#6
a. Given Jane expects the yield of cotton to increase 60 pounds per acre, by how much will the marginal revenue from cotton production increase per acre with the additional crop yield?
b. Referring to the partial budget table and the case study, what is the total of the additional (marginal) costs per acre of the decision being considered?
c. Referring to the partial budget table and the case study, by how much are marginal production costs reduced from transitioning to a no-tillage cotton production system?
d. Referring to the partial budget table and the case study, what is total additional costs and lost revenue per acre (A) from making the decision to transition to a no-tillage production system?
e. Referring to the partial budget table and the case study, what is total additional revenue and lower costs/cost-savings per acre (B) from making the decision to transition to a no-tillage production system?
f. Referring to the partial budget table and the case study, what is the net marginal change in profit per acre (B-A) from making the decision to transition to a no-tillage production system?
g. Should Jane convert her cotton production system from the conventional tillage system to the no tillage based system on the analysis done, assuming other considerations are taken care of?
To assess the transition from a conventional to a no tillage system, Jane looks for data online and finds studies providing cotton yield differences between conventional and no tillage production. Jane determines that transitioning to no-tillage from conventional tillage will result in a 60-pound per acre increase in cotton yield. After talking with her local farm dealer, she is also able to purchase a slightly used no-till planter costing $15,000. Useful life of the planter is expected to be seven years with a $1,000 salvage value. Jane is able to take out a loan to purchase the planter with an annual interest rate of 5 percent. Additionally, Jane is able to determine that repair and insurance rates should be 2 and 2.5 percent, respectively, of the net value of the used planter, $14,000; (the net value is the actual cost minus salvage value). Below is a partial budget chart outlining the partial-budgeting analysis for this case study. The cost of the new planter is expected to be $5.63 per acre, which is equal to the interest cost of $1.25 per acre ([$15,000 0.05]/600), plus repair costs of $0.47 per acre ([$14,000 x .02]/600), plus insurance costs of $0.58 per acre ([$14,000 x 0.025]/600), as well as depreciation costs of $3.33 per acre ([$15,000-$1000]/[7 x 600]). Assume that the the price of cotton lint (which is the yield from cotton that is sold) is $0.85 per pound. Converting to no-tillage can help farmers reduce costs by reducing the number of passes made across the field for tillage operations no longer performed (like disking, harrowing, cultivation, plowing, etc.). Let's assume, that Jane can eliminate two tillage passes (a disking and deep tillage operation) each year on her 600 acres of cotton. The production cost savings is estimated to be $20 per acre. Given that Jane is in southeast Kansas, she wants to further protect and enhance the productivity of the soil in her new no tillage crop production system, so Jane decides to plant a cover crop at a cost of $25 per acre. Cover crops are crops planted between regular cash crops in rotation to provide mulch to cover the soil, enhance soil fertility, and help to suppress weeds. The cover crop is not expected to change cotton yield, but will help maintain soil fertility and reduce soil erosion. Given that cultivation will no longer be used to control weeds in the field, the no-tillage system will require the use of herbicides with additional passes for herbicide applications during the growing season. The expected cost of the additional herbicide applications is $18 per acre, which includes cover crop termination in the spring and weed control during the summer months. The partial budgeting table below is partially filled out. The questions will guide you through the analysis and filling out of this Table. It could be useful to print out the Table (copy and paste to a word processor) and use it to guide you through the questions. PARTIAL BUDGET Decision being considered: Transitions from a conservation tillage cotton production system to no-tillage cotton production system with a cover crop. Additional (Marginal) Costs: (Step 4) Additional (Marginal) Revenue: (Step 2) S/acre $/acre No-Till Planter Cost (per year Increase in cotton yield per per acre) acre. Cover Crop Cost per acre. Herbicide Application Cost per acre. Lost (Marginal) Revenue: (Step 5) S/acre Lower (Marginal) Costs/Cost-Savings: (Step 3) S/acre Reductions in tillage passes. (A) Total additional costs and lost revenue: (B) Total additional revenue and lower cost/cost-savings: $ Net Marginal Change in Profit (B minus A) $_ To assess the transition from a conventional to a no tillage system, Jane looks for data online and finds studies providing cotton yield differences between conventional and no tillage production. Jane determines that transitioning to no-tillage from conventional tillage will result in a 60-pound per acre increase in cotton yield. After talking with her local farm dealer, she is also able to purchase a slightly used no-till planter costing $15,000. Useful life of the planter is expected to be seven years with a $1,000 salvage value. Jane is able to take out a loan to purchase the planter with an annual interest rate of 5 percent. Additionally, Jane is able to determine that repair and insurance rates should be 2 and 2.5 percent, respectively, of the net value of the used planter, $14,000; (the net value is the actual cost minus salvage value). Below is a partial budget chart outlining the partial-budgeting analysis for this case study. The cost of the new planter is expected to be $5.63 per acre, which is equal to the interest cost of $1.25 per acre ([$15,000 0.05]/600), plus repair costs of $0.47 per acre ([$14,000 x .02]/600), plus insurance costs of $0.58 per acre ([$14,000 x 0.025]/600), as well as depreciation costs of $3.33 per acre ([$15,000-$1000]/[7 x 600]). Assume that the the price of cotton lint (which is the yield from cotton that is sold) is $0.85 per pound. Converting to no-tillage can help farmers reduce costs by reducing the number of passes made across the field for tillage operations no longer performed (like disking, harrowing, cultivation, plowing, etc.). Let's assume, that Jane can eliminate two tillage passes (a disking and deep tillage operation) each year on her 600 acres of cotton. The production cost savings is estimated to be $20 per acre. Given that Jane is in southeast Kansas, she wants to further protect and enhance the productivity of the soil in her new no tillage crop production system, so Jane decides to plant a cover crop at a cost of $25 per acre. Cover crops are crops planted between regular cash crops in rotation to provide mulch to cover the soil, enhance soil fertility, and help to suppress weeds. The cover crop is not expected to change cotton yield, but will help maintain soil fertility and reduce soil erosion. Given that cultivation will no longer be used to control weeds in the field, the no-tillage system will require the use of herbicides with additional passes for herbicide applications during the growing season. The expected cost of the additional herbicide applications is $18 per acre, which includes cover crop termination in the spring and weed control during the summer months. The partial budgeting table below is partially filled out. The questions will guide you through the analysis and filling out of this Table. It could be useful to print out the Table (copy and paste to a word processor) and use it to guide you through the questions. PARTIAL BUDGET Decision being considered: Transitions from a conservation tillage cotton production system to no-tillage cotton production system with a cover crop. Additional (Marginal) Costs: (Step 4) Additional (Marginal) Revenue: (Step 2) S/acre $/acre No-Till Planter Cost (per year Increase in cotton yield per per acre) acre. Cover Crop Cost per acre. Herbicide Application Cost per acre. Lost (Marginal) Revenue: (Step 5) S/acre Lower (Marginal) Costs/Cost-Savings: (Step 3) S/acre Reductions in tillage passes. (A) Total additional costs and lost revenue: (B) Total additional revenue and lower cost/cost-savings: $ Net Marginal Change in Profit (B minus A) $_
