Virgin Islands Agricultural Experiment Station Report No. 4 August 1974 Profitability of DAIRY FARMING in St. Croix, U.S. Virgin Islands Se eR rs. val RNY ie = Ty, ge. zw a oe =. ak S Noh ely \ pees, Sy = 7 \ —— 3 % a: fat, ae a | dr Ws A l| ” tt vo 1 mee — — owl * - J . 1 “a NA ah Nb ft . bi »> <« Da -¥ ete Weed. Pe VIRGIN ISLANDS AGRICULTURAL EXPERIMENT STATION Fenton B. Sands, Director - St. Croix, U.S. bil co Islands Virgin Islands Agricultural Experiment Station Report No. 4 August 1974 Profitability of DAIRY FARMING In St. Croix, U.S. Virgin Islands College of the Virgin Islands Virgin Islands Agricultural Experiment Station Fenton B. Sands, Director St. Croix, U.S. Virgin Islands CONTENTS Foreword oo eee nee eee eee Summary and Conclusions ........0-5. 06. 0. ce eee eee Res6URCE Base! « sec sn 3 gen © a 2 woses @ ee og s Buea = Bars Gomes a % BATE SRaMELE Bre © onan 4 Climate .......... aod BSR S NWS Sw o HON FE BOR T AOR SO MER 8 Rete Sam @ oe 2 Labor and Other Factors ..........0. 0. ccc cc ccc eee nett Benchmark Ranches ..........00.00 00606 cece cece eee eee nent eens . Herd, Unit Concept! « cox eas saa o var oo 3 wag sammy yews sues oem een ws ea 8 Pasture-Carrying Capacity ........0. 0 2.2. eee eee Costs and Returns .................... te ee eee aye avenene vgoda SOR § Gress REUGGHS) « cecee ene eos sam mm wes seme os mrs GRO oReR © oRDTE aTeEMNN aUNeEN EE 9 Sales Estimates ..................4. te @ RAN SOR WEIR BRE Be Benes wees we sees Breakeven Costs and Returns ........ 00.0.0... cece eee eee eee Internal Rate of Return ............20000.00 00 eens Larid: Use: Strategy, 2 cscs 2 sas nase nieve s suse wa ions seareo ween & cow o suROE suenene siete Wm APPendix: ¢ esc = e5e 3 nay 2 u6% BOR YOR § ROR 5 ROG 8 WOR ENON YewR wanes mone 2 eo wae Page COVER PHOTO: Senepol beef cattle on Pangola grass pasture, St. Croix, U.S. Virgin Islands FOREWORD This report, “Profitability of Dairy Farming in St. Croix, U.S. Virgin Islands,” is one of a series of feasibility studies sponsored by the newly created Virgin Islands Agricultural Experiment Station, College of the Virgin Islands. These investigations were financed totally with Federal funds made available to the Station under the provisions of the Hatch Act, Amended. Preparation of this report was accomplished by contracting for the services of the following team of specialists: Dr. Pritam S. Dhillon, Professor of Agricultural Economics and Marketing, Rutgers University, New Brunswick, N.J., and Dr. Robert L. Park, Professor of Animal Science, Brigham Young University, Provo, Utah. This team conducted the study and wrote the man- uscript for this report. The objective of these studies was to try to determine the agricultural enterprises, both plant and animal, that have economic potential on the Virgin Islands. It is my belief that the agricultural industry must be economically sound in order to be viable. On the Virgin Islands, agriculture has been on the decline since the early part of the 1960's. The average number of farms, farmers, and production of agricultural commodities (with the ex- ception of fluid milk) have all declined at a consistent rate. Among the questions which are uppermost in the minds of many people are: What factors have been responsible for these de- clines? Can these downward trends be stopped and perhaps reversed? What is the future of the agricultural industry, particularly on St. Croix where 85 percent of the farmland is lo- cated? This report on dairy farming, along with the others, sheds some light on these questions. These feasibility reports have also revealed the areas where lack of training and education on the part of farmers has adversely affected production. These subjects have now become part of the new program of the V.I. Extension Service. At the same time, the lack of information about the response of crops and livestock in this environment, which also limits production, has been recognized. These gaps in our knowledge have become the basis for the planned research program of the V.1. Agricultural Experiment Station. Thus, these studies have given more direc- tion to the efforts of the Extension and research programs of this land-grant institution. More importantly, the results of these studies are expected to be beneficial to full- and part-time farmers, as well as to potential investors. This series of reports rests squarely on the belief that a revival of agriculture would contrib- ute substantially to the general welfare through increased output of goods and services and by providing additional employment. Moreover, expanded production and marketing of farm prod- ucts could provide greater, and in some cases, cheaper sources of nutritious foods for consumers. A more fully developed agriculture would complement the major industry—tourism—in two ways. First, visitors would be pleased to be served local products, especially tropical fruits and vegetables, by hotels and restaurants where such products are often not now available. Sec- ond—and perhaps more important—an expanded agriculture would tend to preserve the envi- ronment of exotic tropical islands. Most visitors and some permanent and semi-permanent resi- dents come to the Virgin Islands to seek this environment. If this attraction is destroyed, the basis of the major industry of the Islands will be undermined. The Virgin Islands Agricultural Experiment Station gratefully acknowledges the cooperative assistance and contributions from many St. Croix farmers; Rudolph Shulterbrandt, Commis- sioner, V.I. Department of Agriculture, and his staff; and Bennett S. White, Jr., project consult- ant and former USDA agricultural economist, now retired. Fenton B. Sands, Director March 1974 SUMMARY AND CONCLUSIONS Under normal conditions, dairy farming in St. Croix and the Virgin Islands as a group is a viable enterprise. The distance between the Islands and other dairy-producing regions along with the suit- ability of land for pasture grazing favors this type of farming. Virtually the entire domestic market for fluid milk is available to the local producers. According to the 1969 census, the seven com- mercial dairy farms in the Islands held over one- quarter of the total land in farms and accounted for 69 percent of the value of all farm products sold. Furthermore, dairying, unlike other sectors of the agriculural economy, has been growing; rising population and incomes indicate a potential for further growth. On a 75-cow benchmark farm, assuming milk production of 11,500 Ibs. per cow, returns to operator’s labor and management were estimated at $18,754. Rate of return on non-land investment was estimated at 12.7 percent. The net profit, re- presenting excess of receipts above all production costs, amounted to $6,754. There were significant economies of size in mov- ing from the 50-cow operation to the 75-cow herd. On the 50-cow farm, returns to operator’s labor and management were less than one-haif of the returns on the 75-cow farm. Rate of return on non- land investment was estimated at 3.4 percent only. When all costs of production were considered, the 50-cow farm showed a loss of $4,106. Prices of milk and feed were the major factors influencing returns and profit. On the 75-cow farm, an increase of one cent in milk price in- creased the net profit by $3,345.45, while an in- crease of $1 in feed price decreased the net pro- fit by $3,722. Changes in land cost and wage rate were relatively less significant. Cost of producing a quart of milk was estimated at 21 cents for the 75-cow farm and 24.8 cents for the 50-cow herd, assuming a feed price of $7.50 per hundredweight. Again, feed price was the most important variable affecting this cost. On the 75- cow farm an increase of $1 in feed price increased the per quart cost by 1.11 cents. Effect of changes in land cost and wage rate were less significant. Depending upon the productive ability of a cow, feeding at a higher level could increase profit. Underfeeding of cows saved the feed bill but re- sulted in severe reduction of returns and profit. On the 75-cow farm, with 50 acres of sorghum, the per-pound cost of total digestible nutrients (TDN) from silage was estimated at 4.4 cents. This was based on a land cost of $20 and silage yield of 15 tons per acre. In contrast, the cost of a pound of TDN from pasture was estimated at 2.8 cents. Thus, silage feeding under these cir- cumstances pointed toward reduced profit. How- ever, if land costs were above $55.42 per acre or if silage yields were above 23 tons, silage became a cheaper source of forage compared to pasture. Production of 50 acres of sorghum silage on the 75-cow farm required an additional fixed invest- ment of $15,250. Finally, it should be emphasized that the appar- ent vitality of the dairy industry should not lead public agencies to take an attitude of complacency toward dairying. As noted in other publications in this series, tourism and expenditures of full and part-time residents who find the climate, vegeta- tion, beaches and other characteristics of tropical islands attractive are the backbone of the Virgin Islands economy. It must also be recognized, how- ever, that the development of the agricultural potential is important. It is important to the gencr- tion of income and employment, to provide food production for a growing population, both per- manent and transient, to reduce costs of holding land, and perhaps most importantly, as a means of preserving island aesthetics. Without this last, the primary industry itself will be undermined. ‘The dairy industry, a key factor in the livestock feed economy, must be given every opportunity for profit and expansion. Since feed costs are an im- portant determinant of profit, every alternative to importing expensive feed must be explored, especially the economic feasibility of loca] produc- tion of grain and high nutrient silage. Consequent- ly, all of the research recommendations in the report on grain sorghum and forage production— in both their technological and economic aspects —have profound implications for the dairy in.- dustry. PROFITABILITY OF DAIRY FARMING in St. Croix, U.S. Virgin Islands by PRITAM S. DHILLON and ROBERT L. PARK As a result of adjustment from a one-crop sugar economy to diversified farming, dairying has emer- ged as the most important agricultural enterprise on St. Croix. According to the 1969 Census of Agriculture, sales of milk and livestock from dairy farms accounted for about one-half of the total value of farm products sold on the island. In the U. S. Virgin Islands as a group, the relative importance of dairying is even greater. In 1969 there were only seven dairy farms, but they held over a quarter of the total land in commercial farms and accounted for 69 percent of the value of agricultural products sold (Table 1). Besides relative growth due to the demise of the sugar industry, dairying in St. Croix experien- ced a sizeable expansion in the 1960’s. As shown in Table 2, the number of cows milked doubled between 1960 and 1970; milk sales increased over four-fold; and milk sold per milking cow more than tripled. The number of farms decreased but herd size increased, resulting in larger and pre- sumably more efficient operations. The location of St. Croix in relation to other dairy producing regions of the U.S. and the suit- ability of much of its farmland for pasture favor dairy production. Under the existing technology use of farmland is primarily restricted to pasture, and dairying is well-suited for its utilization. Due to the perishable and bulky nature of milk, coupled with the great distance between St. Croix and other producing centers, the domestic market for fluid milk is strongly insulated from foreign com- petition. In short, the entire fluid market of the Virgin Islands is available to the local dairy producers, barring any dumping of milk by the other producing regions. Production of selected manufactured milk products might also be feasible. The domestic market for fluid milk in the Vir- Table 1.—Relative importance of dairying in the commercial agriculture of the U.S. Virgin Islands All Commercial Dairy farms Item commercial dairy as percent farms farms of all farms Number of farms — 58 7 12 Total land in farms (acres) ~~~ 16,877 4,796 28 Cropland (acres) 8,995 1,588 Pasture (acres) 6,401 3,144 Other’ land \(acres)! s-c2222 ea 1,481 64 Dollars Value of farm products sold* __ 1,301,977 894,588 69 Milk sold 808,758 803,718 Livestock sold or 273,466 90,870 Poultry and eggs sold 119,753 — Vegetables and fruit sold* 100,000 _ Source: 1969 U.S. Census of Agriculture, Bureau of the Census, U. §. Department of Commerce. ‘Estimated from the Census data. Table 2.—Trends in the St. Croix dairy industry, U.S. Virgin Islands Item 1960 1964 1970 1973 Number of dairy farms ie 13 11 7 6? Dairy cows 409 580 N.A. 612? Cows milked daily 262 277 530+ 438? Milk sold (1,000 qts.)* 399 880 1,895 2,007 * Milk sold per milking cow (qts.) a: 1,523 3,177 3,574 4,582 Source: Most of the figures in this table were obtained from the U. S. Census of Agriculture, Bureau of the Census, U. S. Department of Commerce. ‘Based on a Census by the V. I. Department of Agriculture cited by Harold V. Clum, “Agriculture and Food Pro- duction”, Agriculture and Food Fair of St. Croix, 1971, V. I. Department of Agriculture. *Based on a survey conducted by P. S. Dhillon in June, 1973. ® Milk received by the Island Dairies from the producers. ‘Sales relate to calendar 1972. gin Islands has great potential for expansion. The current level of per-capita consumption is about one half of the U. S. mainland level, and as in- comes of the islanders increase the domestic fluid market should expand. Any increase in the popula- tion, of course, will be an additional force in market expansion. Finally, the continued growth of tourism is likely to enlarge the market still fur- ther. Thus, dairying in St. Croix could be poised for a significant growth in the coming years. The purposes of this study were to evaluate the profitability of dairying under the prevailing eco- nomic conditions in St. Croix, and to investigate the impact of changes in herd size, feeding levels, forage systems and other related variables on the profits and costs of dairy farming. Such informa- tion is expected to benefit the farmers in making profitable adjustments on their farms. Specific objectives of this study were: (1) to identify the typical benchmark dairy farms under St. Croix conditions and to determine costs and returns on such farms, (2) to determine the effect of changes in herd size and prices of inputs and outputs on returns and costs, (3) to determine the effect of alternate feeding levels of cows on profits, and (4) to assess the feasibility of producing sorghum silage. Information on herd size, farm resources, input- output coefficients and related data was obtained through personal interviews with dairy farmers. On the basis of this information, two benchmark farms were constructed, and, by budgeting proce- dures, returns and costs were estimated. By leaving 2 some of the costs and prices as variables in the budgets, their effects on returns and costs were analyzed. BENCHMARK FARMS According to information provided by the far- mers, St. Croix dairy farms fall into three size categories. The more plentiful, middle-sized farms were chosen for intensive analysis, and a 75-cow dairy farm was constructed to serve as a bench- mark for these farms. Also, to give guidance to new entrants to dairying who might prefer to start a smaller operation, a 50-cow benchmark dairy farm was analyzed. On the basis of the survey of dairy farmers, the following resources were assumed on the benchmark farms. Land The 75-cow dairy farm was assumed to operate 225 acres of land. On the average, dairymen were actually using 3 acres of pasture for every cow. The 50-cow model was assumed to operate 150 acres of pasture land. An acre of pasture was as- sumed to yield 1,475 pounds of injested total digestible nutrients(TDN). Livestock The composition of the two herds is shown in Table 3. The 50-cow farm had 85 animals with an approximate value of $51,800. The 75-cow farm had 127 animals representing an average investment of $77,600. Culling rate of cows was assumed to be 25 percent of the herd. Table 3.—Livestock and average investment in livestock on benchmark farms Average Item Beginning End of Average value Average of year year per head investment 50-cow herd nm Number____----~-~ Dollars. Dairy cows ~--- _ 50 50 50 800 40,000 Heifers over 1 year? ~------------------- 18 14 16 500 8,000 Heifers under 1 year* ~------~--~------- 20 18 19 200 3,800 Total - 85 51,800 75-cow herd Dairy cows 75 75 75 800 60,000 Heifers over 1 year* 27 21 24 500 12,000 Heifers under 1 year* ~--_-----------~--~ 30 27 28 200 5,600 Total 127 77,600 2 Changes in the number of animals during the year are due to deaths and culling. Annual death rate for cows was assumed to be 2 percent, resulting in 1 death on the smaller farm and 2 deaths on the larger farm. Milk production of a cow was assumed to be 11,500 pounds during a 365-day lactation period. The breeding cycle of a cow was assumed to be 14 months, which included a dry period of 2 months. Bred cows were assumed to produce 95 percent live calves—one-half of which were males and one-half females. Males were sold for veal soon after their birth and all females were raised as heifers. Mortality rate for heifers was assumed to be 10 percent during the first year and 3 percent during the second year. After breeding the requir- ed number of heifers to meet replacement needs, the remaining heifers were sold as culls at about 18 months of age. In applying the percentage rates, the resulting animal numbers were rounded to whole numbers. Buildings and Structures Initial investment in buildings and structures is shown in Table 4. Buildings were modelled after the system being recently adopted in the island. In this system, milk room, compressor room and milking parlor are located on the ground floor, the feed room is constructed above the parlor. Before every milking, feed is dumped into the two large receptacles located along the walls of the feed room and by pulling cords from the parlor, feed is de- livered to the cows. There are four milking units in the double-four herring bone milking parlor, The perimeter of the farm was assumed to be fenced by a 4-strand barbed wire fence, quatering the farm into four sections. Further sub-division into smaller fields was done with an electric fence. The average investment in buildings and struc- tures was estimated at $28,730 on the 50-cow farm, $32,592 on the 75-cow farm (Table 4). Machinery and Equipment The complement of machinery and equipment for operating the two farms is shown in Table 5. The same equipment and machines were assumed for both farms. Any error on this account should be negligible because the sare chores need to be performed on both farms and machines are sel- dom completely divisible. The average investment in machinery and equipment was estimated at $19,825. Labor On the basis of information supplied by the farmers, the 75-cow dairy needed 1 full-time operator and 2 hired workers. The 50-cow farm was assumed to need 1 full-time operator and 114 hired workers. Feed The entire concentrates were purchased from outside the farms. This also included small quanti- 3 Table 4.—Initial and average investment in buildings and other structures on benchmark farms Item Initial Annual Annual Units investment depreciations * repairs * 50-cow herd Dollars____------ Buildings and pens* — ---- 30,000 1,500 600 Fence * ~_--------------- serene 7,800 390 156 Well at et 1 1,660 83 — Ponds __--------------- = 3 9,000 — — Total ~--------- 48,460 1,973 756 Average investment ° 28,730 75-cow herd Buildings and pens* ~-----------------~---—- 30,000 1,500 600 Fence * eee 9,525 476 190 Well cree sere eres 1 1,660 83 — Ponds _ = 4 12,000 -—- — Total = 53,185 2,059 790 Average investment ° = 32,592 1 Buildings, well and fence were assumed to last 20 years. ? Repairs were assumed at 2 percent of initial investment. ® Based on the system found on Nelthropp farm. 4See Appendix table 2 for initial investment. 5 Average investment was assumed to equal one half of initial investment in the case of depreciable items plus initial investment in ponds which did not depreciate. Table 5.—Initial and average investment in equipment and machinery on benchmark farms’ Unit Initial Annual Annual Item or type investment * depreciation * repairs ‘ amen eee Dollars: eee Bulk tank _____--_- 400-500 gal. 5,000 500 150 Parlor equipment 4 milking units 15,000 1,500 450 Troughs ss 3 900 90 27 Generator samen 1 PTO 500 42 15 Tick control equipment ~----------------- 3,000 300 90 Front-end loader —_ 1,000 100 30 Tractor _- 1 6,500 542 195 Subsoiler ____ 1 500 42 15 Brush cutter ~~ 1 1,400 140 42 Pick-up truck eee 1 4,500 450 135 Water pump —_---- 1 350 $5 10 Tools 1,000 200 —- Total 39,650 3,941 1,159 Average investment * 19,825 — — 1 Basically the same equipment and its usage were assumed for the 50-cow and 75-cow dairies. 2 Investment in parlor and equipment was based on the most recently developed dairy farm. Investment in all other items was based on the survey of dairy farmers and the approximate current prices. * Based on straight line depreciation of assets assuming 10 to 12 year life for the various items. Tools were assumed to last 15 years. “Repairs were assumed at 3 percent of initial investment. 5 Average investment was assumed to equal one half of initial investment. BS ties of specially formulated feed for the calves. The entire forage needs of the herds were supplied by pasture. ANALYSIS AND RESULTS Receipts, Expenses and Profits The benchmark farms were budgeted to deter- mine returns to the operator, management and in- vestment. Prices used in the basic budgets are given in Appendix Table 1. Sale of milk was the main source of revenue on benchmark farms. Annual milk production of the smaller herd was estimated at 224,773 quarts and that of the larger herd was estimated at 334,545 quarts. These amounts are based on the daily milking of 43 cows and 64 cows for the 50-cow and 75-cow farms respectively. The f.o.b. price of milk was assumed to be 23 cents per quart. In addition to milk sales, income also came from the sale of cull cows, cull heifers and male calves. To- tal receipts amounted to $58,025 on the 50-cow farm and $86,390 on the 75-cow farm (Table 6). Annual production costs on the farms consisted of current production expenses, land and labor costs, depreciation and interest on capital. Current production expenses were estimated at $23,755 for the 50-cow farm and $34,139 for the 75-cow farm (Table 7). (Expenses corresponding to different levels of milk production have been included in Table 7 for a later analysis. For this section, the relevant expenses correspond to the production level of 11,500 pounds of milk.) Included in cur- rent production expenses are such items as pur- chased feed, fuel, chemicals, veterinary services, insurance, repairs and other miscellaneous recur- ring expenses. Most of these items vary with the number of cows in the herd. These expenses con- stituted the most important category in the costs of the two farms. Within the group, feed was the largest single expense. The quantity of purchased concentrates was derived by substracting pasture TDN from the total feed needs of the herds (Ta- ble 8.) In order to simplify analysis, purchased feed for the young stock and cows was handled as a single item. Feed allowances for death losses were included in the feed budgets, Price of deliv- ered feed was assumed at $7.50 per hundred- weight. Labor costs for hired workers were based on the number of workers employed on each farm. In the basic analysis, a wage of $92 per week was used. In addition to the cash wage, farmers provided unemployment insurance at the rate of 1.5 per- cent of the cash wage, workmen’s compensation at the rate of 2.5 percent, social security at the rate of 5.85 percent, a rent free house with a Table 6.—Estimated annual receipts on benchmark farms 50-cow herd 75-cow herd Quantity Amount Quantity Amount Dollars Dollars Milk * 224,773 qt. 51,698 334,545 qt. 76,945 Cull cows * @ 1200 lbs. 15,600 Ibs. 4,680 22,800 Ibs. 6,840 Cull heifers @ 800 Ibs. __ 2,400 Ibs. 912 4,000 Ibs. 1,520 Calves 21 head 735 31 head 1,085 Total 58,025 86,390 1A cow was assumed to yield 11,500 pounds of milk during a lactation period of 365 days. Following lactation, a dry period of 60 days was allowed. (A quart equals 2.2 pounds of milk) 2 Culling rate was assumed at 25 percent. Breeding cycle of cows was assumed to be 14 months long, and 95 percent of the pregnant cows were assumed to produce live calves. Out of the resulting calves, the males were sold within the week of their birth and the females were raised as heifers. After allowing 10 percent mortality rate during the first year and three percent mortality rate during the second year, the remaining heifers were assumed to reach maturity. Fourteen of these heifers were bred to replace the culled and dead cows on the 50-cow farm. Similarly, 21 of these heifers were bred to meet the death and culling losses on the 75-cow farm. The remaining heifers were sold for beef. ; 5 Table 7.—Current production expenses on benchmark farms‘ 50-cow herd 75-cow herd Item Rate Quantity Quantity per cow of feed Amount of feed Amount Dollars Cut. Dollars Cut. Dollars Purchased feed ? = - Prod. @ 9,200 Ibs. milk __-__-__---------- 2,094 15,705 3,129 23,468 Prod. @ 11,500 Ibs. milk -----------~---- 2,492 18,690 3,722 27,915 Prod. @ 13,800 Ibs. milk ---_____------- 2,890 21,675 4,313 32,348 Fuel. ..__..-.-__.--- -- -—- 5 7 350 525 Chemicals for tick contro] ____-__-_--~------- 3 150 225 Miscellaneous supplies 10 500 750 Veterinary & medicines 5 250 375 Semen and breeding = 10 500 750 Utilities ae 10 500 750 Dues of association 50 50 License fees aes 50 50 Office suppliés’ 2... .....-..+-~--- 50 50 Insurance _____-~ 750 750 Repairs* —--=-=— 1,915 1,949 Total expenses Prod. @ 9,200 Ibs. milk _-_-_------------ 20,770 29,692 Prod. @ 11,500 Ibs. milk --------------- 23,755 34,139 Prod. @ 13,800 Ibs. milk __------------- 26,740 38,572 Most of the expenses in this table were based on the survey of dairy farmers and farm data manuals. ? See table 8. 3 Obtained from tables 4 and 5. rental value of $100 per month and two quarts of milk per day. The annual labor cost of a hired worker amounted to $6,623. Total labor cost was estimated at $9,935 for the 50-cow farm and $13,246 for the 75-cow dairy operation (Table 9). Annual land cost on each farm was determined by using a rental value of $20 per acre (Table 9). The usual procedure of charging interest on the market value of land was not followed. Current market values of land in St. Croix are completely separated from the agricultural productivity of land. On the basis of market value, perhaps, pro-: duction of no agricultural product could be justi- fied in St. Croix. On the other hand, rentals of land for agricultural use seem to reflect the agri- cultural value of land. Current rents varied from $10 to $30 an acre. Interest cost was measured by applying an in- terest rate of 7.5 percent to the average invest- 6 ment in livestock, buildings, structures, machinery, and equipment. The average investment in non- land assets was estimated at $100,355 for the 50- cow farm and $130,017 for the 75-cow farm. De- preciation on the two farms amounted to $5,914 and $6,000 respectively (Table 9). Total costs add up to $50,131 on the 50-cow farm and $67,636 on the 75-cow farm (Table 9). These costs include all expenses except a charge for operator’s labor and managing effort. Conse- quently, by subtracting these costs from the gross receipts, returns to operator’s labor and manage- ment were estimated. On the smaller farm, these returns amounted to $7,894 as compared with $18,754 on the larger farm. Net profits were ar- rived at by charging an opportunity cost of $12,000 for operator’s labor and management. The smaller farm showed a net loss of $4,106 while the 75-cow farm produced a net profit of Table 8—Annual TDN requirements on benchmark farms* 50-cow herd 75-cow herd Class of livestock Number TDN Number TDN lbs. lbs. Lactating cows Prod. @ 9,200 Ibs. milk ~---- = 43 257,398 64 383,104 Hood, 3) TUSUO The: Gilby ese 43 287,240 64 427,520 Pidd:: @ 13;800 IBS. WH ee 43 317,039 64 471,872 Dry cows ~-----------~---------------------------- 7 29,127 11 45,771 Heifer calves 0O—12 mo. eee 18 36,000 27 54,000 Death allowance for heifer calves 0—6 mo.? __________-- 2 1,000 3 1,500 Heifers 12—24 mo, ___________-_-_______-----_-----+- 14 49,000 21 73,500 Death and culling allowance for heifers 12—18 mo.? __-~ 4 5,800 6 8,700 Total requirements for herd Prod. @ 9,200 lbs. milk ~-__ 378,325 566,575 Prod. @ 11,500 Ibs. milk _-_______________-_____ 408,167 610,991 Prod. @ 13,800 Ibs. milk 2s 437,966 655,343 TDN obtained from pasture @ 1,475 lbs. per acre* ~--_ 221,250 331,875 TDN obtained from concentrates ‘ Prod. @ 9,200 Ibs. milk 157,075 234,700 Prod. @ 11,500 Ibs. milk _--____________________ 186,917 279,116 Prod; Gi 13;800. Ibs MUNK) 2 oo ec 216,716 323,468 Concentrates purchased ° Prod. @ 9,200 Ibs. milk 209,433 312,933 Prod. @ 11,500 lbs. milk ~-__ 249,222 372,155 Prod. @ 13,800 lbs. milk __ _- 288,955 431,290 1 This table is based on Appendix table 3. ? Carried for six months only. * Based on estimates provided by William L. Park. * Obtained by subtracting TDN from pasture from the total herd requirements. * Obtained by assuming 75 percent TDN in concentrates. $6,754. The rate of return on non-land investment was estimated at 3.4 percent for the 50-cow farm and 12.7 percent for the 75-cow farm (Table 9). All of the above measures indicate significant economies of size in dairy production. These economies mainly stemmed from the indivisibili- ties of equipment and structures. Varying num- bers of cows could be handled with the milk han- dling and feeding facilities considered in the benchmark models. In fencing and pen construc- tion, there were obvious economies of size. Labor economies were also realized by expansion of size. The larger farm handled 33 percent more cows with only 20 percent additional labor force. Effects of Price Changes on Returns In the foregoing analysis, fixed prices for in- puts and outputs were used. However, because of rapid increases in input prices in recent years, one might be interested in knowing the effect of price changes on the returns and profits of the farms. To conserve space, this analysis was carried out in the form of simple equations. Also, the analysis was restricted to the study of changes in milk price, land cost, wage rate and feed price in relation to the net profit on the 75-cow dairy farm. The equations for total revenue (gross receipts) , 7 Table 9.—Summary of income and expenses of benchmark farms * 50-cow 75-cow Item herd herd ace DON att = Gross: iconié .....----------- 58,025 86,390 Interest on aver. invest. @ 7.5% -~- 7,527 9,751 Depreciation * __-_--------------- 5,914 6,000 Land cost * _------------------~- 3,000 4,500 Cost of hired labor ------------~-~ 9,935 13,246 Current production expenses —__- ~~~ 23,755 34,139 Total expénse$ coe ee 50,131 67,636 Returns to operator’s labor and to management ~~-----~--~-- 7,894 18,754 Rate of return on aver. investment * (excluding land investment) ~~~ 3.4% 12.7% Net: profit © woncewe cose —$4,106 $6,754 1For cows yielding 11,500 pounds of milk. * Assembled from Tables 4 and 5. *Cost of land for agricultural use, including taxes, was assumed at $20 per acre. * Capital is considered to be the residual claimant. The reward of capital was estimated by subtracting depre- ciation, land cost, cost of hired labor, current production expenses and operator’s opportunity cost from the gross income. The opportunity cost of opcerator’s labor and management was assumed to be $12,000 per year. * Net profit is the reward of the entrepreneur. It was estimated by subtracting interest, depreciation, land cost, cost of hired labor, current production expenses and operator’s opportunity cost from the gross income. total cost and net profit are as follows: (1) TR=3,345.45Pm + 9,445 (2) TC=225R + 114.244W + 3,722P, + 36,711 (3) N=3,345.45P,,—225R—114.244W — 3,722P;,— 27,266 Where TR=Total revenue or gross receipts in dollars P= f.o.b. price of milk in cents per quart TC=Total cost in dollars including sal- ary of the operator-manager R=Rent of land in dollars per acre W=Wage rate in dollars per worker per week P,;= Price of feed in dollars per hundred- weight N—Net profit in dollars representing excess of receipts above all costs of production Equation (3) shows the effect of the variables on net profit. Every one-cent change in milk price changes the profit by $3,345.45 in the same direc- tion. Every one-dollar change in rent per acre, wage rate per week and feed price changes the profit by $225, $114.244 and $3,722, respectively, in the opposite direction. The effect of prices of feed and milk on the net profit is illustrated in figure 1. Obviously, changes in the prices of feed and milk have an enormous influence on the profit. The break-even price of feed was estimated at $6.60 and $9.30 corresponding to the milk price of 20 cents and 23 cents, respectively. Production Costs Per Quart of Milk Farmers and policymakers are often interested in knowing the average cost of producing a quart of milk. At this stage of the analysis, such an es- timate can be readily derived from the total costs listed in Table 9. As shown in Table 10, per-quart cost amounted to 21 cents on the 75-cow farm. A similar estimate for the 50-cow dairy showed this cost to be 24.8 cents. The effect of changes in input prices on the per quart cost was analyzed for the 75-cow farm. By leaving input prices as variables, the following equation for the average cost was derived from the total cost equation of the last section: Table 10.—Cost of producing milk on benchmark rfarms, per quart * 50-cow 75-cow Item herd herd Expenses (excluding operator’s labor and management) ~~--~-----_ $50,131 $67,636 Plus cost of operator’s labor and iidnagement + $12,000 $12,000 Less non-milk receipts --------~-- $ 6,327 $ 9,445 Equals total cost imputed to milk _ $55,804 $70,191 Milk produced, gts. ~----------- 224,773 334,545 Cost per quart ~---------_-__-_ 24.8¢ 21.0¢ *For cows producing 11,500 pounds of milk. 28+ 24 - 20- 16- Net Profit, Thousond Dollars in “ 4. 7 8 9 xX 0 Price of Feed, Dollars /cwt. Figure 1.—Relationship between net profit, price of feed and price of milk, where ea equals f.o.b. price 4 of milk in cents per quart. AC=.07R+ .03W + 1.11 P¢+ 8.15 Where AC— Average cost of milk in cents per quart R=Rent of land in dollars per acre W=Wage rate in dollars per worker per week P;— Price of feed in dollars per hun- dredweight According to this equation, every one dollar change in rent per acre, wage rate per week and feed price changes the per quart cost by 0.07 cents, 0.03 cents and 1.11 cents, respectively. The effect of these variables on the per quart cost is illustrated in figure 2. It is evident that the pro- duction cost is highly sensitive to the changes in feed price. Effect of Level of Feeding on Returns The preceding analysis has been based on the average level of feeding cows as now practiced in St. Croix. It should be of interest to see the effect of increased or decreased feeding on the returns and profits of the farm. Accordingly, re- turns to operator’s labor and management were computed for two additional feeding levels—one corresponding to the yield of 9,200 Ibs. of milk and the other to 13,800 lbs. ‘This, of course, as- sumes that the average cow considered in the model was capable of producing higher milk yields when challenged with additional feed. The results showed that, on the 75-cow farm, returns to operator’s labor and management increased by 58 percent by moving from 11,500 Ibs. per cow to the higher level of feeding (Table 11). On the other hand, these returns decreased by 58 percent by going from cows producing 11,500 Ibs. to the lower level of feeding where the cows yield only 9,200 Ibs. of milk. Rate of return on investment increased by 66 percent in the first case, but it decreased 66 percent in the second case. Without precise information about the pro- Table 11.—Effect of level of feeding on milk production and returns (75-cow herd) Milk production per cow Item 9,200 Ibs. 11,500 ibs. 13,800 lbs. Milk produced, qts. ---- 267,636 334,545 401,455 Receipts Milk ———— 2 ers ~-- +++ $61,556 $76,945 $ 92,335 Othe? nce ++ $ 9,445 $ 9,445 $ 9,445 Total ~----- - $71,001 $86,390 $101,780 Total cost excluding operator’s labor and management ~----- $63,189 $67,636 $ 72,069 Return to operator’s labor and management ~---~~--------- $ 7,812 $18,754 $ 29,711 Rate of return on average investment ~-------~---------~- 4.3% 12.7% 21.1% ductive ability of St. Croix cows, it would be presumptuous to say that farmers can increase their returns simply by heavier feeding. The anal- ysis, however, does point out the dangers of under- feeding. Feasibility of Silage Feeding So far, pasture has been considered the only source of forage which is quite typical of the con- ditions prevailing in St. Croix. However, because of rising land values and rents, farmers are ex- pressing interest in an alternate forage source such as sorghum silage. Apparently, switching over to silage can economize land, but at the same time it would require substantial outlays in forage handling equipment and increase the production expenses and labor requirements. Therefore, the farmers and research planners are interested in learning the overall effect of silage feeding on the profitability of dairying. Instead of measuring the impact of silage feed- ing on returns, cost of producing silage per pound of TDN was estimated. Such a cost figure when compared to the cost of TDN from pasture can enable one to draw inferences about the profit- ability of silage feeding. However, since cost of producing silage could vary with the acreage handled, the analysis was based on the forage needs of the 75-cow benchmark dairy operation. According to reasonable estimates of silage feed- ing, about 50 acres of sorghum silage and 86 acres of pasture could produce enough forage for the 75-cow herd. This assumes the sorghum yield at 15 tons of silage or 4,110 pounds of TDN (fed out) per acre. The additional machinery required to handle 50 acres of sorghum silage is listed in Table 12. One-third of the dairy tractor was charged to the silage activity. The initial investment in additional machinery and silo was estimated at $15,250. The total annual cost of the silage activity was estimated at $9,017 (Table 13). These costs include land cost; production expense on seed, fertilizer and chem- icals; variable machine operating costs including custom hire; fixed costs and labor costs. It was assumed that introduction of 50 acres of silage in the forage system would increase the labor re- quirements by half a worker. The resulting per-acre 10 24 23 21- Cost of Milk Production, Cents /Quart “S L ti-—— ; ; Price of Feed, Dollars /cwt. OF o- Figure 2.Kelationship between cost of milk produc- tion and price of feed and other variables, where R equals rent of land, $/acre and W equals wage rate, $ per worker per week. cost was $180; the per-ton silage cest was $12. Cost per pound of TDN from silage was estimated at 4.4 cents (‘Table 13). On the other hand, total costs incurred on an acre of pasture were estimated at $42 (Table 14). Included in these costs were land cost; pro-rated depreciation, interest and repairs on fence and brush control equipment; and labor cost for brush control. Cost per pound of TDN from pasture was estimated at 2.8 cents. Thus, on the basis of this analysis, TDN from pasture proved to be considerably cheaper than the ITIDN from silage. However, at higher land costs and silage yields, sorghum silage could be- come an economical source of forage. Further analysis showed that when land costs increased above $55.42, sorghum silage with 15-ton yield became cheaper compared with pasture. Similarly, with silage yields above 23 tons and land cost re- maining at $20 per acre, silage feeding was cheap- er than pasture grazing. Table 12.—Machinery and equipment for sorghum silage Initial Annual Annual Item cost depreciation * Repairs’ seer Dollars a Tractor (% of dairy tractor) —~------_ 2,167 217 65 Small tractor ~------------- 4,000 400 120 Plow ---- — 800 53 16 Disc harrow ~~-------------- — 1,000 67 20 Fertilizer spreader _--___-__- 850 57 17 Planter ~----------_------- 900 60 18 Forage harvestor _______ = sas 4,500 300 90 Wagons (2) _ = 2,000 200 60 Trench silo, 800 tons = id 1,200 60 _- POA escenereneem eee 17,417 1,414 406 Additional investment ~-----------~--_____---- 15,250 = was Average investment ~-------_______-_____________---------- 8,708 ae wes ‘Tractor and wagons were assumed to last 10 years; because of small acreage of silage other machinery was assumed to last 15 years and silo was depreciated over 20 years. ® Repair costs of tractor and wagons were estimated at 3 percent of initial costs; on other machinery at 2 percent. Table 13.—Cost of making and feeding silage from a 50-acre field of sorghum Item Rate per acre Cost per acre Total cost Land cost ~--------~------ $20.00 $1,000 Seed __.______--== 9 Ibs. @ $.23 2.07 104 Fertilizer _______ 400 Ibs. @ $6.50/bag 26.00 1,300 Herbicide ___ 3.5 lbs. @ $1.80 6.30 315 Insecticide ___ 1 pint @ $2.25 2.25 113 Variable machinery costs * 8.24 400 Fixed costs * 2,473 Labor, % man @ $6,623 3,312 Total. s2== $9,017 Total silage produced ~_------------~--_---------------~.------------- 750 tons Cost per ton _---------------~----~--------------------~---------- $12.00 Cost per acre ---------------+----~-------____--------------- $180.00 Total TDN produced _____---------_--____-_____-------~--------- 205,500 Ibs. Cost of TDN, per pound ~----------_________-_____ - 4.4¢ 1 This includes cost of hiring a tractor 2 Fixed costs include interest on average investment in machinery and silo, depreciation and machinery repair costs. Il Table 14.—Cost of maintaining pasture, per acre basis Item Cost Land) cost .-.----- - = 5+ $ 20.00 Fencing. cost*) —-_____-ss wee 4.50 Fuel and machinery cost for brush control _— 2.50 Labor for brush, control™ 222 -<2ss2s 0c se 15.00 Total 42.00 TDN, amount produced per acre ~-----~- 1475 Ibs. Cost per lb. of TDN 2.8¢ *Fencing cost based on the 225 acre dairy farm. 12 nm REFERENCES . Winn F. Finner and Troy Mullins, Appraisal of Virgin Islands Agricultural Production and Marketing, ARS 24-1, Agricultural Research Service U.S.D.A., 1954. . George A. Stevens, Farm Data Manual, Info. Series No. 6, revised, Department of Agricultural and Re- source Economics, University of Maryland, 1970. . Agricultural and Food Fair of St. Croix, 1971, V. I. Department of Agriculture. . National Requirements of Dairy Cattle, fourth re- vised edition, 1971 National Academy of Sciences, N.R.C., Washington, D.C. . U.S. Census of Agriculture, Bureau of the Census, U.S. Department of Commerce. APPENDIX Table 1.—Prices received and paid by St. Croix Social Security @ 5.85%, unemployment insurance dairy farmers, 19737 @ 1.5%, workmen compensation @ 2.5%, free house with a rental value of $100 per month, and two quarts of milk per day valued at $168. Hen Unit soe * Obtained from Mervin Building Centers, St. Croix, and adjusted for 10% discount on bulk purchases. Prices received Milk . quart 0.23 Cull G6WE wie Ib. 0.30 Cull heifers --__-_-_-_____ lb. 0.38 Table 2.—Cost of erecting four-strand barbed wire New born calves ___---~-__ head 35.00 fence, per mile Prices paid BEA gs i: cwt. 7.50 Total Semen Ampule 5.00 Item Quantity Cost Wage? cece year 6,623.00 Seven foot pole? ~------~- 1 1.89 Barbed wire ~------~ 44 rolls; each 480 ft $ 495. Wooden post * ------------ 1 5.40 Steel posts _--_----_ 500; 8 ft apart 1,134. a) 5 Barbed wire* ------------ 480 ft. 11.25 Wooden posts ~-----~ 60; 88 ft. apart 324. Staples for fence ________-_ Ib. 0.35 - Staples. oe 27. 9 1These prices are primarily based on the survey of Lape aaa 240. dairy farmers. Machinery ~_-__-__~ 80. 2 Based on cash wage of $92 per week and the follow- Total _________ $ 2,300. ing fringe benefits: Table 3—TDN Requirements Per Dairy Animal Milk TDN Requirements Item Production * Maintenance Production Total 1200 lb. dairy cow Lactating cow Producing 9,200 Ib. 25.2 8.7 7.7 16.4 Producing 11,500 lb. $1.5 8.7 9.6 18.3 Producing 13,800 lb, _-----------_~- 37.8 8.7 11.5 20.2 Dry cow 11.4 11.4 Pounds per year_____----------- Lactating cow Producing 9,200 lb. : _ 9,200 3176 2810 5986 Producing 11,500 Ib. ----_-_---------__------ 11,500 3176 3504 6680 Producing 13,800 Ib. 13,800 3176 4197 7373 Dry cow 4161 4161 Dairy heifer 0 thru 6 mo. age (300 Ib) = _— Bac 500 O thi 120... age: (500. Wb): aarercse eee _ -- -- 2000 0 thru 18 mo. age (500 Ib) =o — wats 3450 0 thru 24 mo. age (1000 Ib) = _- _- 5500 Source: National Requirements of Dairy Cattle, Fourth revised edition, 1971, National Academy of Sciences, NRC, Washington, D.C. 1Fourteen month breeding cycle and 365 day lactation were assumed. 13