Virgin Islands Agricultural Experiment Station Report No. 3 June 1974 Profitability of BEEF PRODUCTION in St. Croix, U.S. Virgin Islands azote x ty WF ks a Cfo Re F, Oe UE ee ERR GRE Py ~ 4 Pe 11 AE pes eke eS On io meme wee the Re ee eS BRE I 13 COVER PHOTO: Senepol beef cattle on Pangola grass pasture, St. Croix, U.S. Virgin Islands FOREWORD This report, “Profitability of Beef Production 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. William L. Park, Chairman, Department of Agricultural Economics, 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 manuscript 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 excep- tion of fluid milk) have all declined at a consistent rate. Among the questions which are upper- most in the minds of many people are: What factors have been responsible for these declines? 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 located? This report on the profitability of beef production, 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 the 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 recog- nized. These gaps in our knowledge have become the basis for the planned research program of the V.I. Agricultural Experiment Station. Thus, these studies have given more direction to the ef- forts 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 contribute substantially to the general welfare through increased output of goods and services and by pro- viding additional employment. Moreover, expanded production and marketing of farm products 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 veg- etables, by hotels and restaurants where such products are often not now available. Second— and perhaps more important—an expanded agriculture would tend to preserve the environment of exotic tropical islands. Most visitors and some permanent and semi-permanent residents 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, Commissioner, V.I. Department of Agriculture and his staff; and Bennett S. White, Jr., project consultant and former USDA agricultural economist, now retired. Fenton B. Sands, Director March 1974 SUMMARY AND CONCLUSIONS By U.S. mainland standards, the St. Croix beef industry is not large. It consists of about 5,000 head of cattle on 7,000 to 8,000 acres of improved pas- ture land of varying quality on 64 farms. The climate is well-suited for beef cattle produc- tion, but, because of highly variable and frequently insufficient rainfall, the stocking rate of cattle is not high—about 4 acres per animal unit. This report describes two “benchmark” cow-calf ranches which are used as points of reference to show the beef industry potentials. Ranch I describes present economic conditions and production prac- tices for grass fattening. Ranch II portrays poten- tial production when sorghum silage is produced and fed as a supplemental feed. Neither benchmark farm was capable of gen- erating sufficient income to cover full production and land costs. The internal rate of return on non- land investment for Ranch I (grass only) was —2%, compared with Ranch II (grass-silage) of 3.9%. Land costs were not included in the calcula- tion because land prices far exceed the value of land for farming purposes. The break-even price for beef on Ranch I is 62.4 cents per pound compared with 50 cents per pound on Ranch II. The actual price received by beef producers at the time of the present study was 40 cents per pound. Beef production appears to be used as part of a land-use strategy to reduce the holding cost of land pending its conversion to higher economic uses. The returns are ample to cover out-of-pocket expenses and yield a return to management and a partial return to invested non-land capital. The present cost-price squeeze is severe enough that most of the beef industry is not likely generat- ing enough income to cover full production costs and a return to management, capital and land. The reason for this state-of-affairs is partly production- oriented and partly market-oriented. On the production side, carrying capacity of the land can be substantially improved by raising sor- ghum silage as a supplemental feed for use during the dry season. Brush control as presently practiced appears to be expensive. New methods—possibly herbicides—are needed to reduce such costs. Fenc- ing costs also appear relatively high. New combina- tions of materials need to be investigated if any large acreage is to fenced in. Supplemental feed sources also need to be investigated. For the most part, the St. Croix beef industry in the Virgin Islands is producing feeder quality beef for slaughter to serve relatively low-income con- sumers. Carcass quality is “standard” or “low- good” and does not effectively compete in the high quality market, that is, U.S. mainland beef im- ported to the Islands. In essence, the Virgin Islands, industry is supplying feeder quality beef to native consumers in competition with feedlot-quality beef from the U.S. mainland. The usual higher price for feeder animals in rela- tion to fat stock in the U.S. mainland is not avail- able on St. Croix because of the lack of a low-cost feed supply which is necessary for developing a feedlot fattening industry. Feedlot fattening is necessary to raise the grade of animals to U.S. “sood” or “choice”—grades that command higher prices. Consequently, a low-cost feed supply for fat- tening purposes is necessary, else the cost-price squeeze is likely to continue. Land use strategy is profoundly important to the beef cattle industry. Today, the value of range- land is always substantially greater than its use for agriculture. Beef production under such conditions is justified, and should be encouraged as a means of reducing the cost of holding land over time pending its development for higher economic uses. Our data indicate that well-run operations can cover out-of-pocket costs which include repairs and maintenance of facilities and management income. The function served by the beef cattle industry in the U.S. Virgin Islands—either in its own right as part of a land-holding strategy, or as a source of protein for low-income families—is a valuable and productive one and measures should be taken to assure its continuance and viability. The Profitability of Beef Production in St. Croix, U.S. Virgin Islands by William L. Park and Robert L. Park The Virgin Islands were once known as the “Garden of the West Indies.” The well-tended farms and agricultural industries have had a long history of excellent productivity. Today the sugar and cotton operations are quiet and farming gen- erally is in a depressed state. The number of farms declined from 466 in 1964 to 212 in 1970—a drop of more than 50 percent. Those farms reporting grazing land dropped even faster than the aver- age—64 percent; land used for grazing declined from 19,611 acres to 7,583 over the same period. At one time a major part of the 84 square miles of St. Croix was under some form of cultivation— mostly sugarcane. The cane operations of the Virgin Islands Corporation ceased with the 1965: 66 crop year. Many people supposed that the sugar land could be easily converted to a local beef or dairy industry. Genuine attempts have been made to bring that goal to a reality, but with mixed suc- cess. Today there are several well-run, apparently successful, beef ranches on St. Croix, but large land areas that could support pasture or other feed pro- duction are sitting idle. By U.S. mainland standards, the beef industry in the Virgin Islands is very small. Yet there are those who see a need for a larger local food source inasmuch as nearly 95 percent of the V.I. livestock food supply is imported. In 1964, it was reported that there were 5,975 head of beef cattle and calves on St. Croix, where most of the industry is located.’ At present, there are approximately 5,000 head of beef cattle on St. Croix, 4,095 of which are on farms with 100 head or more (Table 1). Coincident with the declining agriculture in the Virgin Islands, demands for food have increased *Survey by R. L. Park, O. Skov, and J. Fuertes, Federal Agricultural Experiment Station, USDA, St. Croix, Second Conference on Agriculture, V. I. Dept. of Agriculture. Table 1.—Size of beef herds on St. Croix, U.S. Virgin Islands, 1973 Average Number Number Herd size of farms of cattle herd size 500 and over ~--_-_ 2 2,060 1,030 S00: to: 499) 2 875 438 100 to 299 _------- 7 1,160 166 20) to: 99) 2-22 17 635 37 Less than 20? ~__-_- 36 280 8 Total 64 5,010 78 ‘Not all of the small farms were surveyed, but this estimate is quite accurate when compared to surveys in 1964 and 1969. markedly. The population of the Virgin Islands increased from 49,742 in 1965 to 85,000 in 1972, an 81 percent increase.* Food demands for tourism have also increased. Tourist expenditures were es- timated at $54 million during 1965 compared to $109 million during 1972. Much of the increased expenditure was for food which was not, and is not, available locally. The major objective of this study was to deter- mine the costs, returns and economic feasibility of beef production in the Virgin Islands with primary emphasis on St. Croix. Sub-objectives were (1) to identify and define “benchmark” production units that reflect Virgin Islands conditions, (2) to de- termine costs and returns to such benchmark units, and (3) to determine the potential profitability of beef production under alternative sets of conditions. RESOURCE BASE In 1964, 19,000 acres were reported as pasture in the Virgin Islands. By 1970, the reported figure was *Virgin Islands Department of Commerce. The growth rate seems to have slowed recently, however. down to 7,583 acres—a 61 percent drop. The amount of potential pasture is substantial and is available without extensive development cost, pro- vided economic incentives exist for such use. Today, it is estimated that between 7,000 and 8,000 acres of improved pasture are in use by beef producers. As of July 1973, the four largest ranches had about 6,100 acres of pasture. Beef production areas on St. Croix are located on the southeast central part of the island and in the narrow moun- tain valleys in the northwest. Potential crop or pas- ture land of a few thousand acres exists in the southcentral area. It is evident that there is not enough land avail- able for a large beef industry; therefore, it must operate at a smaller scale than might otherwise prevail. Factors external to agriculture have exerted a major influence on land use on St. Croix. First, xthe population of St. Croix increased from 49,700 in 1965 to 85,000 in 1972 and generated a strong demand for land for housing and commercial cen- ters which was not provided by existing population centers. It appears that housing developments for the most part have not been placed on the prime farmland, but the expectations of development have bid the value of farm lands substantially above their farm value, Second, road improvements and auto travel have placed virtually every part of the island within the housing demand zone. Third, industrial demands for land are increasing. And finally, it is becoming increasingly difficult to find competent farm workers at wage rates that make it possible for the enterprise to survive. There is also some evidence that tenure patterns have influenced the development of the lands for agriculture use. Climate In general, the climate on St. Croix is favorable to beef production. Temperatures are mild and well within the needed range. Rainfall averages about 43 inches in the beef production areas (fig. 1), but it varies considerably from year to year and from one part of the island to another. Some parts of the eastern end of the island are quite dry and support desert plants, while the mountains in the northwest support a rain forest. There is a quite predictable wet season from August to November, during which period the water-plant demand bal- Fi > f Be | yr Inches of Rainfall a.0 tainfen___] 7.0F 6.0F (Fredericksted, 36 yrs) 5.0F Western Region A 's Ho} 48 yr: Annas ene ee Region South Central eat on (King's Hill, 37 yrs) 0 1 n 4 rn n 1 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Figure 1. Average Annual Rainfall, Selected Weather Stations St. Croix, U.S. Virgin Islands, Long term Normal Rates. Source: U.S. Weather Bureau, chart by the author. ance is quite favorable.* In the remaining months, moisture is insufficient to maintain continued plant growth. The island is generally free from the full force of the most violent storms that spawn in the Caribbean, but it occasionally receives large amounts of rainfall during short periods of time, which contribute to the instability of the rainfall pattern. Labor and Other Factors There is a social stigma associated with agricul- tural labor, and as a consequence, if a man can find employment elsewhere he usually will do so. Many of the farmworkers on St. Croix are not Cruzans but are “green carders” from other Carib- bean islands not under U.S. jurisdiction. The labor market in which agriculture competes is strongly influenced by the higher rates paid by large indus- trial concerns. Supplies, equipment and production inputs, though generally available, are much more difficult to procure than in large established agricultural areas. Since St. Croix is a small island, such items must be imported and at times there are aggravat- ing delays. Moreover, costs are high relative to those of the U.S. mainland. There is a government-operated slaughterhouse on St. Croix with sufficient capacity to handle the *Martyn Bowden, “Water Balance on a Dry Island,” Geography Pub. No. 6, Dartmouth, 1968. production. Because of the smallness of the indus- try, the market system is quite simple and generally adequate to move the beef from the ranch to the local consumer. BENCHMARK RANCHES The authors personally surveyed large and small ranchers to determine present practices and input- output relationships. These ranchers control about 75 percent of the cattle on St. Croix. As a result of this survey, which was supplemented by the judgment of livestock specialists familiar with Vir- gin Islands conditions, two “benchmark” ranches were identified as points of reference to show the beef industry potentials. Note that neither bench- mark ranch describes any one actual unit in all respects. Benchmark Ranch I represents present practices and input-output relationships. It depends totally upon grass as a source of nutrients for the animals. It is a cow-calf operation under which the calves are weaned at about 714 months at 550 Ibs. and are sold grass-fat for slaughter at 14 months of age and should weigh from 750 to 900 Ibs. Benchmark Ranch IT represents potential condi- tions. Grazing pasture is supplemented by the pro- duction of sorghum silage thereby assuring greater utilization of grass during the wet season and mak- ing it feasible to efficiently carry feed produced dur- ing the wet season into the dry. In both models, the ranch is defined as having 1,000 acres of productive land. Ranch I has 1,000 acres of pasture; Ranch II has 800 acres of pas- ture and 200 acres of sorghum. Ranch I has 443 head of stock and Ranch II 754 head; the num- ber of acres per animal unit are 4.0 and 3.1 re- spectively.* Basic specifications for the benchmark ranches are set forth in Table 2; other details are specified in the cost tables which follow. Herd Unit Concept The concept of a herd unit (HU), as opposed to the traditional animal unit, was developed to facilitate the sensitivity analysis of the break-even ‘Some of the ranchers were feeding 1 Ib. of grain per 100 Ibs. of body weight to some of the young stock. The prevailing practice seems to be to fatten on grass unless severe drought indicates a supplement is needed. Table 2.—Specifications for benchmark ranches, beef cow-calf operations, St. Croix, 1973 RanchI Ranch II Item (grazing) (grazing- silage) Total acres ——— 1,000 1,000 Pasture __ 1,000 800 Sorghum ~------------------ 0 200 Acres/animal unit ~------------ 4.0 3.1 Number of head __------------- 443 754 Number of animal units _.-_----~ 249 325 Calving percentage ~---.------- 85 90 Brood cow replacement percentage 20 20 Cow-sité ratio! ...-..._- 25:1 2a: 1 Death-loss percentage ~------~-- 2 2 Weaning age a 7¥%2 mos 7'2 mos Weight at weaning. 550 Ibs 550 Ibs Sélé G86 ofan 14 mos 14 mos Weight at time of sale: Gull: COWS) case cna 1,100 Ibs 1,100 lbs Heifers and young bulls ~-____ 850 Ibs 850 Ibs Sale price: Cull cows ~----~------------ 30¢ lb 30¢ lb Heifers and young bulls ~----- 40¢ lb 40¢ Ib Tax rate —- _ $2/acre $2/acre Wage rate ~------------ pene $100/wk $100/wk Prerequisites —~--__------~--. $100/mo $100/mo Interest; rate: ——s-2-s22s-+—-s—— TY2% 72% points under alternative sets of conditions. The expected herd composition is specified by using calving percentage, cow-bull ratio, replacement per- centage, length of time in the herd, and the num- ber of brood cows. Each component of the herd is given a weight proportionate to the number in the herd in rela- tion to the number of cows with suckling calves. For example, if there are 100 cows with calves in the herd and 90 heifers and young bulls, the cows and calves each receive a weight of 1.0 and the heifers and bulls each receive a weight of 0.9 (Table 3). The herd unit is expressed in Ibs. of TDN * re- quired by the animals during a year. A nursing cow needs 4,490 Ibs. while a sire needs nearly 6,000 Ibs. ®* Total Digestible Nutrients (TDN) as reported in United States-Canadian Tables of Feed Consumption and Nutrients Requirements of Beef Cattle, National Academy of Sciences, 1969-70. Only a portion of a sire’s requirements is assigned to a HU (Table 3). The carrying capacity of land is determined by dividing the HU value (12,950 for Ranch I) ® into the available nutrients produced. The resulting number of HU’s can then be extrapolated to yield the size of the herd and the number of animals in each component of the herd. The reverse process is also useful. Given the number of HU’s, nutrient requirements and acreages can be determined. Pasture-Carrying Capacity The principal pasture plant on St. Croix is Guinea grass; lesser ones are hurricane and Pangola grasses. Hurricane grass is a lower yielder than the others and tends to prevail in the drier areas or where other grasses have been over-grazed. According to local ranchers, Pangola grass yields about the same as Guinea grass under stressed con- *The TDN requirements for the HU on Ranch I is different from Ranch II because the assumed calving percentage is different. Ranch II has proportionately more calves and young stock than Ranch I thereby giving a lower TDN requirement. ditions but responds to fertilizer when sufficient moisture is available. The number of acres needed to support a cow and calf varies from place to place on the island in response to the availability of moisture. It typ- ically requires about 4.0 acres to support an animal unit if no supplemental feed is provided. One ranch was able to maintain pasture balance with as few as 2.3 acres per animal unit. Another was able to achieve 3.8 with some supplemental feeding of the young stock. Most of the cattle were being handled at rates of 4.0 to 4.6 acres/AU. If a pasture can be maintained at 4.0 acres/AU, the TDN production per acre is about 1,475 Ibs. At this rate, a 1,000- acre ranch could support 113.9 herd units or 443 head under Ranch I conditions (Table 4). A feed supplement, of course, increases the utili- zation of grass during the season of ample rainfall. Standing hay is one way of carrying nutrients into the season of insufficient moisture, but at the cost of most of the nutrients. This relationship is il- lustrated in Figure 2. The surplus nutrients usually available from May to December are large relative to the February-April deficit. Figure 3 illustrates Table 3.—Specifications of a herd unit, beef cow-calf operation, St. Croix, 1973 Annual lbs. of TDN required Number Percent Herd component of of Adjusted for head total Base 2% deathloss Ranch I: Number Percent Pounds Nursing cows _ 1.0 26.0 4,490 4,445 Calves 1.0 26.0 1,825 1,807 Dry cows or replacements —~___~~-~ 0.9 23.0 2,464 2,439 Heifers and bulls 0.9 23.0 3,843 3,805 Sires 0.08 2.0 461 456 Total _ 3.88 100.0 13,083 12,952 (1.0 HU = 12,950 Ibs. TDN) (1.0 HU = 2.2 animal units) * Ranch II: Nursing cows 1.0 26.5 4,490 4,445 Calves 1.0 26.5 1,825 1,807 Dry cows or replacements 0.8 21.2 2,190 2,168 Heifers and bulls 0.9 23.9 3,843 3,805 Sires 0.07 1.9 403 399 Total 12,751 12,624 (1.0 HU = 12,620 Ibs. TDN) (1.0 HU = 2.1 animal units) * 3.77 100.0 + Cow and calf = 1.0 AU; dry cow or yearling = 0.6 AU; sires = 1.2 AU. 4 Table 4.—Production capacity, 1000-acre cow-calf beef operation, St. Croix, 1973 Ranch I Ranch II Item (grazing) (grazing-silage) Acres available to produce forage == 1,000 1,000 Acres IN PasUTS: Sua a es pose = 1,000 800 Acres in sorghum for silage 200 Lbs. of TDN? produced per acre (average) 3 1,475 1,553 Increased nutrient utilization when supplemental stored feed can be used 5.3% Lbs. of TDN produced per year on pasture 1,475,000 1,242,400 Tons of silage produced/acre ~---__~~ 23 Tons of silage produced 4,600 Percent TDN in sorghum silage 14 List. WOF TDN produced pet year a8 siA@6 ioc Ss 1,288,000 Total lbs of TDN produced 1,475,000 2,530,400 No. of herd units supported by forage 113.9 195.4 Herd composition (herd unit) I Il Cows, CHURN Gos re es ee (1.0) (1.0) 114 200 Calves a (1.0) (1.0) 114 200 Dry cows meee (0.9) (0.8) 103 160 Heifers and young bulls ~~-_-_-_-___________ (0.9) (0.9) 103 180 Sires = (0.08) (0.07) 9 14 No. of head ___-__~ rere (3.88) (3.77) 443 754 No. animal unit equivalents ~_-__ 249 325 No. animal units per herd unit 2.2 1.6 Acres pex animal: Whit) sees eA eee eee 4.0 3.1 * Total Digestible Nutrients. the role that silage plays in filling the January-May If the growth cycle approximates the rainfall deficit. Less surplus is wasted. cycle as illustrated at levels below 4.0 inches of rainfall per month, the total grass consumed per acre increases by about 5.3 percent. The total Ibs. Inches of Carrying Capeci sy r copa ‘Licces/Aomust © = OF TDN produced on the 1,000 acres increases from Note: The grass growth cycle is ar : 70 Be pret tense lk ae 1.5 to 2.5 million (Table 4). The corresponding ooo herd supported by the land increases from 443 to 754. One rancher with experience in growing sorghum and feeding silage reported that he could con- sistently yield 23 tons of silage out of the silo per 4.0 acre. In years of good rainfall, this level of pro- duction can be markedly increased. Sorghum silage 3 Note: Due to the loss of nutrients se | in "standing hay," it takes @ is about 14 percent TDN which means that sor- . large surplus of nutrients to cerry the herd through the ghum produces about 6,300 Ibs. of TDN/acre/ Rainfall¢| Jan FebRar Apr Ray Jun dul Aug Sep Oct Rov Dee year (Table 4). a a COSTS AND RETURNS Grass Availability From a physical point of view, sorghum can in- Figure 2. Illustration of stocking strategy which : Leeit 114 to 195 herd needs a large surplus forage production in the fall crease: production ‘capacity: fram 0-195 he to carry herd through a spring deficit, U.S. Virgin units. Whether the incremental cost is covered by Islands. the incremental return is another matter. Carrying Capacity Inches of rye Rainfall | Peres /Animal Unit +94 Acre in grass 206 Acre in Sorgham ead T.00 6.0F Carrying capacity increases 24% Deficit met with 1.0F Standing Hay 0 4. i. i. 4. A -Y i i. 4. 4. Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Grass Availability Figure 3. Illustration of stocking strategy which uti- lizes 90 percent of grass during rainy season and supplements with silage during dry season, St. Croix, U.S. Virgin Islands. The detailed cost specifications and price esti- mates are presented in Appendix tables 4 through 7. Labor productivity, wage rates, buildings and facilities cost, production inputs cost, and machin- ery cost are at levels presently prevailing in St. Croix. A full cost technique was used. Wage and salary estimates include fringe benefits (fica, UI, WG, etc.) plus perquisites such as a house. Build- ings and facilities are separately itemized with de- preciation and repair estimates. The major production input for Ranch I is for chemicals for dipping the animals every other week. Pesticides and fertilizer are additional costs under Ranch II. Two major facility cost items are dip- ping vats and associated corrals and fencing. Fenc- ing under present practices costs $2,300 per mile. A 1,000-acre ranch divided into ten 100-acre fields would require 11.25 miles of fence, or a cost of nearly $26,000. Present wage rates for beef ranch workers varies from $70 to $120 a week plus a house. Present prac- tices would require about three men to operate 1,000 acres in beef production. Investment, exclusive of land but including cat- tle, amounted to $151,273 for Ranch I. This is about $52,000 per worker or $341 per head of cattle (Table 5). Ranch II is built around 800 acres of pasture and 200 acres of sorghum. Sor- ghum production requires substantial equipment. Ranch II has a machinery investment of $16,650 greater than Ranch I. 6 Table 5.—Investment and capital cost, 1,000-acre beef cow-calf operation, St. Croix, 1973 Ranch I Ranch II Item (grazing) (grazing- silage) Non-land investment capital: Dollars Buildings and facilities —__ 40,135 41,860 Machinery and equipment ~~ 18,550 35,200 Livestock: 222. 2802522 (114HU) (200 HU) Nursing cows (1,100 Ibs at $06) mssecenrewccscu 37,620 66,000 Calves (325 Ibs at 40¢) ____ 14,820 26,000 Dry cows (1,100 Ibs at 30¢) 33,990 52,800 Replacement heifers (9330: ea) ween] 13,860 23,760 Replacement sires ($450 ea) 1,350 2,250 Heifers and young bulls ($280: ea) =... 16,240 28,840 Sires (1,500 Ibs at 30¢) ~~ 4,050 6,300 121,930 205,950 Total non-land inv. cap. ~~ 180,615 283,010 Average investment ----~- 151,273 244,480 Interest on inv. cap. et: 25% = 2) seeees 11,345 18,336 Operating capital: Wage and salaries expense — 23,755 26,040 Fuel, oil, lub. and ins. ____ 3,064 4,022 Contract services ~-------~ 4,165 4,165 Pest control chemicals, misc. — 1,460 10,172 Total 22s 32,444 44,409 Interest on 50% of op. cap. at 75% .------ sews 1,217 1,665 The benchmark ranch departs from present prac- tice in one respect—that of brush control. The larger ranches on the island control the acacia bush on pasture with a crawler tractor equipped with a single chisel. The chisel enters the ground near the bush and literally pulls it out of the ground. This machinery is a heavy investment for brush control. It is reported that skilled tractor drivers can clear three acres an hour. At that rate it would cost less to hire the work done on a custom basis, even at $20-$25 an hour. Pastures are mowed four times a year. A 40-50 h.p. wheel tractor equipped with a rotary mower is capable of handling the mowing operation. Two such tractors are budgeted for that task. Brush con- trol costs for labor, equipment fuel and contract dozer services amount. to about $15 per acre per year. Gross Returns Costs are summarized in Table 5. The 1,000 acre Ranch I grazing operation cannot cover full costs at present beef prices. At the time of this study, prices for liveweight beef f.o.b. the farm were $.40 per Ib. for grass-fat yearlings of 850 Ibs. and $.30 per Ib. for cull cows of 1,100 lbs. If a rancher (1) maintains a calving rate of 85 percent, (2) sells at the above prices and weights, (3) pays $2 per acre per year land taxes, (4) pays his more skilled employees $100/week plus $100 for a house, (5) has $40,000 invested in fences, wells, ponds, corrals, dipping vats etc., (6) dips his cattle every two weeks for parasite control, (7) mows his pastures four times a year and pulls out acacia every other year, and (8) pays 7.5 percent interest on average invested capital, he can expect to lose about $19,000 per year (Table 6) if he ex- pects no return on the investment in his land. Ranch II, which specifies that 200 of the 1,000 acres are planted to sorghum, does somewhat better but is still operating at a loss of about $15,360 a year. As a rule, St. Croix land values are substantially above the value that an agricultural enterprise might support. At the time of this study, land was rarely selling for less than $2,500 per acre. Actually, several tracts of agricultural land were on sale at $3,000 to $14,000 per acre depending upon location and zone. Therefore, residual return to land is computed after a management salary equivalent to $5,000 per year and interest on average invest- ment of 7.5 percent is removed. The model specifies that 40 percent of a manager’s time is required to operate the ranch, which is consistent with present practice. A negative residual return to land means that returns are not great enough to cover interest on invested non-land capital or management. Ranch I would about break even if no payment were made for management, interest on non-land capital or land. Ranch II would generate about $9,600 to cover these items. The residual return to land (RL) can be com- puted under alternative levels of acres per animal unit, price, taxes and wage rates by using the Table 6.—Costs and returns, 1000-acre beef cow-calf operation, alternative models, St. Croix, 1973 RanchI Ranchlil Item (grazing) (grazing- silage) Expenses: _~~—Dollars___— Vand). taxes: co. ldots 2,000 2,000 Wages and salaries* ~_-_-_-_-_ 23,755 27,240 Buildings and facilities _______ 3,425 3,206 Production inputs ~-------~~ 1,560 10,172 Machinery and equipment ~-~-_ 9,266 11,575 Interest on operating capital __ 1,217 1,665 Total 2225 -55-522-2-5 41,223 55,860 Income: Heifers and young bulls ______ 19,635 35,722 Cull cows 14,025 23,111 Total, —— i= sss 33,660 58,833 Gross loss or gain ~----~-----~ —7,563 2,973 Interest on average non-land investment at 7.5% —~--~--~ —11,345 —18,336 Residual return to land ~-_--_-_ —18,908 —15,363 ____Percent____ Return to land as a percent of average non-land investment® _. —12.5 —6.3 1Includes a salary to management at the rate of $15,000 per year. Forty percent of the manager’s time is charged to the beef enterprise. *Land cost is not included as an expense. following equation for Ranch I (grass only) con- ditions: — 1000T — 237.55 W — 26,813 (1) RL 336,600 P U Where RL= Residual return to land after all other costs are covered ($), AU=Acres per animal unit, P=Price of liveweight heifers and and bulls f.o.b. the farm ($/Ib), T=Taxes/acre/year ($), and W=Wage rate ($/week) The returns in Table 6 are based on the follow- ing values for Ranch I: RL= —$18,908, AU =4.0 acres/animal unit, P=$.40/lb, T=2.00/acre, and W =$100/week. Ranch II has a greater investment in machinery, uses more labor, has a smaller number of acres per animal unit than Ranch I. ‘To compute the residual return to land to this operation under alternative conditions, use the following equation: 455,952 Ps oo0T—272.4W — 44,954 (2) RL= Returns to Ranch II in Table 6 are based on the value of the following cost and income factors: RL= —$15,363, AU =3.1 acres/animal unit, P=$.40/Ib, T=2.00/acre, and W = $100/week. To determine returns under alternative prices or acre/animal unit levels, enter the new values into equation (1) or (2) and solve algebraically. For example, if on Ranch I, the wage rate (W) were $80 per week and the selling price (P) were $.60, the residual return to land (RL) would be $2,673. The residual return values for a range of the income and cost factors have been computed and are presented in Tables 7 and 8. Sales Estimates Some ranch operations on the island are able to stock the land heavier than presented herein. The following equations (3 and 4) can be used to esti- mate sales under varying assumptions for ranch size, acres per animal unit, price, and sale weights of animals. For Ranch I (grass only and 85% calf crop): * 0.17 A 0.231 A where S, = Total Sales Value ($) 7The brood cow replacement is 20 percent per ‘year. Table 7._Ranch I, residual return to land under selected costs-returns situations, 1,000-acres Acres per Price/Ib Weekly Taxes Return before Residual * animal young wage per interest on return unit beef rate acre non-land capital to land (AU) (P) (W) (T) Wo Dollars-n--- eee 201) |, 4.0 40 80 2 —2,812 —14,157 4.0 .40 80 4 —4,812 —16,157 4.0 40 120 2 —12,314 —23,659 4.0 40 120 4 —14,314 —25,659 4.0 .60 80 2 14,018 2,673 4.0 .60 80 4 12,018 673 4.0 .60 120 2 4,516 —6,156 4.0 .60 120 4 2,516 —8,829 3.0 40 80 2 10,408 —937 3.0 .40 80 4 8,408 —2,937 3.0 40 120 2 —1,094 —12,439 3.0 40 120 4 —3,094 —14,439 3.0 .60 80 2 31,148 19,803 3.0 .60 80 4 29,148 15,602 3.0 .60 120 2 21,346 7,800 3.0 60 120 4 19,346 5,800 3.0 70 80 2 42,068 28,522 3.0 -70 120 2 32,566 19,020 336,600 P 1RL=— —1000 T—237.55 W—26,813 Land costs are not included in the equation. 8 Table 8.—Ranch II, residual return to land under selected cost-returns situations, 1,000-acres Acres per Price/lb Weekly Taxes Return before Residual animal young wage per interest on return unit beef rate acre non-land capital ' to land (AU) (P) (W) (T) (RL) _-------+----+- Dollars._-2asses255% esas Dollars 35 40 80 2 1,699 — 16,637 3.5 40 80 4+ —301 —18,637 3.5 40 120 2 —9,197 —27,533 3.5 40 120 4 —11,197 —29,533 3.5 -60 80 2 27,753 9,417 3.5 60 80 4 25,753 7,417 3.5 .60 120 2 16,857 —1,479 3.5 .60 120 4 14,857 521 2:5 40 80 2 22,542 4,204 2.5 40 80 + 20,542 2,207 2.5 40 120 2 11,646 —6,690 2.5 40 120 4 9,646 —8,690 2.5 .60 80 2 59,018 40,682 2:5 60 80 4 57,018 38,682 2.5 .60 120 2 48,122 29,786 2.5 .60 120 4 46,122 27,786 3.0 60 80 2 40,780 22,444 3.0 .60 100 2 35,332 16,996 3.0 75 80 2 63,578 45,242 3.0 75 100 2 58,130 39,794 455,952 P 1RL————_— 1000 T—272.4 W—44,954 AU Interest is costed at 7.5%. Land investment is not included. O17 A AU A=Acres of pasture . AU=Acres per animal unit Wc= Weight of cull cows (Ibs) Pc=Price ($/lb) of cull cows = Number of cull cows sold 0.231 A =Number of yearling heifers and bulls AU sold Wi» = Weight of heifer or bull (lbs) Pi» = Price ($/lb) of heifer or bull The sales income for Ranch I in ‘Table 6 is based on the following: AU=400, We=1100 Ib., Pc—$.30/Ib., Pip» =$.40/lb. for a total of $33,660 from the sale of 4.25 head of cull cows and 57.75 head of yearlings. If a ranch can carry more stock than as- sumed above, the sales can be proportionately greater. For example, if the acres per animal unit are reduced to 3.5 from 4.0, the gross return in- creases from $33,660 to $38,469. Estimates for Ranch II can be computed by using Equation No. 4 in the same manner. 0.2171 A 0.3257 A (4) Sp=( where the code designations (A, AU, etc) are the same as above. Examples of different sales values at selected stocking rates are presented in Table 9. Break-even Costs and Returns The cost of producing grass-fat beef on Ranch I is estimated to be 62.4¢ when all costs except land are included at the levels presented in Table 6. If 9 Table 9.—Relationship between acres per animal unit and market sales, Ranch II Number of head for sale Acres per Gross animal unit Cull cows Heifers and bulls receipts 4.0 54 81 $45,595 3.75 58 87 48,635 3:5 62 93 52,635 3.25 67 100 56,117 3.0 72 108 60,794 2.75 79 118 66,370 the carrying capacity can be improved to 2.6 acres per animal unit, other factors remaining the same, a rancher can breakeven at 40¢ per Ib. The break- even prices (P), Wage rates (W), and acres per animal unit (AU) can be computed by using the following equations: Ranch I: (5) p— (237.55W + 28,813) AU 336,600 (6) AU= 336,600 237.55W + 28,813 (7) w— lel _ i190 where AU P=Beef price, liveweight ($/Ib) AU = Acres per animal unit W=—Wage rate ($/week) These relationships are illustrated in Figure 4. To use, find the animal unit value on the vertical axis, move horizontally to the right until you reach an intersection with the desired wage rate, and move directly down to find the price which will allow you to breakeven. To illustrate, a stocking rate of 4.0 and a wage rate of $80/week requires a selling price of 57.5 cents to break even. At $100 a week, the break-even price is 62.4 cents. Detailed data for the curves presented in Figure 4 are set forth in Appendix Table 10. Similar relationships are presented for Ranch II. The break-even equations are: (272.4W + 46,954) AU 455,952 455,952 P ~979.4W + 46,954" and 10 1 .83 W= 673.85 F 179.37 AU These relationships are presented in Figure 5. The break-even price under present price condi- tions is 50 cents per lb., still some 10 cents above the pay price of 40 cents and the conditions pre- sented in Table 6 and supporting documents. Although the addition of the sorghum silage en- terprise did not prove the ranch capable of covering full costs, it did reduce the cost of production from Acres per = 300 Animal Unit (au) W = $100 w= $120 4. — ier ee ec | | 3 ! | | l ty I 2. \ | | | I | | I | 1 | 1 | 1 4 1 | TO 50 60 70 30 (P Beef Price, Liveweight (Cents/Ib) Figure 4. Break-even relationships which yield zero residual returns to land, beef cow-calf operation, Ranch I (grass only), St. Croix, 1973. Acres per | w = $80 “ = $100 hob = 312 he eh) i ! Pass | | | 2.0 | ; | t 1 L | | Fr | | | oL—_} —1—l 3) 5} Beef Price, Liveweight (Cents/Ib) Figure 5. Break-even relationships which yield zero residual returns to land, beef cow-calf operation, Ranch II (grazing-silage) St. Croix, 1973. 62.4 to 50 cents per |b. Internal Rate of Return As a further rehnement of the foregoing analysis, the internal rate of return, or discounted rate of interest as it is sometimes called, was computed for both benchmark ranches. The internal rate of re- turn provides a measure of long term profitability under specified cash flow assumptions. The concept is particularly useful if year-by-year cost and re- turn relationships are expected to change over time. For example, major capital costs may be incurred during the first 2 or 3 years of a project while the revenues may not reach full development levels until the project is several years underway. Since the internal rate of return is based on discounted cash flows, it is useful in analyzing the above effects even when based upon the same data used in the conventional analysis. In laymen’s language, the internal rate of return is the highest rate of interest on invested capital that an enterprise could afford to pay and cover total costs over the life of the project. Technically, it is the rate of interest at which the sum of the dis- counted income flow is equal to the sum of the dis- counted cost flow. Alternatively, it is the rate of interest at which the sum of the discounted differ- ence in the cost and income flows is equal to zero. The internal rate of return was computed by us- ing the above procedure for both benchmark farms. It was assumed that the cash flow would cover a development period of 15 years. It seemed unwise to select a longer period in view of the uncertain- ties of agriculture in an urbanizing environment such as that prevailing on St. Croix. As in the earlier analysis, the limited investment concept of non-land investment capital was used primarily because it reflects the dominant land-use strategy on the island, namely, that land is being held for future development and it is devoted to agriculture in the interim as a means of minimizing holding cost. This concept is discussed at some length in the next section of this report. The internal rates of return on non-land capital for the two-benchmark ranches are as follows: Ranch'I, grazing —2.0 percent Ranch II, grazing-silage 3.9 percent. If the rate of interest charged by banks is greater than the internal rate of return, the enterprise is considered not to be feasible since the cost of the capital is greater than its earning capacity. On these grounds, the two models are not considered to be feasible even when no cost is imputed to the land. (See the section on land strategy for a further discussion of the reasons why ranchers might con- tinue to operate under these conditions. ) The data used in computing the internal rate of return is presented in Appendix Tables 8 and 9 and Figure A~1. LAND USE STRATEGY From the data presented above, it is clear that prices will have to improve substantially, or carry- ing capacity of cattle on the land improve mark- edly, if beef operations are to meet their full costs of production. One may ask what incentives exist for continued production? The answer lies in the land use strategy. If it is intended that the industry be viable in its own right in mecting total costs, it cannot long endure the severe cost-price squeeze it is now under. On the other hand, if the land is be- ing held for future intensive use and a means of re- ducing the carrying cost of land is needed, beef pro- duction may be able to continue for some time into the future as long as out-of-pocket costs can be met. Under present cost-price relationships, it is un- likely that the degree of production efficiency can be achieved to cover costs of production and gene- rate a return on the investment in land (Table 10). If, however, the land were purchased several years ago at near agricultural prices, and the assets are near full depreciation, existing operations can con- Table 10.—Capitalized value of land based on its earning capacity at selected rates of interest Annual residual return to Capitalization rate of interest one acre of land 7.5% 8.5% 9.5% Dollars =e Dollars_____--_-____ 10 133 118 105 20 267 235 211 30 400 353 316 40 533 471 421 50 667 588 526 100 1,333 1,176 1,053 500 6,667 5,882 5,263 1,200 16,000 14,118 12,632 tinue. This appears to have been the dominant strategy in recent years. In 1964, Park, Skov and Fuertes * identified 39 beef producers with 20 head of beef or more. This inventory was repeated in conjunction with this study. It was found that 11 of the original 39 pro- ducers had terminated operations during the inter- Sop. cit. Table 11.—Out-of-pocket costs and returns, 1,000- acre grazing beef operation, St. Croix, 1973 RanchI Ranch II Item (grazing) (grazing- pasture) Expensess Dollars______ Land taxes ~-------- 2,000 2,000 Wages and salaries ___ 21,355 23,640 Buildings and facilities _ 896 792 Production inputs _--__ 1,560 10,172 Machinery and equipment —~~------ 7,779 8,332 33 590 44,936 Income: Heifers and young bulls 19,635 (58) * 35,700 (105) Cull cows ~-------~-- 14,025 (43) 23,100 (70) 33,660 58,800 Net loss or gain ________ $70 $13,864 Return as a percent of non-land capital ______ 0.04% 4.9% 1 Number in () means number of head sold. 12 vening nine-year period, but no new producers joined the industry. It seems that if one is in the business, he can stay; but it is extremely difficult to start. The relationship between out-of-pocket expenses and income is presented in Table 11. Ranch I about breaks even (+$70) while Ranch II nets out $13,864. Under Ranch II conditions, out-of-pocket costs can be met with a stocking rate as high as 4.1 acres per animal unit compared with 3.1 which is believed feasible (Figure 6). The out-of-pocket break-even price is 29.5 cents, 10.5 cents under that received. Acres per W= 380 (au Animal Unit w= $100 Se W = $120 WE TF | | ase | | _ | | 3.0b | | | | bo | | a boot " h i | 3 30" [a (P) Beef Liveweight Price (Cents/Ib) Figure 6. Break-even points to cover out-of-pocket costs, beef cow-calf operation, Ranch II, (grazing- silage), St. Croix, 1973. APPEHNDVIA Discounted t Net cash Flow} ! Ranch 1: IRR = 2.0% Ranch IIs IRR = 3.9% 100 F 2 OP pa 8 t) 1 a ° “ s | ne oO “” 3 & -100 F Fa -150 & ere: i. = i i r" 4 37S 7) 0 1 2 3 5 Rate of Interest Figure A-1. Internal Rate of return on non-land In- vestment, beef cow-calf operation, St. Croix. Table A-1.—Use of land in the Virgin Islands for pasture on grazing, 1964 and 1970 Census year Percent Item change 1964 1970 from 1964 Total number of farms ~---------------------------~----~--~-- 466 212 —55 Total land in farms (acres) 39,539 20,470 —48 Cropland harvested (acres) ~--~---------~---~---------------- 5,134 737 —86 Average size of all farms (acres) ~----- _ 85 97 +14 Number of farms using land for grazing 279 100 —64 On farms of up to 49 acres _ 181 70 —61 On farms of 50 to 174 acres ~----- +--+ ++ 57 15 —74 On farms of 175 to 499 acres ~_~~ = 24 7 —71 On farms of 500 to 999 acres ______ - 9 4 —56 On farms of 1000::acres.or more: sass eee 8 4 —50 Land used for pasture or grazing (acres) — 19,611 7,583 —61 On farms of up to 49 acres _ 1,046 662 —37 On ‘farms of 50 to: 174 acrés) 2 ------e 2,766 850 —69 On farms of 175 to 499 acres ~------- 4,332 1,186 —73 On farms of 500 to 999 acres 3,532 1,921 —46 On farms of 1000 acres or more ~----~-------~-------~-~---- 7,935 2,964 —63 Average amount of land per farm used for pasture or grazing (acres) ~~ 70.3 75.8 +7.8 On farms of up to 49 acres 5.8 9.5 +63.8 Oi farms of 50) iG) 174 aeres: ann 48.5 56.7 +16.9 On farms of 175 to 499 acres ~_-_ _- 180.5 169.4 —6.2 On farms of 500 to 999 acres = 392.4 480.2 +22.4 On farms of 1000 acres or more _---------~---------------- 991.9 741.0 —25.3 Source: Census of Agriculture, U.S. Department of Commerce, Computations by the author. Land use reported in the 1970 Census was for actual use during 1969. 13 Table A-2.—Selected characteristics of the livestock industry, St. Croix, St. Thomas and St. John, Virgin Islands, 1970 Total Item St. St. St. Virgin Croix Thomas John Islands Total numberiiof farms § CLSZI 618°S1 890‘ $981 008‘8¢ 986 Fr 986 F4 ——= % ceg‘ocz—$ #8L'8¢¢—$ FIs 197—$ 9rl‘69c—$ oos‘ss = $¢ 9F6 LzE$ 966th $ oto‘ese$ iT YS Yb WE noy 9509 1809 ainpipuagxa auorut awoouy qoalosg uoijmnporg pondv2 40a X Moy aworur jau pazunorsiq 13N [P10], puvj-uon poiied ydafoid a¥vad-cy ‘xt01D *7g ‘paey eseyis [eyuaWIe[ddns ‘Jy yURY ‘WOrje1edo J[ed-MOd Joaq B10} MOY YSd Jou pozUNOIsIG—s-Y 21qeL 19 UVI Library Digitally signed by UVI Library DN: cn=UVI Library, c=US Date: 2002.07.02 16:18:58 -08'00' Signature Not Verified