
"least cost combination" of Xi and
X2 for a given set of prices for X,
and X2. On the iso-value product
2 line, AB, such a point C is defined
A when the acquisition prices of X,
and X are used. If the least-cost
points for each iso-value product
line are connected, an "expansion
line," representing the least cost
combination for producing any
gross income (value product) can
be traced out as being the line
GKCH. On this line all points
satisfy the expansion line condition
0 FB that:
0 Other Assets
5 In terms of direct as well as oppor-
Figure 3. tunity costs.
fy-'
MVP X, MVP X,
acquisition cost for another unit of X, acquisition cost for another unit of X,
One point on this line is the high profit point-at this point the following condition holds:
MVP X,
MVP X,
1a
acquisition cost for another unit of X1 acquisition cost for another unit of X,
This point is arbitrarily designated
to be K and the XI and X. coordi-
nates defining the point K are the
most profitable quantities to ac-
quire.
Three other "expansion lines" of
which is implied by the assertion
that transportation and transfer
costs are relatively greater for for-
age than for other assets. The
fourth "expansion line" of interest
is GIH, which represents the least
cost combinations of X1 and X2
when forage X1 is valued at its sal-
vage value and X. is valued at its
acquisition cost. The points I, J,
interest can be located in Figure 4.
One of these is the line GLH which
represents the least cost combina-
tion of XI and X, when X1 (forage)
is valued at acquisition cost and X,
is valued at salvage value. Another,
salvage price X, acquisition cost X,
------- <----------
salvage price X, acquisition cost X,
and L, as well as K, are defined to
be the high profit points on their
respective expansion lines for their
respective sets of prices for X1 and
X2.
In addition to the four expan-
sion lines of importance in an iso-
value product map for two inputs,
four other lines are important.
These lines are first traced out in
GJH, represents the least cost com-
binations of XM and X. when both
are valued at salvage prices. This
line is drawn above the line GKH
on the assumption that:
Figure 5, an X1 X2 plane from
which both the iso-value product
and the four expansion lines are
omitted in order to hold confusion
to a minimum. These four lines
equate the MVP's of XM and X. with
their respective acquisition costs
and salvage values. Thus:
the line OB is the locus of points at
which MVPxi = salvage value of X1 for the different levels of X2
the line AC is the locus of points at
which MVPxi = acquisition cost of X1 for the different levels of X2
the line PF is the locus of points at
which MVPx. = salvage value of X2 for the different levels of X1
the line DE is the locus of points at
which MVPx2 = acquisition cost of X, for the different levels of X1
It should be noted that the lines in
Figure 5 are drawn so that both
salvage and acquisition values of X1
and X. may be functions of the
amount of Xi and X. involved.6
While it is obvious that cost is a
Therefore, point I lies on the ex-
pansion line GIH in Figure 4 and
is identical with the high profit
point I, previously located on that
line in Figure 4. Similar reasoning
establishes the correspondence be-
6 Each of these lines is repeated in the
stage 1 area of the production function
with respect to each input.
function of acreage or quantity
produced, the unit purchase price
also turns out to be a function of
quantity. For example, the unit
price paid for pasture increases as
quantity ahd, hence, distance from
MVPxt MVPxr
Salvage Price X, Acquisition Cost of X,
tween the J, K, and L points on
diagrams 4 and 5. It should be re-
membered that diagram 4 handles
the purchase or farm production of
X1 and X. whereas diagram 5 han-
dles their utilization. Establish-
ment of correspondence between
points I, J, K, and L on the two
diagrams makes it possible accur-
the home farm increases.
At point "I" the MVPxi = sal-
vage value of X. and the MVPx, =
the acquisition value of XM. Hence,
ately to combine them as in Figure
6. Again for purposes of avoiding
confusion, the iso-cost and iso-value
product lines are omitted in Fig-
ure 6.
When regarding a forage asset-
Xi-as an individual input and/or
product, three cases were found to
exist. These were: (1) it is advan-
XI
F
01
E \
L "
0
A
K
D
0
0 Other
Fig1
tageous to expand its use, because
MVPxl > acquisition cost of X1,
(2) it is advantageous to contract
its use because MVPxi < salvage
value of X1, and (3) it is advan-
tageous to leave Xi fixed as the
acquisition cost of X1 > MVPxl >
salvage value of X1. In the first of
these it was seen that acquisition
cost was the appropriate value to
place on forage. In the second, sal-
vage or disposal value was seen to
be appropriate, while in the third
the MVP of forage was the appro-
priate value.
When two products or inputs X,
and X. are involved, nine instead
of just three different situations
arise, each of which can be (1)
located geometrically in Figure 6,
(2) defined algebraically and (3)
found to be important in managing
AWK
farms. The following table has
four columns: the first locates
each situation geometrically in
Figure 6; the second defines the
situation algebraically; the third
indicates the action called for in
the situation, and the fourth indi-
cates the appropriate value for for-
age in the situation under consider-
ation.
7 There are six actions: Expand X,
contract X,, hold X, constant, expand X2,
contract X,, and hold X, constant, These
six actions can be combined two at a
6!
time in 15 ways --- Two types
-) t ,21 (6-2)1
l of combinations, however, are contradic-
/, tory, that is, X, cannot be simultane-
ously contracted and expanded or held
constant. Neither can X,. Hence from
15 we must subtract the combinations, 2
at a time, of the three actions involving
X, and the combinations, 2 at a time, of
the three actions involving X. Thus the
I number of possible combinations is equal
61 31 31
to = 9.
21 (6-2)1 21 (3-2)1 21 (3-2)1
the number of cases stated to be possible
in the test.
Assets
ure 5.
Other Assets
Figure 6.
Table 1. Situations Encountered and the Appropriate Value to Place
on Forage When It is one of Two Inputs or Two Products.
Geometric Algebraic Appropriate value
area in condition Action called for to place on Xt
Figure 6. a forage asset
IJLK Acqa X, > MVP X, > Salvb X, Leave both X, and X, un- MVP
Acq X, > MVP X, > Salv X,2 changed
AKD Acq X, < MVP X, Expand use of both X, and Acq
Acq X, < MVP X, X,
AKIO Acq X, > MVP X, > Salv X, Leave X, unchanged, expand MVP
Acq X, < MVP X, use of X,
DKLP Acq X, < MVP X, Expand use of X1, leave X, Acq
Acq X, > MVP X2 > Salv X, unchanged
OIE Salv X, > MVP X, Contract use of X, and ex- Salv
Acq X, < MVP X2 pand use of X,
CLP Acq X, < MVP X, Expand use of X, and con- Acq
Salv X, > MVP Xs tract use of X,
BJLC Acq X, > MVP X, > Salv X, Leave X, unchanged and con- MVP
Salv X2 > MVP X2 tract use of X,
EIJF Salv Xx > MVP X, Contraction of X, and leave Salv
Acq X, > MVP X, > Salv X2 X, unchanged
FJB Salv X, > MVP Xx Contract both X, and X, Salv
Salv X2 > MVP X,
a Acquisition cost.
b Salvage value.
Use Of Frame Of Reference In Specific
Short-Run Forage Evaluation Problems
First, some short-run problems of
pricing forage as a feed input or
crop output in a particular year
for an individual farm are con-
sidered. Important management
decisions concerning quantities to
raise or feed have already been
made. Results of past actions are
being evaluated as a basis for de-
ciding whether to contract, expand
or leave the use of forage unmodi-
fied.
Pricing Forage To Livestock
As Feed Input
Evaluation of forage fed to ani-
mals is a common accounting prob-
lem both on farms and in connec-
tion with experiment station re-
search. If purchased, an appropri-
ate value is the price delivered at
the farm. Or, if pasture is rented
away from the farm, price paid plus
extra costs of transporting animals
to the pasture and additional time,
travel and costs incurred to care
for them should be charged.
An appropriate feed value for
forage produced and consumed on
the farm is here defined as:
1. Not less than the highest net
price realizable through off-
farm disposal. Some ways to
compute disposal value are:
(a) Cash receipts from renting
pasture out less charge for
nitrogen, phosphate, and
potash (N, P, K) removed
by livestock and not re-
turned in manure.
(b) Cash receipts from sale of
standing forage as hay less
charge for N,P,K removed
from farm in hay. (Hay
may also be sold after hav-
ing it harvested on shares.
In this case all of the hay
also leaves the farm.)
2. Not more than the cost of ac-
quiring by the most economical
means available the same quan-
tity and type of feed units or
their equivalent. Alternatives,
include:
(a) Off-farm acquisition
-Cash paid for pasture
rented from another
farmer plus charge for
inconvenience (location).
-Cash paid for equivalent
feed in hay purchased
less credit for net N,P,K
gained by bringing hay
onto farm.
-Cash paid for equivalent
feed in grain or other
substitute less credit for
net N,P,K gained by
bringing feed onto farm.
(b) On-farm acquisition
-Direct cost of increasing
output of existing forage
stands by changing graz-
ing practices, clipping,
applying supplemental
fertilizer, using supple-
mental irrigation.
(c) The cost (both direct and
opportunity) of producing
emergency forage crops,
such as Sudan, rye, oats for
pasture, hay or silage.
(d) The cost (including both
direct and opportunity cost)
of converting crops in-
tended for other purposes
to pasture or pasture sub-
stitutes, such as use of hay
stands for pasture, or har-
vesting corn as green corn
or silage.
3. The MVP of the forage as used
by livestock if this value falls
between limits of 1 and 2 above.
computation of the MV) is
difficult. An approximation may
be made by the individual
farmer at the enterprise level by
computing residuals. Generally
a full calendar year is the de-
sirable accounting period. As
pasture becomes the residual
claimant of the value of the ex-
cess of livestock enterprise out-
puts above the value of inputs
other than pasture, it is ex-
tremely important that the
other inputs be "properly"
priced. As some of these are
fixed assets, the problem of
evaluating them greatly compli-
cates the process of evaluating
forage by the method of resid-
uals. To the extent possible,
both inputs and outputs are
valued at market price to the
farmer when the method of
residuals is used. Use of the
full accounting period of a year
is stressed as residuals calcu-
lated for the pasture season
alone frequently do not take
into account the inputs neces-
sary in winter. These winter-
ing costs must be incurred in
order to have animals available
to utilize the summer pasture.
More accurate MVP's are being
estimated in research studies by
using multiple regression analysis
and related procedures. These
MVP estimates are of three kinds:
(1) estimates of the MVP's of groups
of inputs in the whole farm busi-
ness; (2) estimates of the MVP's of
groups of inputs for an enterprise
within the farm business, and (3)
estimates of the MVP's of individ-
ual inputs for a particular enter-
prise. Vance Wagley's estimates8
(as modified by Glenn L. Johnson)
of the earning power of input cate-
gories for Grade A dairy farms on
Miami-Hillsdale-Conover soils, Ing-
ham County, Michigan, are of the
first kind. Forage-livestock invest-
ments were estimated to be earning
an MVP of about 65 percent in this
study. As the investment in an acre
of alfalfa-brome is about $22, the
estimated MVP of an acre stand in
producing gross income is $14.30.
When the estimated MVP of land,
$13.62, and a fertility allowance of
$20 are added to this, an estimated
MVP for an acre of alfalfa-brome
of $47.92 in producing gross income
and fertility components is ob-
tained.
Work recently completed in
Sweden9 yielded marginal produc-
tivity estimates from which the
second kind of MVP estimates
could be obtained through the use
of appropriate prices.
A mimeograph prepared by the
North Central Farm Management
Research Committee outlines a
method of obtaining a third kind
of MVP estimate.10 It describes an
experiment for determining the
physical productivity of forage and
grain in milk production from
which MVP estimates of forage for
different milk prices can be esti-
mated.
In years of pasture shortages,
local pasture rental rates probably
tend to approximate the acquisi-
tion value of forage. In years of
abundant pasturage, local pasture
rental rates probably tend to ap-
proximate salvage values. Averaged
over wider geographic areas and,
8 Wagley, Vance. "Marginal Produc-
tivities of Investments and Expenditures
on Selected Ingham County Farms, 1952,"
unpublished M. S. thesis, Department of
Agricultural Economics, Michigan State
College, 1953.
9 Hjelm, Lennart, Utbytesrelationer i
injolkproduktionen, Jordboukets Utred-
ningsinstitut, Stockholm, 1953.
10 Hoglund, C. R., Olson, R. 0., and
Redman, J. C., "Feed-Milk Relationships
in Dairying," January, 1954,
13
perhaps, over a number of years,
rental rates are probably fairly close
to the MVP of forage.
Going rental rates for pasture
are obtainable in some communi-
ties. Reduced to rental cost per
pound of total digestible nutrients
(to take into account-at least in
part-differences in yields), these
rental rates adjusted for location
are a usable bench mark. In cen-
tral Indiana in 1948, for example,
Robbinsll found the average rental
rate for bluegrass pasture to be
0.78 cents per pound of TDN util-
ized by animals grazed on rented
pastures or about 12 cents per cow
day.
Pricing Forage
As A Crop Output
In addition to producing feed, a
forage crop usually makes fertility
contributions. Therefore, to value
the total crop output of forage al-
ready produced, estimates of the
fertility contribution should be
computed. These should then be
added to the minimum and maxi-
mum values of forage as a feed
which were previously discussed.
A method for taking fertility added
through purchase or lost through
sale into account in computing
MVP's has already been mentioned
(see p. 5).
Fertility estimates are more dif-
ficult to make than are estimates
of feed value. N, P, and K compo-
sition of top and root growth are
available.12 The P and K are not
net fertility gains as the plants did
not make their own supply. They
may be regarded as at least partial
losses, however, if sold off the farm.
Nitrogen produced by legumes and
humus provided should be credited
to the crop considering (1) change
in annual net contribution as stand
ages; (2) need for and use to be
made of the fertility contributed;
(3) losses in fertility factors before
11 Robbins, P. R,, Op. cit., p. 5.
12 See footnotes to Table 2.
the succeeding crops have oppor-
tunity to use them, and (4) the
fact that time must pass before a
return can be realized (discount-
ing).
With the addition of fertility to
feed values, the appropriate esti-
mate of the value of crop output
is again (1) not less than the largest
figure realizable by disposal; (2)
not more than most economical ac-
quisition cost of feed and fertility,
and (3) MVP of feed plus fertility
uses of forage if it falls between the
limits of 1 and 2.
Short-Run Situation
With Very Favorable
Or Unfavorable Weather
A situation commonly found on
forage-producing farms may be
diagrammed as follows: From a
situation in which the MC of estab-
lishing forage stands was equated
with the expected use value (Disc.
MVP) of the stands, unusually good
weather may create the situation
presented in Figure 7. Figure 7 ap-
plies to forage (not forage stands)
on hand.
Here the quantity of forage on
hand is such that its MVP is re-
duced to Qi Mi which is much less
than the short run cost, Qi CG, of
producing more of it, less than the
MC
Tons of Foraae
Figure 7.
cost, Qi P,, of buying more of it but
still more than its salvage value
Qi Pi. In this case, the forage is
worth what it will produce, Qi M1.
In some instances the Qi becomes
so large the Qi Pi is greater than
Qi Mi, in which case the forage is
disposed of, that is, sold off the
farm, rented out, or plowed down
for fertility purposes.
In another instance, poor weath-
er may result in production of less
forage than anticipated. In these
mvp***
/
cases, the situation is similar to that
presented in Figure 8, which per-
tains to forage (not forage stands)
on hand.
In this case the quantity of forage
on hand, Q,, is such that its MVP
is Qi Mi which is greater than Qi P2,
the cost of acquiring more forage
in the market. It is also greater
than Qi Ci, the short run marginal
cost13 of producing more forage at
home with seedings of emergency
forages, cultural practices, the put-
ting up of emergency silage, etc. As
drawn, Figure 8 indicates that the
quantity of forage that would be
used is Qa. Of this amount, Qi is on
hand, Qi QI would be produced
from emergency plantings, and Q.
Qa would be bought in the market.
The question may well be asked as
to what the value of forage on this
farm was when only Qi of it was on
hand? More forage would produce
Qi Mi, yet more could be produced
for Qi C, and more could be bought
for Q, P2. The only stable answer
is that forage is worth Qi P2.
13 The MC curve used in planning the
existing situation which resulted in the
production of Q, is not on the diagram.
4#
MC
f/
IMI I
SV~,t-1t-
) Q Q2 Q3
Tons of Forage
Figure 8.
- r ...
* *
***
bV
"**Vp
--
*V^ v
.=
M<
Use Of Frame Of Reference in Long Run Forage Evaluation And Decision Making
In long runs permitting the as-
set to be produced on the farm,
managers maximize profits by
equating the marginal cost of pro-
ducing it with the discounted value
of its earning power or marginal
value productivity. If in the long
run the asset must be purchased,
managers maximize profits by equa-
ting its marginal factor cost with its
marginal value productivity. Cost
of production, purchase price,
marginal value productivities, and
for that matter, the quantity of
these assets produced depend on
many only partly controllable vari-
ables such as price variations,
weather, plant diseases, insect infes-
tations, animal diseases and other
biological events. The result is that
farm managers often fail correctly
to equate the discounted marginal
value productivity of durable assets
with their marginal factor cost or
marginal cost of production.
The general frame of reference
and its details previously presented
apply to all assets. An application
of this frame of reference in mak-
ing management decisions on for-
age production is presented next.
Figure 9 applies to a farm with
Q1 acres of permanent bluegrass
sod.
This hypothetical farm has a
quantity (Q1) of untillable blue-
grass sod on hand capable of yield-
ing a series of annual MVP's (pri-
marily feed) per acre which, when
discounted, have a present value of
Q1 M1. This value (Q1 Mi) is less
than Q1 P2 (the price of buying
more acres of bluegrass sod after
allowing for the value of land
acquired). Q1 P2, it is noted,
is less than Qi C1, the mar-
ginal cost of establishing (produc-
ing more sod). Thus, it is not ad-
vantageous to expand the acres of
$
Disc.
VP's
/
MC
SV
0
0
Acres of
Fig
bluegrass sod by either purchase or
production. The salvage value of
the sod, SV, is what can be realized
on a net basis by disposing of it
either by plowing it up or by sale
after allowance for the value of
land also sold. Thus, residual
fertilizer nutrients, soil structure,
brokerage fees on land sales, etc.,
are all taken into consideration in
arriving at salvage value. For the
farm and land involved, the SV
line is drawn low. In reality, this
could result from poor quality land
which has little use other than in
permanent pasture. At any rate Q1
M1, as drawn, is greater than Q
PI and there is no advantage to be
gained in disposing of the blue-
grass sod. Hence, it remains a fixed
asset-permanent bluegrass sod.
The hypothetical situation dia-
grammed in Figure 9 is believed to
be rather typical for farms on
which permanent bluegrass sods
have persisted over the years. The
15
Bluegrass Sod
ure 9.
sod has a value Qi M1, which is the
logical value to put on it. To value
it at less is to underestimate its
earning power.
Figure 10 diagrams the situation
on a perfectly adjusted farm where
a decision has just been reached to
establish a stand of Qi acres of
alfalfa-brome.
Q1 acres of alfalfa-brome are
being established. The present
value (Qi MI) of the future annual
MVP's which this stand will pro-
duce (both feed and fertility) is
equal to Qi C1, the marginal cost
of producing the last acre of alfalfa-
brome. It would not pay to pro-
duce more acres. Nor, (as Qi P, is
greater than Qi CG) would it pay to
buy more acres. Neither would it
pay to dispose of any part of the
stand, once it is on hand, as its
salvage value (SV) is less than Q
M1. In this case, an acre of alfalfa-
brome is valued at Qi M1 = Q
C, = MC.
Four years later, however, the
picture may be entirely different
with respect to what is left of this
stand of alfalfa-brome (Figure 11).
The use value (present value of
the remaining MVP's of the stand)
has dropped below what it was
when the stand was new. Qi MI is
now less than SV which has in-
creased as a result of nitrogen fixa-
tion, the development of improved
soil structure and humus accumula-
tion. As diagrammed, Qi Pi-the
salvage value-exceeds Qi MI, the
value in use. Hence, it is advan-
tageous to dispose of at least a
part of the stand-probably by
plowing it down for production
of a crop (such as corn) which will
effectively utilize the nitrogen, im-
proved soil structure and humus.
Here Qi Pi, which is a salvage
value, is the appropriate value to
use as it is greater than the MVP
of Qi M1.
The situation that may be de-
veloping on level rich corn belt
farms with commercial nitrogen
available can be diagrammed as in
Figure 12.
In this instance the salvage value
of any set of resources tied up in
forage stands may be greater than
the discounted value of the stream
of MVP's which would be pro-
duced. In such instances forage
stands would be omitted from the
rotations.
Estimating Dollar Values
In Long-Run Situation
In the long-run situation the
farmer needs estimates to help him
Disc.
decide whether to expand, contract,
or leave his forage acreage un-
changed. Situations that call for
these three actions were previously
described (Table 2, Figures 9 to
12). On a farm of given acreage,
three values are pertinent in de-
ciding to expand, not to ex-
pand, or to contract. First, the cost
of additional acres of forage stand
(MC) is needed. This is the direct
plus the opportunity cost with the
opportunity cost frequently becom-
ing the most important considera-
tion. Second, estimates of disposal
or salvage value are needed. This
may be established as the net sale
value of the stand or the opportun-
ity cost of using the forage-produc-
ing resources for an alternative
crop-whichever is higher. Use of
accumulated fertility is reflected in
the potential yields of alternative
crops, hence it is included in the
salvage value. Third, estimates are
required of the discounted MVP's
of the forage stand. This is an
estimate of the current worth of the
series of MVP's the stand will pro-
WI
Acres of 4-Year Old Alfalfa-Brome
Figure 11.
Acres of Alfalfa-Brome
Figure 10.
duce during its life. Both feed and
fertility contributions are included.
In the short-run situation pre-
viously discussed, feed inputs and
crop outputs (products of stand)
were valued after a given acreage is
on hand. Opportunity costs were
not considered because, in effect,
no alternative cropping opportuni-
ty existed. Use of land was already
committed and it was too late that
year to change.
Looking ahead to forage values
in coming years, opportunity cost
often enters into both the acquisi-
tion and disposal values. If the
discounted MVP of a forage stand
is only $30 while the salvage value
is $60 (the probable net return
from using the resources for corn),
the farmer will probably contract
his forage and increase his corn
acreage. Conversely, were the dis-
With the foregoing framework in
mind, can Mr. Jones' questions be
answered? What is his pasture
worth as a feed input to his live-
stock? As a crop output? In the
coming year should he expand,
contract or leave unchanged the
forage acreage on his farm?
The following sets of estimates
(Table 2) draw heavily on Rob-
bins' study which was conducted in
Mr. Jones' area. These estimates
suggest that as a feed input an acre
of Mr. Jones' pasture was worth
not less than $8, the highest net
value he might have realized from
selling it off the farm. Nor was it
worth more than $21.50-the cost
of acquiring by the most economi-
cal means available equivalent feed
nutrients. Probably, as used with
his herd, the feed forage was worth
$13 to $15 an acre (estimated
MVP).
Now that estimates have been
made of the feed value of an acre
of Mr. Jones' rotation pasture, what
was the total value of the crop out-
0
0
Acres of Forage
Figure 12.
cost) $70, the farmer probably
would expand his forage acreage.
and 22 lb. KIO) were removed by
animals grazed. Evaluation of the
remaining 110 pounds above-
ground N plus the 100 pounds
below-ground N and its attendant
organic matter and tilth contribu-
tions is extremely difficult. Using
the market price of N spread on the
field of 14.5 cents per pound as a
value indicator and assuming re-
tention and use of two-thirds of the
remaining 210 pounds of N, a fer-
tility figure of around $20 is ob-
tained. To acquire equivalent feed
off the farm would cost $21.50. To
acquire equivalent fertility would
cost perhaps $20. Total acquisition
cost is therefore estimated at
$41.50.
14 Based upon estimates provided by
Purdue University agronomist M. E.
Heath. In percentage of dry cut yields,
below-ground composition was estimated
at: N P K
Alfalfa 2.5% 0.37% 1.0%
Red Clover 2.7% 0.26% 0.9%
Ladino clover 2.3% 0.40% 1.2%
Brome grass 0.7% 0.26% 1.3%
The factors for conversion are: P to
P.O., 2.289; K to K,0, 1205.
counted MVP of an acre of new
forage stand $90 and the acquisi-
tion cost (including opportunity
What Was Jones' Pasture Worth?
put (feed and fertility)? To obtain
these estimates, feed values (Table
2) were adjusted for below-the-
ground as well as top growth fertil-
ity contributions. On a crop output
basis, Mr. Jones' acre of forage was
estimated to be worth not more
than $41.50 and not less than $28.
These estimates were made as fol-
lows:
Maximum value is again set at
the price of the most economical
means of acquiring equivalent feed
and fertility contributions off the
farm. Minimum cost of acquiring
the feed was established at $21.50
by renting the pasture (Table 2).
Were the crop not grown on the
home farm, how much fertility
would need to be purchased? Nitro-
gen produced in the top growth has
already been estimated in this situ-
ation to gross 169 pounds. Root
growth N production was estimated
at around 100 pounds.14 (This
quantity would probably be smaller
in succeeding years.) Approximate-
ly 59 pounds of N (plus 5 Ib. P.O.
17
Table 2. Estimated Values of the Feed Produced on One Acre of Mixed
Alfalfa Forage, 2250 Pounds TDN Harvested Yield.
Evaluation Estimated dollar
method How computed value per acre
Acquisition 1. $17.50 cost of renting pasture off farm plus $4
cost off inconvenience charges $21.50
farm 2. Purchase 2.8 T. hay @ $20 plus $4 per T. transpor-
tation and delivery ($67) less market value of N,P,K
contained in 2.8 T. hay acquired ($33)b $34.50
3. Purchase equivalent TDN in 50 bu. corn @ $1.40
delivered price ($70) less market value of N,P,K
contained in 50 bu. corn acquired ($8.50) $61.50
Acquisition 1. Produce equivalent feed as sudan grass, an emergency
cost on pasture crop, at a direct cost of $60 (opportunity
farm cost other than rents not considered)C $60.00
Disposal 1. Rent out pasture for $17.50 less $9.50b the market
value off value of N,P,K carried away by grazed animals $ 8.00
farm 2. Sell 2.8 T. hay @ $10 per T. above harvesting cost
less $33-the market value of the N,P,K sold off in
2.8 T. hay $ 5.00
Value 1. Estimated MVP of forage as consumed by cattle in
through use system of operation and management employed $14.00
a Robbins, ibid, pp. 71-98, obtained rental rates on 25 fields of permanent meadow
in central Indiana in 1948. Rental paid per pound of TDN harvested ranged from
0.26 to 2.87 cents and averaged 0.78 cents, the rate used to obtain the $17.50 charge
per acre used here. Rental pastures were located from 0.5 to 17 miles from the home
farm, the average distance being 5.3 miles. The $4 inconvenience charge is an estimate
of the added costs necessary to transport and manage animals this distance from the
home farm.
b Using standard chemical analysis for mixed alfalfa forage Robbins, ibid, p. 71,
computed approximate pounds of plant food leaving the farm thus: sold off in 2.8 T.
hay; N, 169 lb.; P,0,, 20 lb.; KO, 112 lb. Carried away from an equal acre by grazed
animals and not dropped in manure: N, 56 lb.; PaO,, 5 lb,; KO, 22 lb. In estimating
dollar values, prices used per pound were: N, 14.5 cents; P,O,, 8.5 cents; K.O, 6 cents.
This assumes the plant food to be needed and utilized, not lost. Obviously, recovery
seldom approaches 100%.
SRobbins, ibid, p. 56, determined production costs on 8 fields of Sudan grass in
1948. Average total cost per acre, including a land charge was $30.57 for a harvested
yield of 1,132 lb. of TDN. Average cost per lb. of TDN, the estimate used here,
was 2.7 cents.
d Actual MVP's of forage fed were not computed in Robbins' study. Wagley's
estimate of MVP of an acre of forage in Ingham County, Michigan, previously referred
to was $14.30. Robbins did compute, ibid, p. 98, average residual values for the
pasture by charging all other inputs at market prices. For mixed alfalfa, harvested
yield of 2,250 TDN, average residuals per acre were: for 56 dairy herds, $13,23; for
the 28 more productive herds, $49.75; and for the 28 less productive herds, minus
$24.98.
Minimum value in this case
would be the highest figure reali-
zable by off-farm disposal. Off-farm
disposal of feed was estimated at
$8 (Table 2). To this is added the
fertility figure of $20 estimated
above, recognizing that off-farm dis-
posal of below-the-ground fertility
is virtually impossible in the short
run. Hence, the $28 per acre dis-
posal value figure. ,
Again, the use value (MVP) of
the total crop output was not esti-
mated. When value through use of
fertility is added to the approxi-
mated $14 MVP of the forage as
feed (Table 2), the MVP for the
crop may have approximated $35.
Looking ahead, what is an acre
of Mr. Jones' mixed alfalfa likely to
be worth next year? Should he
leave the meadow down another
18
year, raise the usual acreage (33%)
of new meadow, or contract his
forage production?
The discounted use value of one
acre of Mr. Jones' second year
meadow, if left down, was esti-
mated at $35. If he plowed down
one acre of the stand, however,
the estimated return for using his
resources in corn rather than in
meadow production was $60. Look-
ing into the year ahead, on his
second year stand Jones faced a dis-
counted MVP of only $35 as com-
pared to a salvage or disposal value
(largely opportunity cost) of $60.
To leave the forage down the
second full year would mean realiz-
ing $25 less on the resources asso-
ciated with the extra acre than if
he planted the acre to corn. Jones'
neighbor who suggested a negative
value on his pasture may have been
reasoning in this manner. On the
other hand, the discounted MVP
on the acre of a new seeding would
likely be greater than $35 and the
salvage value less than $60 as less
nitrogen and humus would have
accumulated. If, however, salvage
value for new seedings exceeded
their MVP, Mr. Jones should con-
sider intensifying his rotation. Per-
haps he should shift part of his
acreage from his corn-oats-meadow
rotation to a corn-corn-oats-meadow
sequence or even to corn-oats
(green manure).
Summarizing the answer to Mr.
Jones' questions as raised on the
first page, a framework was neces-
sary if meaningful values were to
be identified and used. His sug-
gested values ranged from $132 to
minus $50 per acre. The above
estimates suggest:
1. The feed value of Jones' for-
age was between $8 and
$21.50 per acre, probably
around $14.
2. Feed plus fertility value per
acre was between $28 and
$41.50, perhaps around $35.
3. His acreage of meadow should
not be expanded by keeping
this meadow for 2 years. On
a net basis, the extra acres so
obtained would probably be
Investments in forage stands
yield joint products: (1) feed, and
(2) fertility factors. A forage
stand, unlike an annual crop, is a
semi-durable asset. This stand is
capable of yielding its joint prod-
ucts annually over a period of
years.
While acquired at substantial
cost, the stand may have almost a
zero sale value. Earnings through
use may be substantial. And be-
cause of high handling and trans-
portation costs plus imperfections
in the market, considerable spread
exists between the individual farm-
er's purchase and sale prices for
pasture or hay.
These considerations make ac-
curate forage evaluation difficult.
Correct pasture evaluation con-
cepts are needed, however, (1) to
price forage as an input as in feed-
ing trials with animals, or in farm
worth less than nothing, per-
haps a minus $25 when oppor-
tunity uses for the resources
involved are considered. In
fact, less acres in meadow
Summary
management cost of production
work, (2) to price forage outputs
as in agronomic experiments, and
(3) as an aid in deciding what acre-
age of forage to produce on a par-
ticular farm when other crops such
as corn might be produced.
The framework for economic
evaluation of forage as developed
suggests that the value be:
1. Not less than the highest net
value realizable by disposal-
salvage value.
2. Not more than the cost of
acquiring by the most eco-
nomical means available ad-
ditional forage units or their
equivalent-acquisition cost.
3. The value through use-mar-
ginal value product-if this
value falls between the limits
of 1 and 2 above.
Situations in which each of the
above values are appropriate were
and more acres in corn than
are currently produced might
possibly increase earnings.
described. Methods by which ap-
propriate dollar figures can be esti-
mated were suggested (Table 3).
Dollar values resulting from the
computations suggested in Table 3
meet the requirements for pricing
one-use assets-forage as a feed in-
put or crop output in a single year,
quantity of stand fixed. Dollar
values suggested by the third col-
umn are useful in deciding whether
to expand, contract, or leave the
forage acreage on the farm un-
changed. These latter values must
be estimated in advance of the
crop planting season, not after the
crop is produced or fed. Potential
returns from using resources for
crops other than forage enter the
values in the third column as op-
portunity costs in both on-farm
disposal and acquisition possibili-
ties.
Table 3. Suggested Methods of Estimating Three Different Values of Forage and of Forage Stands.
One-use assets-Forage acreage fixed Durable assets-Forage acreage
Kind of value Treated as feed input Treated as crop output variable
Cash pasture rental less value of N, P, Feed value plus credit for above- Net sale price of land seeded to forage
K carried away by grazed animals, and below-ground fertility contri- stands less value of bare land and
Salvage or arm Cash receipts for sale of standing hay butions. non-forage improvements.
disposal less value of N, P, K removed.
values
On-farm Opportunity cost of using forage re-
sources for alternative crop.
Cash paid for pasture rental plus charge Feed value plus purchase price of Gross purchase price of land seeded to
for inconvenience (location). crop's net fertility contribution, forage stands less value of bare land
Off-farm Purchase price of equivalent in hay or and non-forage improvements.
substitute feed less credit for N, P, K
acquired.
Direct cost of cultural practices to pro- Direct plus opportunity cost (MC) of
Acquisition duce additional feed units from existing establishing additional acres of forage
values stands, stands on the farm.
Direct plus opportunity cost of produc-
On-farm ing additional feed units from emergency
crops.
Direct plus opportunity costs of convert-
ing existing nonforage crops to forage
uses.
Marginal MVP of forage as used by livestock. MVP of forage as used by live- Discounted MVP of forage stand con-
value stock plus discounted MVP of sidering feed, above- and below-ground
products forage's fertility contributions to fertility contributions.
succeeding crops.
Going a step further, rotation
theory with forage as one of two
inputs or two outputs is extended
to cover (1) the existence of two
prices (acquisition and salvage),
and (2) the possibility that the
asset could be purchased and/or
farm produced (see Table 1).
From a decision-making point of
view, the income effect of changes
in acreage and utilization of forage
may be determined by budgeting.
While the budgeting process sel-
dom yields definable values for
forage as such, properly applied it
should lead the farmer to much the
same answer as the previously dis-
cussed decision-making process.
Practical farm managers have long
recognized this fact in successfully
using budgeting to solve problems
of this type. As the management
profession develops, productive and
promising methods of estimating
MVP's for inputs are being ap-
plied. As the products of further
studies materialize, more and more
precise use values for forage will
be available to agriculturists.
A sketchy empirical treatment
built around the forage evalua-
tion problems of farmer Ivan Jones
was given primarily for illustrative
purposes. Much remains to be
done empirically, and this rests on
the development of more compre-
hensive sets of production relation-
ships.
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