The removal of the Crow rate has many farmers, especially those with marginal land, considering forage production as an alternative to grains and canola.
But an increased supply of forages will depress prices unless the local market for feed is expanded, said Morley Ayars, farm management agrologist with Saskatchewan Agriculture.
“So traditional farmers entering forage production must also have a way of managing the risk associated with volatile prices. And one way to do this is through an alliance with cow-calf producers,” he said.
To help farmers do this, Ayars and Bill Brown, an agricultural economist at the University of Saskatchewan, carried out a study called Cow-Calf Business Arrangements for Traditional Grain Farmers. The final report was recently submitted to the funder, the Agriculture Institute of Management in Saskatchewan Inc.
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Ayars and Brown looked at the costs and built-in risks of crop, forage and cattle production during an eight-year period on marginal land in three soil zones in Saskatchewan. They also measured the profitability of various enterprises in these zones.
“We found that, in all soil zones in our current environment, the risks of crop production in an eight-year rotation were high: four percent. At the same time, the returns were low: negative or less than one percent,” said Ayars.
On the other hand, he said, calculations based on cow-calf operations in all soil zones showed a return of two to three percent with a low risk of about one percent. Grassing steers showed a return of six to seven percent in all soil zones, but high risk at six percent.
Forages sold for hay in the dark brown and black soil zones showed a return of five to seven percent but had the highest risk of all scenarios. In the brown soil zone, forages sold for hay showed a negative return with the same risk as crops, at four percent.
“I think the greatest surprise of this report will be the risk associated with forage production. It’s a lot higher than most people think, mainly because of the price variability,” said Ayars.
“Price variability in forages is greater than in major grain crops because forages are primarily a local market that is within 500 miles (800 kilometres) of the origin. Therefore, as local conditions change, prices move with according rapidity. For example, if one producer has high forage yields, it is likely that all producers in the area have high forage yields, which results in lower local forage prices.”
The results of the study may assist cow-calf producers and grain/forage producers who enter a strategic alliance to determine the exact percentage of their shared income. The percentage of split income for landlord-tenant arrangements was also calculated.
At the same time, however, Ayars emphasizes that the report be used by producers with caution.
“The calculations are based on Saskatchewan Agriculture and Food cost-of-production figures, which may not be representative of a specific farm. Anyone wishing to use this model must have good cost-of-production records and should contact their local farm management agrologist for assistance with this study,” said Ayars.
Cow-Calf Business Arrangements for Traditional Grain Farmers is available by phoning AIMS at 306-787-5997.
