Economic opportunities for on-the-farm feed processing in Montana by Arne Degn A thesis submitted to the Graduate Faculty in partial fulfillment of the requirements for the degree of MASTER OF SCIENCE in Agricultural Economics Montana State University © Copyright by Arne Degn (1964) Abstract: This research study has been concerned with determining the economic feasibility of on-the-farm feed processing. Processing costs and other relevant data were obtained from twenty-five feeders in Montana who were processing their own feeds in the year 1962. These costs were then compared to commercial processing charges found to be prevalent at the time of the survey. According to this analysis, those feeders feeding 1,000 head of cattle or more per year will nearly always find it profitable to process their own feed. Those feeding less than 1,000 head per year must consider factors such as, distance from feedlot to commercial processing plant, commercial processing rates and service, management ability of farmer, capital availability, seasonality of feeding, etc., in determining feasibility of on-the-farm feed processing for their individual farms. This thesis should serve as an efficiency measurement for existing farm feed plants, and as a planning guide for farmers and feeders contemplating the addition of a feed processing enterprise.  ECONOMIC OPPORTUNITIES FOR ON-THE“FARM FEED PROCESSING IN.MONTANA Arne Degn A thesis submitted to the. Graduate Faculty in partial fulfillment of the requirements for the degree - . of MASTER OF SCIENCE in Agricultural Economics- Approved: ifgad of yMaj Department Chairman, Examining ‘‘'Committee fNeai:an. Graduate Division MONTANA STATE COLLEGE Bozeman, Montana March, iii ACKEOWLEDGEMENO? ' The completion of a study such as this depends upon the assistance and cooperation of many persons. The author wishes to thank the farmers and feeders for their patience and consideration in answering the schedule questions. A debt of gratitude goes to the staff and fellow graduate students of the Department of Agricultural Economics at Montana State College for guidance and encouragement» A special thanks goes to those on my thesis'and examining committees^ Dr* Clive R e Harstonjl Mr. William Ewasiukj, Dr. H. C, Holjejr Dr. Clarence Jensen and Mr. J. W. Van Winklejj whose assistance and advice has been greatly appreciated. Thanks also to the staff secretaries and especially Mrs. Gillie for typing assistance. The author accepts full responsibility for any omissions or errors in this paper. iv TABLE OF CONTEEfTS VXTA e 0 4 e 6 <3 « ACKNOWLEDGEMENT. , TABLE OF CONTENTS, LIST OF TABLES . , LIST OF FIGURES. , ABSTRACT. . . » , CHAPTER 1» ■ INTRODUCTION The Problem' Situation . . . . . . . . . . . . . . . . . Barley Production U p . , . . . . . . . . . . . . . Montana Feedlot Expansion. . . . . . . . . . . . . Montana Feedlot Size Distribution® "® . Total Montana Cattle Marketed Ccmrpared With Number Montana Feeds Substitute For C o m . . . . . . . . Montana Feeds Need to Be Processed ". * , , . V » » Alternatives Forgetting Complete Ration to Farm® . Practical Processing Methods For Montana . . . . . The Research Problem. ... . . . ® . . .... . * . . . Objectives . . - . . . . . . . o . . . . . . . Bj/potheses . . . . . . . . . . o . Limitations « . . . Procedure For phase I - Survey of Existing Plants » . . Fixed Costs , * Plant Investment Determination . . . . . . . . .Depreciation Allowance, . » . . . . Plant Insurance and Property Taxes.. » , . „ » Interest or Opportunity Cost... . . . . . . . Tractor Fixed Costs ........... . . . . . . Variable Costs . . labor Costs . . . Power Costs . . . . . . . . . . . a . . ® . . Repair and Upkeep Additional Factors Related to. Cost Analysis. . . . Annual Feed Production® Number of Cattle Fed Per Year Commercial Processing Rates . . . . . . . . . Trucking Charges . . . . . . . Waiting Time Data Analysis In.. Total Cost Determination® . » . » Procedure For phase II — Theoretical Models Fed 6 O 9 9 Page ii iii iv vi viii ix I I I I 3 If 5 7 10 II 12 12 12 12 13 I k I k 15 15 1516 16 l616 1718 18 18 18 18 19 1920 ' TABLE OF CONTENTS (Continued) . CHAPTER II, EMPIRICAL OBSERVATIONS . . ............... .. . Description of Existing On-The-Farm Feed Processing* » Trends in Processing Rations * * * * * * * * * * * * * * * * * * * * * !plant Type By Areas * * * * * * * * * * * * * * * f JCost of Farm Processed Feeds Opportunity "Costs" For Labor * . , , . . * * . * Utilizing Idle Capital Resources Nutritional Disease * * * . » * * * * » * « * « » G^pe of Plant * * * * * * * * * * * * * * * * * * Investment Per Head * * # * * * » * * » * * » * » Total Per Ton Costs a * * * * * * * * * * * * * * Total Per Ton Processing Costs By Size Groups* . * , Fixed Costs * * * * * * * * * * * * * * * * * * * Variable Costs * « » 0 * * » » * * * » * * * * * Total Cost Per Ton * * * « * * . , * . * * * « * Total Costs For Three Size Groups Compared* » » * Management ' * * * . * * * * * * * * * * * * * * * * * Relating On-The-Farm Processing Costs to Commercial * * Processing Costs ***' * * * * * * * * * * * * * * * Effect of Varying Commercial Charges * ......... Transportation Costs « . * * « « « • * « * « « • Waiting Time * * * * * * * * * * * * * * * * * * * Savings By On-The-Farm Processing Other Commercial Processing Methods Observed * * * Summary * * * * * * * * * * * * * * * * * * * * * CHAPTER III* HYPOTETHICAL MODELS * » *•* . . . . . . . Plant Cost Derivation * * * « * » # * * * * * * . * » * Operating Cost Determination * » « « * * « 1P v i* * * * Models for Size Group I - 999 Head Per. Year. * * * * * Models for Size Group 1,000 - 1,999 Head Per Year* . * Models for Size Group 2,000 and Over Per Year * * * * Breakeven Points * * * * * * * * * * * * * * * * * * * CHAPTER IV, SUMMARY AND RECOMMENDATIONS . . ............... Summary * * * * * * * * * * , . * . * * * * * » * * * * * * Recommendations * * * * * * * * * * * * * * * * * * * * To The Farmer * * * * * * * * * * * * * * * * * * To Commercial Feed Processors' * * * * * * * * * * For Further Research® « . * * . « ' * ' « « . . « . . APPENDICES * * * * * * * * * * * * * * * * * * * * * * * * * APPENDIX A « « e * # ® . * « ® . APPENDIX B e * * * * * * * * * * * * * * * * * * * * * APPENDIX C * . APPENDIX D * * * * * * * * * * * * * * * * * * * * * * LITERATURE CONSULTED * * * * * * * * * * * * * 9 © © © * » © » © O * » « * O » * * » O © © » e 9 » * © » * e * * e -$ © © » * « © ♦ © © © © » <* * © » e * » © 9 * . * e « o e o © © e © » • « © * ■ » © G © e 0 * 9 9 Page 21 .21 21 21 23 23 23 25 25 25 .26 , 27 27 27 30 32 39 39 43 45 45 47 47 47 50 53 53 54 55 2 63 67 67 Tl 74 75 76 77 78 80 86 89 Yi LIST OF TABLES Number Page I MONTANA. BAKLEY PRODUCTION AND Ue Se FEED GRAIN PRODUCTION 2 II CAluIiIE ON FEED JANUARY I * * @ * 9 3 III DISTRIBUTION OF CATTLE FEEDLOTS CLASSIFIED AS TO SIZE, . . 4 IV FED CATTIE MAEKETED **“" BY YEAR 5 V COMPARISON OF FEED INGREDIENTS . . ........................ 8 . VI COMPARISON OF DRY AND STEAM ROLLED BARLEY* * * * * * * * * 9 VII COST COMPARISON OF FARM PROCESSED FEEDS FOR TWO TYPES OF RATIONS o » e e ® e e " e # e 0 » e @ * » o e » e e e » 2̂4- VIII PLANT INVESTMENT AND TYPE OF FARM PLANT*.........* * * * 27 DC BREAKDOWN OF FIXED COSTS FOR SIZE CATEGORY 2,000 HEAD AND OVER FED.PER YEAR * . * » . » » * . * » . » » » * * * „ * » 33 X BREAKDOWN OF FIXED COSTS FOR SIZE GROUP 1,000 TO 1,999 HEAD FED PEB ,YEAR * p @ $ * # * * * e * @ * - . 3̂ * XI BREAKDOWN "OF FIXED COSTS FOR SIZE CATEGORY I - 999 HEAD FED PER YEAR. » 68 ,000 1957.. 75,QQO..... 1958 73 ,000 1959 72 ,000 I960 70 ,000 1961 77 ,000 1962 69 ,000 7,833,000 1963 71 ,000 ... - a/ Derived from files"of the Statistical Reporting Service, United States Department of Agriculture, Helena, Montana, July 2 5, 1963® Montana Feedlot Size Distribution 'f ---------------- -------- ------------ - According, to an. "armchair" estimate - made in i960 by the Montana Crop and Livestock. Reporting Service-). Montana has about 600 feedlots® An accurate estimate of feeders., is. difficult to obtain because of the "in-and- outers" in the feeding- industry and because of the difficulty in defining "feedlot". This i960 estimate is shown in Table III. « #■ Montana now has about 600 feedlots with only 23 (or 4 percent) of them feeding over I,OQO head per year. This group had on feed January I, 1963 ̂ 24,000 cattle or 34 percent of the total cattle on feed in the state on that date. 2/ TABLE III. DISTRIBUTION OF CATTLE FEEDLOTS CLASSIFIED AS TO SIZE ON JANUARY I, i960, a/ Number of Cattle in Feedlot Number of Feedlots in Size Group I - 49 . 192 50 --y 99 194 100 » 199 119 200 - 299 46 300 - 399 11 400 - 499 16 500 - 999 16 1 ,000 - 1 ,999 5 ' 2 ,0 0 0 - 2 ,9 9 9 I 3 ,0 0 0 - and over 2 TOTAL 603 a/ Statistical Reporting Service, op. cit. Total Montana Cattle Marketed Compared With Number Fed Montana had a net marketing of 1,139,913 cattle of all classes in i960 and 1,101,506: in 1961. 3/ Fed Cattle numbers for the same two years can be determined, from the marketings during the quarters. (See Table IF). Approximately 115,000 head were fed in i960 and 113,000 in 1961. 2/ This is a revised estimate made by the Montana Crop and Livestock Reporting Service and reported in "Cattle on Feed", USDA Statistical Reporting Service, July, 1963. 3/ Montana Agricultural Statistics, op. cit., pp® 84-85.• By comparing the number of fed cattle marketed with the total number of cattle of all classes marketed, we find '■ that Montana feeders were only feeding about 10 percent of the cattle that are marketed each year in ^ and from the state, the remainder leave the state as stockers or feeders. The surplus barley production, together with the- small percentage of Montana’s, cattle fed in the state, would indicate that, future feedlot expansion is feasible, if Montana feeds are suitable as feed ingredients. TABLE IV. FED CATTLE MftRKETED--BY YEAR, a/ Quarter I960 1961 1962 1st 34,000 34,000 35,000 2nd 30 ,000 . 29 ,0 0 0 27 ,000 3rd 28 ,000 28 ,000 23 ,000 4th 23 ,0 0 0 22 ,000 15,000 TOTAL 115^000 113,000 100,000 a/ Statistical Reporting Service, op. cit. Montana Feeds Substitute For Corn Present,Montana feeders, meat packers and retailers feel that Montana barley-fed beef-is entirely acceptable in the meat trade. Barley, especially Montana’s high quality barley, is considered to be worth at least - 90 percent of an equal weight of number two c o m when fed to beef cattle. Dried molasses beet pulp, another feed available in large quantities and at prices comparable to feed grains, is worth 88-95 percent of an equal weight of number' two corn when fed to cattle at not over 50 percent of the ration, 4/ These feeds used in conjunction with roughages 4/ S. H. Morrison, "Estimated Feed Value Table of Various Ingredients for Fattening.Cattle.and Sheep", Feedlot (magazine) November, 1962, pp. 21-30 - 6 - make up a satisfactory ration requiring almost no protein supplementation, Table V exhibits the exceptional complementarity between barley and beet pulp. The beet pulp provides the "roughage effect" in the rumen (from fiber which' is more readily digested in the rumen than is most fibrous material) as well as providing high TDEF,, calcium and readily available sugar for the rumen microorganisms„ Barley provides a good source of TDN, phosphorous, and a higher percentage of protein than is needed for an ideal fattening ration. 5/ The ration resulting from the blending of these Montana ingred­ ients is one with a high percentage of TDN to give fast, efficient gains as well as one which has a "roughage effect" to stimulate rumen microbial activity. 5/ Dr. Wo H. Hale of Arizona reported in the May ll, 1963 issue of Feedlot magazine that barley rations with 10-11 percent crude protein gave significantly better results than those at the 13-14 percent level. Morrison, in his Feeds and Feeding book recommends that fattening cattle be fed rations containing 8.1 to 8 .7 percent digestable protein. Montana (high quality) barley has 12-l4 percent crude protein (10-11 percent digestable protein), therefore a ration composed of barley and about 20 percent to 2 5 .percent beet pulp should meet the protein requirements' of fattening beef cattle. Montana Feeds Need To Be Processed ' Present day demands for lighter weight and more uniformly finished carcasses of beef necessitates rapid fattening of beef animals. High energy rations become essential to this accomplishment. If high energy, rations are to be built up of barley alone, without the use of beet pulp or other roughage.or roughage-like ingredients, it becomes necessary to retain as much of the barley fiber and in effect make the barley itself act as a roughage upon entering the rumen. This can be done by flaking or steam-rolling, by dry-rolling or by coarse grinding. There is much dispute among nutritionists as to the relative desirability of-these various processing methods. Dr. A. T. Ralston of Oregon State-University, indicates that there is no significant nutritional difference between dry rolled and steam rolled barley for feeding to beef cattle. Table VI shows results of another study at the University of Arizona on dry vs. steam-rolled barley. It therefore seems safe to assume that there is no appreciable difference between steam-rolled barley and dry-rolled barley especially if some dry beet pulp or roughage is fed in conjunction with the barley. processing other than barley grinding or rolling may be desirable. Cattle feeding is now in a period of rapid change, with new and improved feed additives coming onto the market almost daily. These micro-ingredients must be unifarmally dispersed throughout the ration by some method. A feed industry spokesman warns prospective farm feed processors of the / danger of improperly mixed rations. "The mixing phase of processing becomes especially critical with the addition of micro-ingredients such as, vermifuge drugs, trace minerals, vitamins, hormone?, urea, etc." 6/ 6/ Oakley M. Roy, American Feed Manufacturers Association, "On-The-Farm Milling”, paper presented at the Feed Manufacturing School, September, TABLE V. COMPARISON ON FEED INGREDIENTS Feed Ingredient Total . Dry Matter Crude Protein Fat Fiber Total Digest- Digest- able able Protein Nutri­ ents Cal­ cium Phos­ phorus Barley, common feed grade, not including Pacific Coast States a/. 89.3% 11.8% 1.9% 6.2% 10.0% 75.6% 0.06% 0.39% Barley, High Grade b/ 90.3 13.5 3.5 8.7 10.8 73.2 0.03 0.40 Beet pulp, with molasses, dried a/ 92.2 8.9 0.5 15.2 5.9 72.4 0.57 0.07 Corn, #2 yellow a/ 85.0 8.7 3.9 2.0 6.7 80.1 0.02 0.27 a/ S. H. Morrison, "Estimated Feed Value Table of Various Ingredients for Fattening Cattle and Sheep", Feedlot (magazine), November, 1962, pp. 21-30. b/ Frank B. Morrison, Feeds and Feeding, 22nd Edition, The Morrison Publishing Co., Ithaca, N. Y., 1957, pp. 1114-1115. TABLE VI. COMPARISON OF DRY AfyD STEAM ROLLED BARLEY. ” DRY ROLLED STEAM ROLLED Percent Average Average Feed/100 Average Average Feed/100 Grain Trail Days in Ration Steers Daily Feed, Lb. Daily Gain, Lb. Lb. Gain Lb. Steers Daily Feed Lb. Daily Gain Lb. . Lb. Gain Lb. I a/ 126 53 14 22.7 2.91 780 14 23.0 3.10 742 2 97 56 16 21.6 2.60 833 16 21.8 2.34 934 3 97 46 16 21.4 2.26 946 -16 21.2 2.40 884 4 112 56 16 23.8 3.19 741 16 23.2 3.15 728 ■' AVERAGE 22.4 2.74 • . 9 : . 825 22.3 ;■ • 2.75 822 VO I- a/ Results of Experimental worlp done at the University of Arizona reported by Dr. W. H. Hale in the May 11, .1963 issue of Feedstiiffs, p. 84. The need for careful mixing lies. in the fact that even a small overdose of any of these additives might prove harmful or even fatal to the live­ stock. Mixing or "blending is therefore an exacting and critical stage of feed processing. Other feed processing stages that should be considered are grinding or chopping hay to facilitate feed handling and increase feed efficiency, and molasses blending which is quite commonly used to increase feed palatibility. Pelleting, though economically feasible for feeding other classes of livestock, does not prove to be so for cattle fattening.■ Therefore, it will be omitted from the study. Alternatives For Getting Complete Ration To Farm When livestock feeding developed in an area, expansion of feed manu­ facturing inevitably follows. Proper feed processing is becoming more important as the individuals in the feeding industry become acquainted with new feeding technology and strive to put these advances to practice. Montana now has about $0 commercial feed plants. 7/ There are also an increasing number of farm feed processing plants that are capable of grinding or rolling and mixing or blending. Many other feeders have plants that will do a partial job of processing, often leaving but the increasingly important mixing step. - 10 - 7/ Kenneth Eubanks, "The Feed Manufacturing Industry in Montana", unpub­ lished thesis, Montana State College; Bozeman, Montana, p. 15. 11 - The alternative methods whereby a farmer or feeder might acquire a complete ration are; I. Buy a complete mixed feed from a feed manufacturer or dealer, 2.. Buy only a supplement or premix and have his own grain commercially ground and mixed together with this supplement, 3. Hire a portable custom mill to come to his farm and process his feed, 4, Buy a premix and add it to his own on-the - fa m processed grain, 5» Purchase a "small power-take-off feed mill and process his own feed. 6 , Build a complete on-the-farm plant consisting of a roller or grind­ ing mill, mixer or metering system, a molasses blender, and possibly a pellet mill. The last three methods are considered to be on-the-farm processing. practical Processing Methods For Montana All of the foregoing methods of obtaining complete rations are not practical for every farm because of special problems. Conditions in Montana that affect these alternatives include the following; 1. The distance from the commercial feed processing plants to the farm feedlots is greater in Montana than for most areas in the nation. Additional transportation charges therefore must be considered. 2. Montana feeders .or potential feeders often have their own feed grain supply on the farm. 3. The existing Montana commercial feed plants have efficiency problems related to seasonal demand, low volume, variable demand from year to year and a variety of competitive situations, 4. The cost of transportation is usually too great to transport commercial feeds economically from those out-of-state areas with large, efficient, feed processing plaits. 5. The commercially prepared feeds from these efficient but distant plants would likely not be suitable for Montana feeders, though proper for the area where produced. - 22 The Research Problem The specific research problem is to determine the economic feasibility of on-the-farm feed processing for different types and scales of feeding operations. Distance from commercial feed plants to feedlots will be given consideration. Objectives The objectives of the study are; 1. To study the type of existing on-the-fa m feed processing equipment in relation to area and type of feeding being done. 2. To determine the operating, costs of farm feed plants, including costs of depreciation, interest and all other fixed and variable costs, so that cost of on-the-fam feed processing can be determined, 3. To compare the cost of feed processing on the farm with the costs of commercially processed feeds. 4. To determine the economic position of feed processing on the farm with the following variables; (a) Size of feedlot. (b) Type of plant. ■ (c) Distance from commercial processing plant. Hypotheses I To guide the study, the following hypotheses are projected: I : . 1. On-the-farm feed processing is economically feasible on some Montana farms. 2. The size of the feedlot is positively related to the economic feasi­ bility of on farm feed'processing. Limitations Because of limited research resources and the necessity to keep the ” 13 - study from becoming too cumbersome, it becomes necessary to establish cer­ tain limitations and assumptionsi I. The study.will be directed toward on-the-faim feed processors rather than all feeders in the state„ 2„ The study will be limited primarily to cattle feeders since the expansion has been in this type of feeding. 3« The assumption will be made that rations prepared by the on-the-farm plants are nutritionally sound and comparable to a commercially prepared ration 4. The relatively small population makes random sampling impractical, 5« Incomplete farm records make cost allocation to a particular enterprise on farms extremely difficult. Procedure For Phase !-Survey of Existing Plants I Virtually all of the complete on-the-farm feed processors in Montana ' were interviewed. 8/ An initial list of feeders falling into this category was obtained from a state-wide feed ingredient supplier. This list was then verified and expanded upon by contacts with county agents and inter­ viewed feeders, ' ' Personal interviews were made of on-the-farm processors in an effort to arrive at both fixed and variable operating costs. Total investment, number of head of livestock fed per year, number of tons of feed processed per year and mileage to the nearest or most desirable commercial feed processor were also obtained, -.Questions relative to why the feeders in­ stalled their own processing equipment were asked to gain knowledge of the motivating variables. 8/ In this study a complete feed processing plant will be considered to be one that mixes or blends the-' ration as well as grinds or rolls, - 1 4 - Commercial processors supplied information on commercial processing services available and on the processing charges. In an effort to isolate the trends of on-the-farm feed processing, visits were made to the. three: counties having the largest concentration of feeding in the state. These counties are Cascade, Yellowstone, and Richland. Since a complete population of all feeders is difficult to obtain, a visit wijbh the county agent and selected feeders provided a list of a few key operators in each county. Included in this list were unusual or new operations that might give some clue to trends in feed processing. Visits with equipment dealers gave added information for this phase as well as the following Phase II. Relatively large feeders who were successfully using the services of the commercial processors were inter­ viewed. Also included in this phase were visits with feeders who were partially processing their own feeds. Trends recognized in these three counties are presented as represent- ative of the trends throughout the state. Fixed Costs Plant Investment Determination.— Total investment for each plant was _ determined by taking the reported actual investment as stated by the respondent. The questions were asked in such a way as to include purchase price of all equipment, value" of any old' buildings or equipment that were included in the complete plant, and all installation and construction expenses including the value of -farm' labor in construction. In the two cases of small partial plants that were already fully depreciated, an estimate was made of the present market value and this value was used in determining depreciation and interest (or opportunity cost). ETo land value was assigned to the "plant evaluation since in most cases plant site values were negligible. I Depreciation Allowance,0 — Each interviewee was asked to express his opinion as to the expected life of his plant» These life expectancies were then used in the determination of the annual depreciation. The plant life estimates varied, hut the quality of the plants varied as well. Expected life ranged from five years for the reappraised, fully depreciated plants to 25 years for one plant of exceptional quality. Ten, fifteen and twenty years were more frequent estimates of mill life with the shorter life being assigned to plants with lighter quality equipment. The depreciation was calculated by the straight-line method. No salvage value was deductedi Plant Insurance and Property Taxes.— Difficulty was encountered in getting reliable costs for taxes and insurance. The county tax statements' do not include a separate evaluation or tax statement for the feed plants and the operators usually had not made an estimate of tax on the plant prior to this interview. A percentage of the total tax bill was used by the feedlot operators,in -determining a share to apply to the plant. Insurance on the plants varied a-great deal because of different cov­ erages and different company policy and rates. In many cases the whole farmstead was covered by one -policy and the total insurance cost had to be multiplied by the percentage of farmstead value assigned to- the feed plant. - Interest or Opportunity■Cost.— To make interest costs more comparable, a uniform procedure was used in determining the interest cost for all plants. An interest rate of rJ percent was selected as a compromise between a long term loan rate of 6 percent, short term rates of between T percent and 8 percent and equipment contract rates which often exceed 12 percent actual interest rate. «- i6 — An average interest was used because annual depreciation allowance lowers the remaining plant investment e QJhe average annual interest cost was determined "by multiplying the initial investment by 7 percent and dividing the product by two* In applying this method of deriving an interest charge, a $40,000,00 investment results in an average annual interest cost of $1,400*00 ($40,000.00 x 3&#). ■ Tractor Fixed Gostse--When a tractor was used as power for processing feed at the farm plant the tractor fixed costs were separated from the total costs, so that a better comparison of variable power costs could be obtained for data analysis. QJhe tractor fixed cost was calculated by using rates set up in a California bulletin entitled, "Machinery Costs arid Related Data", and recorded in Appendix A of this ■ thesis, QJhe costs were based on a total of 800 hours per year tractor use on the farm and in the feed plant„ Variable Costs Labor Costs.— QJhe labor cost for feed processing is a major portion of the total cost. The questionnaire was designed to determine the actual amount of labor required to operate and maintain the feed processing plant. QJhe amount of hired labor was. differentiated from the owner's labor and an attempt was made to have respondents evaluate their time by setting a wage ratea. Respondent, reply consistency for owners' salary was hard to maintain. In an attempt to set a somewhat uniform wage rate it was assumed that a plant operator must be above average in skill and reliability with some knowledge of animal nutrition as well. It was therefore decided that the relatively high farm wage rates of $3 00.per month, including house and other1'fringe" benefits, for hired help and $400 per month for owners' labor should be used in determining hourly wage rates. It was further - 17 - assumed that a 48-hour work week and a 50-week work year prevailed. ,This results in a $1 .5 0 per hour wage rate for hired labor and $2 .0 0 per hour for owner salary. These wage rates corresponded with those of the larger operators who had calculated labor costs for their plants. In the few cases requiring assistants for such jobs as hay grinding, a lower wage rate was used for the helper. There was difficulty in distinguishing processing time from feeding time since in almost all instances the same worker accomplished both tasks. Upon asking the feedlot operator to estimate the actual labor required to operate the plant, the first reply was often, "the plant is automatic and requires almost no labor". This seemed to be true' in many cases. Power Costs.— On-the-farm processing power requirements were deter­ mined from the interviews. The only adjustment needed in the power cost estimates was to apply a standard per hour variable tractor cost to the hours of tractor use reported by.the respondents who used tractor power for part of their processing. These costs were taken from the same California bulletin from which the fixed tractor costs were obtained and appear in Appendix A. Electric power costs were estimated without a great deal of variation by the respondents. ■ The reported electric costs were compared with a theoretical power requirement for grain processing and were found to be within reason. f Repair and Upkeep.— These costs were based entirely upon the operators ■records or his estimated annual cost of repair and maintenance. A small amount of upkeep might be required to maintain an idle plant but these costs would certainly be negligible. Therefore all repair and maintenance costs were considered as variable costs in the analysis. - 18 - Additional Factors Eelated to Cost Analysis Annual Feed Production,— The tons of feed processed per year were reported with apparent knowledge by the respondents „ Reported output was compared with tonnage computed by multiplying Morrison's feeding standards times the number of cattle fed per year, times the average number of days the cattle were on feed. This latter method was used as data in a few cases where the feeder had little idea of the annual feed tonnage processed. There appears to be some discrepancy in the data reported but it must be borne in mind that varying amounts of silage and unprocessed hay were fed in conjunction with the processed feeds. Mumber of Cattle Fed1Per Year.— Numbers of different species and classes of livestock were reduced to a common unit to facilitate stratifi­ cation of the observations into size groups. The unit can be defined as equal to the following: I' yearling steer or heifer carried to choice grade, or li calves wintered, or 3/4 calf carried to choice grade, or 5 ewes wintered, or 6 lambs fattened, or I cow wintered (provided she was fed processed feed throughout the winter). Commercial Processing Rates.--Custom charges were obtained by asking feedlot operators what they would be required to pay at the commercial processing plant of their choice for a similarly processed feed. These data were then verified b y .interviews with elevator operators in the area. Trucking Charges.— The cost of hauling home grown feed ingredients to and from the commercial processing plant was. determined by multiplying the reported mileage to the plant, times the rate per mil6 as shown in Appendix B. Mileage on paved roads was calculated at 21 cents per mile total oper­ ating costs and the. per mile rate for gravelled roads was estimated at - 19 - 29 cents per mile. Trucks were considered loaded both ways since the assumption was made that feed ingredients were on the farm. Five ton loads were assumed in arriving at per ton cost. Waiting Time.— Farmers cannot afford to spend long periods of time waiting for grain to be processed and mixed. As farm labor becomes more productive and expensive, and volume of processing per farm increases, the waiting time becomes more of a consideration. The waiting and hauling time reported by respondents was multiplied by $2 .50, of which $1.75 ^or average hourly wage rate and $.75 is for truck fixed costs which was split off from the per mile derivation to make a more realistic comparison between those feeders hauling short and long distances. The total cost of delivering the commercially processed feed to the feedlot was determined by mileage, times rate per mile; plus waiting and hauling hours,times $2 .5 0 per hour. Four of the respondents who had taken the pains to calculate a hauling and waiting cost for ,their own operations gave credence to the procedure and rates used in this-phase of the study. ■ Data Analysis in Total Cost. Determination ' To facilitate analysis of' data, the observations were broken down into three size groups. Stratification was made according to number of head fed per year rather, than lot capacity or mill capacity. Nine feedlots fall into the size category of 2,000 head and over fed per year. Seven of these- nine feedlots had cost data that- were usable in the cost per ton analysis, while the remaining two were included in the plant type comparison in Table VIII® The reported number of head fed per year was well-dispersed from 2 ,0 0 0 to 8 ,000 in this size group. c “ 20 — The category 1,000 to 1,999 head fed per year also comprised nine feedlots. This group had. four lots reporting 1,000 head fed per year, two reporting 1,200 and three with I,500 per year. Two lots that used commercially processed feed were eliminated from on-the-farm processing cost analysis. They had only sufficient equipment to handle the commercially processed feed after it was delivered to the feedlot. Eleven lots in the size category of I to 999 were used in the cost analysis ̂ , Four lots that made use of commercial processing were .omitted from the cost analysis, hut two of these will he discussed in a later section. The number of head fed per year ranged from 200 to 830 in this group. Procedure for. phase II— Theoretical Models Theoretical models and budgets were set up for the following; 1. Processing equipment for feedlots under 1,000 head fed per year. a. Electric powered.:mill .and percentage mixer. b. Tractor power-take-off mill-and mixer. 2. Plants for feedlots feeding 1,000 to 1,999 head per year. a. Electric powered mill and percentage mixer. h. Plant similar to 2. (a) with addition of molasses equipment. 3« Plants for feedlots feeding 2,000 and over head per year. a. - Plant suited to feedlots in valley areas of eastern Montana. b. Plant suited to dryland barley producing areas. The costs for these models were derived from feeders and equipment dealers as well as correspondence with equipment manufacturers and agricultural engineers at several Universities throughout the nation. The purpose of these models is twofold. ' First, they will show realistic costs based on interviews and brought up-to-date by present day costs of building. ■ Second, the models will incorporate all of the ideas in plant design that can be obtained from the above-mentioned sources. 3 CHAPTER II - EMPIRICAL OBSERVATIONS A total of 38 Montana farm feedlots were visited during the first seven months of 1963 in an effort to determine the actual per ton costs of on-the-farm feed processing. Twenty-five of these interviews resulted in complete, reliable information; ' The remainder were using a combination of commercial and on-the-farm processing or gave such incomplete results that the questionnaires were rendered useless for cost analysis. Data from all 38 interviews were, used in determination of existing plant type and trends in feed processing. This chapter is devoted to the reporting and evaluation of data from this survey. Description of Existing Gn-the-Fann Feed Processing - Trends in Processing The feeders who were contacted indicated a strong interest In live­ stock feeding in Montana. They recognized the technological advancements ' that are taking place in the feeding industry and realized the need for the adoption of these changes." Many felt the keen competition from other areas and realized the need for maximum efficiency and economy in their own feedlots. A desire to keep up with their neighbors seemed to be a contributing factor in some feeder's decision to process their own feed. These three factors seemed to account for the trend toward feed pro­ cessing on the farm in Montana, Rations The observations made during this survey indicate certain feeding areas in Montana that were characterized by different types of feed plants and feed rations. W 'f. " 22 — The interviewed Yellowstone Valley feeders usually fed a relatively high proportion of alfalfa hay and c o m silage. Very few of these feeders fed molasses but virtually dll fed dried molasses beet pulp,' Typical rations from this area can be summarized as follows; Growing ration: Chopped alfalfa hay C o m silage Dried beet pulp ■Supplement Ground or rolled barley 5 pounds 15 pounds 2- 3 pounds I pound 3- 4 pounds Fattening ration: . ■ Chopped alfalfa 2 pounds Corn silage 4 pounds Dried beet pulp 5 pounds Supplement ■ I pound Ground or rolled barley 10-12 pounds These rations by no means contain a complete listing of all feeds used nor do they typify each and every feedlot operation. They are used to indicate, the type of feed used in the area. Great Falls area feeders fed similar rations with the following exceptions; (l) Very little dried beet pulp was used in the plants that were visited. ~ (2) Molasses was used at the rate of about five to seven percent of the ration in over half of the cases. (3 ) Corn silage was used quite extensively but usually at a lower-daily rate. (4) The rajbions therefore were usually made up of a higher percentage of barley than were the Yellowstone area rations. The intermountain ranching area plants that were visited were designed to winter calves, cows and ewes. The ration therefore consisted primarily of molassified hay with supplementation. - 23 - Plant Type ~by Area It can be readily seen that plant type requirements must differ to some extent for processing these different rations. The Yellowstone Valley area did have a larger percentage of hay processing equipment (often a tractor powered field chopper), more hammer- mills and a lower percentage of roller mills than the Great Falls area. It logically follows that the Great Falls area had more roller mills and a larger percentage of plants with molasses equipment. The ranching area had plants that were well adapted to hay processing, but lacked facilities for processing rations with a large percentage of grains. Cost of Farm Processed Feeds Complete ingredient weights and costs for a year were obtained from eight of the respondents. Table VII shows tlese data together with a cost comparison of rations containing plant processed hay with rations based on rolled barley. The costs of the hay rations were lower per ton but validity of any conclusions made .must be weighed with care because of small sample numbers and lack of comparative nutritive values for the two rations. Opportunity "Costs" for Labor A question was asked of the interviewees pertinent to the use of otherwise nonutilized labor on the farm. Most respondents who answered felt that there wasn't much off-season or slack time that could be put to use in feed processing. Most farms, large enough to consider on- the-farm feed processing, do not have year-around surplus labor. Since year-around feeding is desirable to get ample feedlot volume to pay fixed costs, it seems illogical to assume that off season work can apply to feed processing. Possible exceptions might be found in wintering operations TABLE VII. GOST COMPARISON OF FARM PROCESSED FEEDS FOR TWO TYPES OF RATIONS. Hay, Coneen,£ratg & Premix a/ Concentrate & PremiK a/ Ingredient Processing Total Ingredient Processing Total Cost Cost Ration Cost Cost Ration Cost _________________ Cost Per Ton Per Ton Per Ton Per Ton Per Ton Per Ton Observation $33.81 $0.94 $34.75 $37.77 $1.44 $39.21 . Observation $31.34 $4.60 $35.94 $37.31 $1.58 $38.89 ' Observation $36.12 $3.77 $39.89 Observation $37.78 $3.67 $41.45 Observation $39.77 $2.46 $42,23 Observation $39.24 $3.19 $42.43 AVERAGES $32,58 $2.77 $35.35 $38.00 $2.68 $40.68 a/ Rations similar to those discussed on page 21. j - 25 - using tractor powered processing equipment. Utilizing. Idle Capital Resources Previously acquired building and equipment were utilized to a limited extent in new plants visited. Storage facilities and tractor powered hay choppers were the most frequent items of existing capital investment that were incorporated into the new feed processing systems. Nutritional Disease In replying to a question on prevalance of nutritional disease and ration deficiencies relative to home processed feeds, the feeders indicated a need for careful processing of the barley to prevent bloat and "going- off -feed". This was felt to be especially important when low roughage levels were fed. One case of calcium shortage did occur on a high barley ration; this was corrected by the addition of a calcium supplement. In general, there seemed to be no great problem with nutritional diseases in the Montana feedlots visited. Nutritional quality of the farm processed rations therefore does not appear to be a limiting factor in the economic feasibility of farm processing. Type of Plant Plant equipment frequencies by size category are exhibited in Table VIII. The plants in the larger size group had a larger percentage of mixers and were more likely to have a roller mill than a hammefmill. There seemed to be no relationship of molasses blending to plant size. The use of molasses was found to follow area lines rather than be ' influenced by plant size. A much smaller incidence of molasses use occurred in areas where the ration, was built around rolled barley than in areas where corn silage and dried beet pulp were utilized as feed ingredients. Thirty-two of the 38 visited plants did their own processing (the sample was taken to include predominately on-the-farm processors). Only — 26 — three of the 38 mixed their own premix or supplement. Three of the visited plants made use of water tempering prior to barley rolling and one had steam-roller facilities. Mixers of various types were common among the visited plants. Twelve plants had batch mixers, ten had percentage type continuous mixers and all but five of the remaining 16 used a feeder box or feed wagon that did a degree of mixing. Investment Per-Head Actual plant investment per head is exhibited in Figure I. The average for the size groups was used to determine the curve. Variation in.investment per head fed annually was found to be extreme at the small lot size level; it ranged from $6 .2 5 for an older, tractor powered mill and auger setup to $100 for a modern, complete, electrically powered plant. The extremes in this size group point out the necessity for planning the proper size and type of plant for the anticipated feedlot capacity, The medium and larger size plants had less variation in plant invest­ ment per head. Extremely high per head investments did not occur because of better plant design and nearer to optimum plant utilization. Extremely low per head investments were also unlikely to occur because the plants in these size groups were relatively new and, were as a rule, designed to accommodate new labor saving techniques. Mean plant investment per head for the three size'groups was checked for statistical,significance by the "Analysis of Variance" and the "F" test and was found significant at the 10 percent level. If variance had been less in the small lot category the means would have demonstrated higher significance. 9/ 9/ Robert G. S. Steel and James H. Torrie, Principles and Procedures of Statistics, (New York; McGraw-Hill Book Company, Inc., I960), pp. 112- 113 and 438.. v ;■ TABLE VIII. PLANT INVESTMENT AND TYPE OF FABM PLANT Type of.Mill Investment Number of Visited Lots Having No. Plant Per ! The Following~~ Size of Investment Head Fed Roller Hammer Molasses Group Lots Average Annually__ Mixer . Mill Mill Blender 2,000 & over 9 $34,*77.00 $8.77 6 7 I 4 1,000 to. 1,999 9 17,811.00 14.88 5 4 3 I I to 999 11 14,500.00 25.70 8 4 7 4 Group With Incomplete Cost Data 5 3 2 3 3 Group With No Equipment 4 - - - - TOTALS 38 22 17 14 12 - 28 - Total Per Ton Costs ■ ■ Processing costs for the 25 feed plants whose operators gave complete cost data are shown in the scatter diagram of Figure 2, Further cost analysis and size stratification are exhibited in Tables IX through XVII. By observing Figure 2. -} extreme cost variation • can be noted among the farm processors in the smaller size group with less variation in the medium size group and almost none in the larger category. The free hand graph connecting the group averages indicates that economics of size do exist in farm feed processing. However by referring again to the small size group it can be noted that many of these small operators are pro­ cessing at a cost that is comparable to the larger operators. Operational inefficiencies and poor plant design can be held responsible for many of the more costly operations in this category. The lowest cost operation that was observed occurred in the smaller end of the 1,000 to 1,999 size group. This feeder was using an almost ■ automatic mill of relatively low initial cost and low capacity. This system was designed so that the equipment was being fully utilized without the use of excessive labor. More will be said about this plant in Chapter III. The higher cost operations were the result of over designed, too costly plants that were not being fully utilized. These plants were not designed to give maximum labor efficiency nor were other variable operating costs lower than average. These are good examples of imbalance of resources with over-building resulting in much higher than average fixed costs. Total Per Ton Processing Costs By Size Groups Individual observations were broken down to show the reported fixed and variable operating costs. Averages for each size group were determined for use in comparison with commercial rates in a later section. Actual Observations Average Investment Per Head Fed Per Year for Size Groups. t) 60 Investment Per Head 5000 6000 Head Fed Per Year Figure I. Dispersion, variance and average of actual plant investment per head fed annually. - 30 — • The feedlots are listed in Tables IX through XVII according to number of head fed per year. Starting with the largest as number one on Table IX and becoming smaller through Table X and Table XI. The same numbering order is used for the variable cost tables and the total cost, tables that follow. Fixed Costs ■ Costs of processing feeds that continue regardless of plant use were separated from other costs that are in direct proportion to the plant out­ put, The per ton fixed costs were derived by dividing the reported annual fixed cost by the reported annual feed output. The average fixed cost per ton is inversely related to the number of cattle fed annually. The per ton fixed costs for the large size group ranged from to $ .9 1 with an average of the medium size group ranged from $.4? to $1 .8 7 with an average of $1.17; and for the small size group,, the per ton fixed ,costs ranged from $.84 to $4.23 with a group average of $1.84, A complete breakdown of fixed costs for all respondents is shown in Tables IX to XI. Variation increased with the smaller size groups. This variation is due in part to plants that were too costly in relation to annual feed output. The effect of these fixed costs on the total costs will be readily seen in a later subsection on total per ton costs. Variable Costs -The average variable cost per ton of feed also has an inverse relationship to feedlot size. The group averages were $.82; $1.40 and $2 .0 5 for the large, medium and small size groups respectively. See Tables XII..to XIV. ' The electric and other power per ton of feed shows considerable consistency in the larger plants with more variation in the small and medium size groups in which part of the processing power source was from farm tractors. Further variation in power requirements can be explained X = Mean Tonnage and Costs for Size Groups . = Individual Observations Farm Processing Costs 10 12 14 Feed Output Per Year (1000 tons) Figure 2. Costs and annual output of surveyed plants. - 32 •* by the varying electrical rates and the different types of service charges and minimums that the power companies require to pay for the installation of heavy duty three-phase lines. One operator reported having paid a flat hook-up fee rather than an" increased monthly rate. Considerable variation is noted in.comparing the repair and maintenance costs per ton in these tables. This wide variation is due in part to lack of adequate farm records. Also, the different types of processing mills require different annual repairs. One operator reported regrooving his roller mill rolls twice a, year which increased his repair and maintenance cost by $600 annually for this item alone. Labor costs per ton also revealed considerable variance with the inverse relationship to lot size holding true for this cost item also. Many of the larger lots had processing equipment that required little supervision while some smaller plants required almost constant, watching. Hay processing plants were among the least efficient in labor utilization. The small and medium size groups showed greater variation in variable costs than did the larger size group, This indicates that there were some operators in these groups that had plants relatively efficient in labor and power use. (Refer again to Table XIV.) Total Cost Per Ton . The summation of fixed costs and variable costs for each respondent comprises his total processing cost per ton of feed. Total cost per ton for the large size group ranged from per ton to $1.82 and averaged $1 .3 6. The range of the medium size group was $ .7 8 to $3 .9 0 with $2.57 being the group average. Small size plants, varied from " $2.46 to $6.26 for total per ton costs and had an average of $3 .8 9. See Table XV to XVII. Variation within the small size group is extreme in comparison to the other size groups. This is due primarily to the extreme variations in / . S TABLE IX. BREAKDOWN OF FIXED COSTS FOR SIZE CATEGORY 2,000 HEAD AHD OVER FED PER YEAR. Feed- Plant lot Invest- No. ■ ment Plant Depreci­ ation Per Yr. Tractor Fixed Costs Per Yr. Interest or Opportunity Cost Per Yr. Insur­ ance Per Yr. Tax Per Yr. Total Fixed Costs Per Year Per Ton I $65,000.00 $2,600.00 III-CO- $2,275.00 :$1 ,000.00 $170.00 $6,045.00 $0.40 2 60,000.00 3,000.00 2 ,100.00 480.00 200.00 5,780.00 0.64 3 a/40,000.00 - " ” M - — ■* ~ - 4 25,^00.00 1,250.00 — — « 875.00 620.00 100.00 2,845.00 0.44 5 32.500.00 1,625.00 — — 1,138.00 250.00 70.00 3,083.00 0.46 6 8,500.00 567.00 296.00 5.0.00 50.00 963.00 0.31 7 b/43,000.00 2,650.00 — — “ -lj-855.00 350.00 200.00 5,055.00 1.53 .. 8 25,000.00 1,250.00 185.00 875.00 100.00 50.00 2,275.00 0.91 9 14,000.00 933.00 •****" 490.00 . 50.00 50.00 1,708.00 0.64 7 230,000.00 Mean 11,225.00 185.00 8,049.00 2,550.00 690.00 22,699.00 3.80 of 7 32,857.00 1,604.00 26.00 1,150.00 364.00 99.00 3,243.00 . 0.54 aj Plant too new to have operating costs available. b j Combination farm.processing and commercial rolling. Not included in averages. J TABLE X e BREAKDOWN OF FIXED COSTS FOR SIZE GROUP 1,000 to 1,999 HEAD FED PER YEAR Interest Total Fixed Plant Tractor or Oppor- Costs Feed- Plant Bepreci- Fixed tunity Insur- Tax lot Invest- afcion Cost Cost an ce Per No. ment Per Yr. Per Yr.. Per Yr. Per yr. Yr. Per Yr. Per Ton 10a/$ 1,500.00 $ 100.00 $- * -$ 52.00 $ - - - $ 10.00 $ 162.00 $0.06 11 40,000.00 2,000.00 — — - 1,400.00 100.00 300.00 3,800.00 1.85 12 18,000.00 900.00 - - - 630.00 100.00 100.00 1,730.00 0.9$ 13 7,000.00 700.00 - - - 245.00 50.00 100.00 1,095.00 1.10 14a/ 1,600.00 107.00 - - -, 56,00 10.00 173.00 0.48 15 5,000.00 333.00 - - - 175.00 40.00 50.00 598.00 0.47 16 9,177.00 918.00 284.00 321.00 10.00 50.00 1,583.00 1.34 17 36,000.00 1,800.00 81.001,260.00 38.00 90.00 3,269.00 1.87 18 mT 9,500.00 633.00 - - 3 3 2 . 0 0 60.00 50.00 1,075.00 0.61 iL 124,677.00 Mean 7,284.00 365.004,363.00 398.00 740.00 13,150.00 8.20 of 7 17,811.00 1,041.00 52.00 623.00 57.00 106.00 1,879.00 1,17 a/ These feedlofcs had no grain processing equipment; only bins and augers to load out commercially processed feeds. The data from these lots were not used in cost averages. TABLE XI. BREAKDOWN OF FIXED COSTS FOR SIZE CATEGORY I -- 999 HEAD FED PER YEAR. Feed- lot No. - Plant Invest­ ment Plant Depreci­ ation Per Yr. Tractor Fixed Cost Per Yr. Interest or Opportunity Cost Per Year Insur­ ance . Per Yr. Tax Total Fixed Costs ■ Per - Yr. Per -Yr. Per Ton 19 $20,000.00 $1,000.00 $ ---- $ 700.00 $200.00 $ 40.00 $1,940.00 $1.96 20 25,000.OO 1,250.00 — — — 875.00 100.00 50.00 2,275.00 2.25 21 4,300.00 620.00 — — — 310.00 50.00 70.00 1,050.00 1.01 22 4,900.00 500.00 241.00 168,00 - • 60.00 969.00 1.34 23 7,000.00 467.00 28Ii00 245.00 20.00 20; 00 1,033.00 1.33 24a/ 40,000.00 2,000.00 337.00 1,400.00 250.00 100.00 4,087.00 3.21 25a/ 50,000.00 2,500.00 — — — 1,750.00 100.00 300.00 4,650.00 4.23 26 2,450.00 245.00 147.00 86.00 - - - 20.00 498.00 1.19 27 3,052.00 305.00 147.00 107.00 - — “ 20.00 579.00 1.38 28 1,250.00 50.00 133.00 50.00 - - - 50.00 ' 283.00 0.84 29 1,550.00 50.00 98.00 55.00 - - - 20.00 223.00 1.42 11 J2L 159,502.00 Mean 8,987.00 1,384.00 5,746.00 720.00 750.00 17,587.00 20.16 of 11 14,500.00 817.00 126.00 522.00 65.00 68.00 1,599.00 1.84 a/ Feed plants that included storage for "haylage". TABLE XII. BREAKDOWN OF VARIABLE COSTS FOR SIZE CATEGORY 2,000 HEAD AND OVER FED PER YEAR Electric and Repair, Upkeep Labor Total.Variable Feed Other Power and Misc. Cost Costs Lot ' No. Per Yr. Per Ton Per Yr. Per Ton Per Yr. Pet Ton Per,Yr. Per Ton I $4,800.00 $0.31 $500.00 $0.03 $3,000.00 $0.20 $8,300.00 $0.54 2 2,000.00 0.22 700.00 0.07 2,250.00 0.25 4,950.00 . 0.54 3 a/ 4 2,281.00 0.35 638.00 0.10 3,285.00 0.50 6,204.00 0.95 5 ■ 2,800.00 0.42 650.00 0.10 3,600.00 0.54 7,050.00 1.06 6 600.00 0.19 100.00 0.-03 1,800.00 0.58 2,500.00 0.80 7b/ 1,200.00 0.36 300.00 d.ib 1,600.00 0.48 3,100.00 0.94 8 700.00 0.28 100.00 0 ; 03 1,500.00 0.60 2,300.00 0.91 9 956.00 0.36 70.00 0.02 1,500.00 0.56 2,526.00 0.94 , i 7 S 2.13 0.38 » w e „ 3.23 . . . C 5.74 1 Mean - . of 7 ** “ - 0.30 •* . — ” 0.06 0.46 . 0.82 5/ Plant too new to have operating costs available. W .Combination farm processing and commercial rolling. Not included in averages. TABLE XIII. BREAKDOWN OF FED PER YEAR, VARIABLE COSTS FOR SIZE CATEGORY 1,000 - 1,999 HEAD % Electric and Repair, Upkeep Labor Total Variable Feed- lot Other Power and Misc. Cost Costs No. Per Yr. Per Ton Per Yr; Per Ton Per Yr. Per Ton Per Yr. Per Ton IC a/ $ 30.00 $0.01 ̂™ ■ ■ $ - - - $ $ -30.00 $0.01 11 ' 936.00 0.46 2,000.00 0.98 Ii000.00 0.49 3,936.00 1.92 12 . 720.00 0.40 200.00 0.11 1,000.00 0.56 1,920.00 1.07 13 700.00 0.70 100.00 0.10 2,000.00 2.00 2,800.00 2.80 14 a/ 20.00 0.06 — •» — - - - — — — *■ — * 20.00 0.06 15 240.00 0.20 100.00 0.07 50.00 0.04 390.00 0.31 16 847.00 0.72 100.00 0.08 1,800.00 1.53 2,747.00 2.33 17 535.00 , 0.31 600.00 0.34 300.00 0.17 - 1,435.00 0.82 ■_ 18 240.00 0.14 100.00 0.05 576.00 0.33 916.00 0.53 7 5 LMean - - - 2.93 1.73 5.12 . - - — 9.78 of 7 0.42 0.25 0.73 , 1.40 a/ These feedlots had no grain processing equipment, only bins and augers to load out commercially processed feeds. The data from these lots were omitted from the averages.' TABLE XIV. BREAKDOWN OF VARIABLE COSTS FOR SIZE CATEGORY I - 999 HEAD FED BER YEAR Electric and Repair, Upkeep Labor Total Variable Feed- lot No. Other Power and Misc. Cost Cost Per Yr. Per Ton Per Yr. Per Ton Per Yr. Per Ton Per Yr. Per Ton 19 $480.00 $0.49 $500:00 $0.51 $1,620.00 $1.64 $2,600.00 $2.64 20 750.00 0.74 100.00 0.10 600.00 0.59 1,450.00 1.43 21 600.00 0.58 300.00 0.28 840.00 0.81 1,740.00 1.67 22 425.00 0.59 80.00 0.10 960.00 1.33 1,465.00 2.02 23 600.00 0.77 30.00 0.05 240.00 0.31 870.00 1.13 24 a/ 681.00 0.53 150.00 0.12 3,000.00 2.35 3,831.00 3.00 25 a/ 330.00 0.30 100.00 0.09 1,800.00 1.64 2,230.00 2.03 26 240.00 0.57 120.00 0.29 400.00 0.95 760.00 1.81 27 240.00 0.57 120.00 0i29 400.00 0.95 760.00 1.81 28 271.00 0.80 25.00 . 0.07 300.00 0.88 596.00 1.75 . . *29 182.00 1.15 100.00 0.63 240.00 1.52 522.00 3.30 w CO 11 » ° ~ ” 7.09 - - ” 2.53 " • - 12.97 - - - 22.59 Mean of 11 ■ = *» 0.64 0.23 - 1.18 - - _ - 2.05 a/ Feed plants that included storage for "Haylage". 39 - fixed and variable costs for this category, resulting from extremes in plant investment and plant type. Total Costs For Three Size Groups Compared A comparison of the fixed, variable and total costs for the three size groups together with overall average costs from the complete survey are shown in Table XVIII. These tabular results are shown in a more con­ cise manner in Figure 3® . ' The averages were checked for statistical significance by using the "Analysis of Variance" and the "F" test. 10/ They were found to be signi­ ficant at the I percent level despite the great variance in data. Management An attempt has been made.to include all fixed and variable costs and to analyze them in the best way possible. There is however, one production factor,that remains to be discussed. Management becomes the limiting . factor on many modern day farms. This study has included the manager's wage allowance while - working at the feed mill but there still remains an intangible management factor that defies pricing by anyone other than the feedlot operator himself. Statements by two medium sized feeders who were using commercially rolled feeds, emphasize this hidden factor. They said that they were certain that they could reduce costs by processing their own feeds but they didn't want the added responsibility of managing another business. They felt that their managing ability was put to better use in buying feed and marketing cattle. 10/ Steele and Torrie, Ioc. cit. I TABLE XV. COMPARISON OF FIXED, VARIABLE, AND TOTAL COSTS WITH TONS OF FEED PROCESSED FOR SIZE GROUP 2,000 AND OVER. Feed- Total Variable Total Fixed Total Costs Tons Processed lot .Costs Costs Per Ton Per Year No. Per Ton Per Ton I $ 0.54 $ 0.40 $ 0.94 15,300 2 3 a/ 4 0.54 0.64 1.18 9,100 0.95 0.44 1.39 6,565 5 1.06 0.46 1.52 6,650 6 0.80 0.31 1.11 3,126 7 b/ 0.94 1.53 6.49 3,304 8 0.91 0.91 1.82 2,520 9 0.94 0.64 1.58 2,680 7 z .Mean 5.74 3.80 9.59 - “ - of 7 . 0.82 0.54 1.36 6,563 a/ Plant too new to have operating costs available. b/ Combination farm processing and commercial rolling, not included in averages. TABLE XVI0 COMPARISON OF FIXED, VARIABLE AND TOTAL COSTS, WITH.TONS OF FEED PROCESSED FOR SIZE GROUP 1,000 - 1,999. Feed- lot No. . Total Variable Costs Per Ton . Total Fixed Costs Per Ton Total Costs Per Ton Tons Processed Per Year 10 a/ $0 .0 1 $0.06 $0.07 2,600 11 1.92 1.85 3.77 2,050 12 1.07 .0.96 2.03 1,800 13 2.80 1.10 3.90 1,000 14 a/ 0.06 0.48 0.54 360 15 0,31 0.47 0.78 1,260 16 2.33 ' 1.34 3.67 1,180 17 0.82 1.87 2.69 1,750 18 0.53 0.61 1.14 . 1,750 7 Mean 9.78 8 .2 0 17.98 " - - of 7 1.40 . . 1.17 2.57 1,541 a/ These feedlbts had no grain processing equipment, only bins and augers to load out commercially processed feeds. The data from these lots were not included in calculations. TABLE XVII. COMPARISON OF PROCESSED,FOR FIXED, VARIABLE AMD SIZE GROUP I - 999. TOTAL COSTS, WITH TONS OF FEED Feed- Total Variable Total Fixed Total Costs Tons Processed lot • Costs Costs Per- Ton Per Year No. Per Ton Per Ton 19 $2.64 $1.96 $4.60 988 20 1.43 2.25 3.68 1,012 21 1.67 1 .01 2 .68 - 1,040 22 2 .02 1.34 3.36 724 23 1.13 1.33 2.46 775 24 a/ 3.00 3.21 6 .2 1 1,275 25 a/ 2.03 4.23 6.26 1,100 26 1.81 1.19 3.00 420 27 1.81 1.36 3.19 420 28 1.75 . 0.84 2.59 - 340 29 3.30 1.42 4.72 158 11 X 22.59 20.16 42.75 - — — Mean . of 11 2.05 1.84 3.89 752 a/ Feed plants that included storage for "Haylage". = 43 " TABLE XVIII. COMPARING FIXED, VARIABLE AND TOTAL COST FOR PROCESSING FEEDS ON THE FARM FOR ALL THREE SIZE GROUPS. ' Variable Costs Fixed Costs Total Costs 2 ,0 0 0 and over $0 .8 2 $0.54 $1.36 1 ,0 0 0 - 1,999 ' 1.40 1.17 2.57 I - 999 2.05 1.84 3.89 TOTAL 4.27. 3.55 7 .8 2 Average for A U Size Groups 1.42 1.19 . 2 .6 1 Each operator should add such value, to the top of the "bars on Figure I to the extent that he 'will he compensated for his mental strain and anxiety from managing another enterprise. For some people the feeling of accomplishment and the pride of ownership may be ample compensation for this management factor. Relating On-The-Farm Processing Costs To Commercial.Processing Costs Practicability of farm processing can be determined by comparing the average costs of on-the-farm processing with commercial processing rates prevalent in the state. Survey results revealed that commercial charges for steam rolling and adding supplement to barley ranged from $3*00 a ton to $5.00, with $4.00 being the average as well as the most frequent charge. Grinding charges were approximately $1 .0 0 per ton lower or $3 .0 0 a ton average. Some farm feed plants in the smaller size group used a grinder rather than than roller mill. In these cases the grinding rate was used in calculating the comparable commercial cost. An overall average commercial rate of $3 .8 0 was thereby determined. - 44 - I to 999sr 1 ,000 to 1 ,9 9 9 Number Head of Cattle Fed Per Year 2.000 and . Farm processing costs per ton of feed by size groups.Figure 3 “ *̂5 “ Effect of Varying Commercial charges The effect of the different observed commercial processing charges can be seen in Figure 4e The farm processing curve is the curve derived in Figure 2 and indicates an average of all farm feed plant observations according to size groups„ At the $3»00 per ton rate the breakeven point of farm processing to commercial processing falls at about 1 ,200 tons of feed or 900 head of cattle fed per year, At the average reported commercial rate of $3»80, the breakeven point was 480 head fed per year. While at the $5.00 per ton charge, all but two of the most inefficient’ of the observed farm plants could effectively compete with the commercial charge. Transportation Costs Up until this point in the analysis, the comparisons have not included transportation costs from the commercial plant to the farmer5s feedlot. ’ In other words the assumption was made that the feedlot was either located adjacent to the commercial feed plant or that all of the feed ingredients must be hauled from the same general area as the commercial plant, These assumptions are certainly not realistic for the Montana area where feed production is often on the same farm .as the feedlot, or feed ingredients can be delivered to the feedlot by the neighbors at the prevailing elevator price o How let us assume that the feed is. on the feedlot location and that transportation costs to and from the commercial plant must be added. Figure 5 emphasizes the effect of additional distance of feedlot from commercial plant. Arbitrary five and ten mile distances are shown for comparative purposes* The. per mile rates for operating trucks used are the ones outlined in the procedure section of the first chapter and in Appendix Bo One survey respondent reported that trucking costs were about $,50 per v C Pr oc es si ng C os t Pe r To n of F ee d $5 $5.00 rolling rate found in one Montana area 480 head2000 I4000 6000 \8000 10,000- - 12,000- 14,000 Tons of Feed Processed Annually Figure 4. Effects of varying commercial processing rates. & » Ii-rJ «, loaded mile ($ .2 5 each way on the round trip) and another estimated $1 .0 0 per ton truck charge for a seven mile haul. ' Waiting Time Waiting time at the elevator can also have its effect on feasibility of on-the-farm feed processing. The two hour waiting time was most fre­ quently given as an answer to a "waiting time" question on the survey. One operator reported that he allowed a half day to get a five ton load of barley rolled^ others figured $1.00 per ton plus labor for hauling and waiting. A two hour wait, times $2 .5 0 per hour (derived in the methods section) is indicated by the upper solid lines on Figure 5« A more conservative but theoretically feasible wait of l/2 to 3 / k hour is indicated by the lower broken lines. This shorter waiting time was reported by users of commer­ cially rolled grain who had worked out satisfactory arrangements with the commercial operators. It can be noted from this diagram that savings for the smaller feeder can be realized by commercial processing (if the trucking distance is not too great.and if the service at the elevator is good. Savings By On-The-Farm Processing According to the results of the survey, substantial savings were being made by farm feed processors. Savings of $2.64 and $1.29 for the large and medium size groups and a loss of $0,34"per ton for the small size group were indicated when no allowance was made for farmer's transportation costs. When transportation,costs were included, the savings were $4.50, $2 ,6 5 and $2 .6 6 per ton for the large, medium and small size groups respectively. : 1 ■■■. s Pr oc es si ng C os t Pe r To n of F ee d 10 mile haul with 2 hour wait 5 mile haul with 2 hour wait _10 mile haul with 3/4 hour wa.it_ 5 mile haul with 1/2 hour wait Prevalent custom processing rate Farm cost for processing 6000 8000 Tons Processed Annually Figure 5. Effects of varying distance from commercial processor. These results should not he surprising to the reader when certain factors are considered® (l) Montana commercial processing rates appear to he higher than the Midwest areas where similar studies have been made® This also should not he amazing since the seasonality of Montana feeding has certainly not been conducive to maximum efficiency of commercial operations„ (2) Farm processors have access to lower cost labor than most commercial feed plants® (3) Labor requirements for the farmer are often no higher for processing"his own feed at home than waiting at the commercial roller. (4) Transportation costs that the farmer must incur to get feed to and from, the commercial processor ranged from $1.36 for the medium size group to $3.00 for the small size group. Differences in distance from the feedlots to the commercial plants were not significantly different for. the medium and large size groups but the distance from the small size group was significantly greater. The explanation for this probably lies in the fact that the I - 999 head group was made up of more typical farm type operations where the feedlot was secondary in importance to the other farm enterprises. The farms with the larger feedlots, on the other hand, were often owned by livestock dealers or other city residents and were purchased.for the primary purpose of feedlot development. Location was therefore a consideration at.the time of the farm purchase. ~ Ironically, distance becomes more of a prohibiting factor to the very size group that should otherwise have been able to gain an economic advantage by commercial processing. ■ • Additional information on -reported commercial processing rates can be noted in Table XIX. The cost of commercial processing actually declines as the lot size decreases'. This is perhaps misleading, but can be explained by the fact that the smaller size group farm plants used a greater percent­ age of hammermills than did the other size categories. The comparable I= 50 = commercial charge for these specific lots was based on. the custom plant’s charge for similar processing. Uhis procedure was necessary to permit an unbiased comparison between on-the-farm and commercial processing. Errors due to nutritional and processing quality differences of the farm hammer mill plants would have otherwise biased this study in favor of the farm processor. The two columns listing calculated savings by on-the-farm processing were based on two assumptions as to location.of feed ingredients. con­ sideration of these two assumptions can be the key to the feasibility of on-the-farm .feed processing. Other Commercial Processing Methods Observed Processing home grown feeds at the feedlot location can be accom­ plished by portable custom feed mills. One lamb feeder was having his home grown feeds ground and pelleted on the farm by a portable custom pellet mill. The charge was $12.00 per ton, which added to the feeder’s reported $3 0 .0 0 ingredient cost, resulted in a complete pelleted feed for $42,00 per ton* This was a, $4.00 saving from the delivered price of a similar commercially prepared pellet. Portable custom milling and mixing units were observed. The hourly rates for these units ranged from ■ $12«;00 to $18.00. Their capacity is three to five tons per hour; therefore the per ton price varied from $3«50 to $5»00, This method of processing should prove economically feasible for many small feeders. Summary Despite a relatively small sample, highly significant and conclusive results were obtained. Montana feeders are shifting toward home processing of their feeds in an effort to reduce their feed costs. TABLE XIX, COMPARING MILEAGE FROM COMMERCIAL FEED PLANT, TOTAL COSTS OF PROCESSING FEEDS AT FARM PLANT AND CORRESPONDING COMMERCIAL RATE PLUS TRANS­ PORTATION COSTS TO FARM FEEDLOTS AS REPORTED BY SURVEY RESPONDENTS. 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