Costs and Returns for Producing Michigan Asparagus (E3315)DOWNLOAD FILE
September 21, 2016 - Author: Ben Werling
• Interviews were conducted with nine growers with a total of 1,200 acres of asparagus.
• Establishment costs for new asparagus were estimated to be $4,082 per acre.
• The market is shifting toward mixed production of cuts and tips, spears and fresh-market asparagus.
• Growers reported longer and higher peak yields in 2015 compared to 2009.
• Housing for labor was estimated to cost $93 per acre per year for asparagus or $0.03 per pound.
• Net cash flows of $1,422 per acre were expected for peak bearing years.
• Cash flows became positive by Year 4, with accumu-lated negative cash flows completely paid off by Year 8.
• A price of $0.64 per pound is required to cover cash costs of production.
• For stands with a peak yield of 4,000 pounds, a price of $0.72 per pound is required to cover all costs, including a target rate of return of 7% on funds.
• The breakeven price assuming a 7% target rate of return increases to $0.80 per pound for a peak yield of 3,500 pounds per acre.
• Increasing duration of peak yields will lead to higher returns over the life of a stand by increasing years with positive cash flow.
Michigan has ranked second or third nationally in asparagus production since the last cost of production study was conducted in 2009 (Dartt, 2009). In 2015, Michigan growers harvested 22 million pounds of asparagus from 8,900 acres valued at $19.7 million (USDA National Agricultural Statistics Service, 2015). This production comes from well-drained soils in the western Lower Peninsula. Asparagus is planted on these soils from rootstock, or “crowns,” planted 8 to 10 inches deep. The plants send up shoots in the spring, which are not harvested the year of planting and minimally harvested in the second year. This allows shoots to leaf out or develop “fern” and all the plants energy to be devoted to establishment. In the third and following years, asparagus shoots are harvested multiple times, with 20 or more pickings from mid-May to June.
Michigan asparagus is hand-harvested for multiple markets. Harvest crews travelling over rows on motorized carts snap spears at their base. Crews snap asparagus at different lengths for different markets. Asparagus is snapped at 7.5 inches for both cuts and tips, and frozen spears. For cuts and tips, asparagus is cut into smaller pieces at local processors for use in frozen food. For spears, the entire spear is canned or frozen. Finally, asparagus is snapped at 9.5 inches for the fresh market and sent to local packers, who ship this product to regional grocery stores. Each field can be picked multiple times, with growers making decisions daily about what markets each field should be picked for.
The Michigan asparagus industry has created updated budgets every 7 years since 1995, allowing growers to track changes in production costs and returns. Since the last study in 2009, significant changes in asparagus marketing have taken place. In the 2009 study, 100% of the crop was budgeted for cuts and tips. The market has now transformed to include significant spear and fresh-market production. Our goal was to create a budget accounting for this mixed production to:
• Provide the industry an updated, unbiased cost of production as of 2015.
• Highlight changes in costs and returns since 2009.
• Estimate the cost of housing labor to the producer.
• Show cash flows over time for a typical asparagus planting.
• To standardize machinery operating costs, we used published custom rates (Stein, 2015) and local custom rates reported by agriculture suppliers and growers.
• Crop inputs were based on:
– The predominant practice used by cooperators.
– Cost/unit for inputs based on Oceana County and Mason County growers and agriculture suppliers.
– The average or predominant rate per acre of inputs, whichever the data suggested was more relevant.
– Information from those growers with the best records for specific costs, when not all growers were able to provide information.
• Tailgate prices were used to calculate revenues, which are prices paid to producers after reductions in price due to grade. For example, the contracted price for cuts and tips was $.79 per pound, but if 96% of the delivered product met grade, the actual price to the producer was $.76 per pound.
• This budget is based on interviews of experienced producers using best management practices. Actual costs and returns will vary from farm to farm.
• We used the same format as the 2002 and 2009 studies so the industry can consistently track changes in costs and returns by category
We met individually with nine commercial growers representing approximately 1,200 acres of asparagus to estimate costs and revenues. We gathered additional information via phone and email from local agriculture suppliers. We consulted a local building contractor to estimate construction costs for new migrant labor housing. Annual budgets are in the appendix on page 10.
STAND LONGEVITY, YIELDS & MARKETS.
Grower interviews suggest asparagus stands are maintaining higher peak yields for a longer period than in 2009. Stands were expected to last 12 to 16 years in 2015, with an average lifespan of 13 years, identical to the 2009 study. Growers expected stands to maintain peak yields of 3,000 to 5,000 pounds per acre, with an average of 4,000 pounds per acre for 6 years. In contrast, 2009 peak yields were estimated to be 3,500 pounds per acre and last 4 years. We combined this data with information on yields over time available from two growers and the Michigan Asparagus Research Farm (Bakker & Ball, 2014) to construct a yield model (Figure 1).
All growers now produce either fresh-market asparagus or spears along with cuts and tips. None produced cuts and tips exclusively. The height of the bars in Figure 1 depicts expected yield per acre vs. age of stand. This includes the impact of the stand age on expected yield. Different shadings represent the proportion expected to be sold to different markets. The growers surveyed averaged 33% cuts and tips, 12% spears and 55% fresh market. We used these percentages to allocate asparagus to these markets during years 4–11 of stand life (Figure 1). All asparagus was budgeted for cuts and tips in the early and late years of stand life due to lower fresh quality of young and old stands.
PRODUCTION COSTS & REVENUE.
Overall, some input costs increased while others decreased in 2015 compared to the 2009 study (Table 1). In general, fertilizer and pesticide prices have decreased on a per unit basis. The largest decreases were in the cost of potash and the fungicide tebuconazole. The largest cost increase was for turkey litter, with the cost of asparagus seed and fumigation also increasing.
Establishment costs (years 0-2).
Years 0-2 include the year before planting, the planting year, and the year after planting. Excluding harvest costs from Year 2, overall establishment costs totaled $4,082 per acre for 2015, which is lower but similar to the $4,282 per acre budgeted in the 2009 study.
Most growers purchased 20,000 seeds per acre to send to crown growers the spring before planting. The price ranged from $40 to $43 per 1,000 seeds. Millennium was the most popular variety (6 of 6 growers), followed by Sequoia (2 of 6) and NJ1122 (1 of 6). The 2015 cost for Millennium of $40 per 1,000 seeds was used for this study.
Cash and cover crops in Year 0.
Most growers (4 of 7) reported planting a cash crop the spring before asparagus, including field corn, small grains, or zucchini. Two farms planted cover crops including sorghum-sudangrass, mustard or rye, and one left land fallow. Almost all growers reported sowing 1.5 to 2.5 bushels per acre of rye the year before planting after fall fumigation, with 2 bushels the most common. The year of planting most (7 of 8) growers planted a fall rye (5 of 8) or oat (4 of 8) cover (some growers used either depending on the year). We budgeted for 2 bushels per acre of rye for Year 0 and all following years.
We assumed a cash crop was planted the spring before asparagus and assigned all input costs except lime, manure, fumigation, and a fall cover crop to this crop. Between 1.5 and 2 tons per acre of lime was applied the year before planting, with 1.5 tons most common. Increasingly, growers are applying lime using variable rate spreading based on gridded soil samples. A local supplier charged $44 per ton for variable rate application, for a cost of $65 per acre for 1.5 tons.
Most growers (6 of 8) are using manure to partially supply nutrients during the planting year. Growers applied either 2,500 to 4,000 gallons per acre of hog manure (3 of 8) or 3 tons per acre of turkey litter (3 of 8) before planting. A local supplier sold turkey litter at a price of around $57 per ton spread, or $171 per acre for 3 tons.
During the planting year, growers applied dry or liquid fertilizer in-furrow with the plow. Liquid 10-34-0 was most common at a 10 to 20 gallon per acre rate, with 10 gallons the most common. The budgeted cost was $32.76 per acre for 10 gallons. Other in-furrow fertilizers included DAP, MAP and a mixture of 10-34-0 and 28% UAN. Other details on typical fertility programs are included in yearly budgets.
The majority of growers (6 of 9) are fumigating. Sectagon 42 was applied at 71 to 75 gallons per acre, with 75 gallons the most common. Fumigant management plans cost $250. For this study, we assumed this was spread over 10 acres for a cost of $25 per acre. The total cost of application, material, and the fumigant management plan was $627.25 per acre.
Research has demonstrated fumigation’s benefit to longevity of asparagus stands, by showing it reduces inoculum of diseases contributing to replant decline (Hausbeck & Cortwright, 2008). Spread across 12 bearing years, fumigation has an annualized cost of $67.95 per acre including interest. This cost could be paid for by approximately 100 pounds per year of fresh-market asparagus.
Details on pesticide programs for years 1–2 are included in the footnotes of annual budgets.
Interviewees planted 13,500 to 17,000 crowns per acre, averaging 15,000 crowns per acre. This represents a 1,000 crown per acre increase from the 2009 study. Overall, crown costs increased by $120 per acre or 17% since 2009, largely due to denser plantings but also due to a small increase in per unit crown costs, which include a charge for fungicidal soaks.
Peak bearing years (years 6–11).
Many growers are now using gridded soil sampling. A common grid size was two acres, for a cost of $8 per acre every 3 years.
Growers estimate they apply between 1 to 2 tons per acre of lime based on soil tests every 4 years, averaging 1.5 tons per acre.
Fertility programs are included in annual budgets. In addition to budgeted nutrients, roughly half of growers applied 48 to 62 pounds per acre of ammonium sulfate to supply sulfur and part of nitrogen needs.
Labor costs – housing.
Migrant labor supplies have diminished since 2009, and finding and keeping a labor force for the entire harvest is a challenge. Attracting and keeping harvest workers is more important than ever. Growers know providing good quality housing is expected in order to attract a crew, but they may not know how much housing contributes to total costs.
Housing costs using an example farm.
To determine the costs of building and maintaining worker housing, we simulated a 65-acre asparagus farm. Grower interviews indicated on average they need one hand laborer for each 6.5 acres of asparagus. Housing for 10 workers (two, 5-person crews) was needed for 65 acres. We assumed an occupancy rate of 40% for housing. In other words, 40% of the legal occupancy was used by actual workers. It was common for an entire family, with one or two harvest workers, to live in a portion of housing that could have housed a group of single men. Most producers also grew other vegetables or fruit crops, and the housing was used for harvest workers for those crops as well.
To provide the housing required for the example farm, three 8-person units with a capacity of 24 workers was needed (10 actual workers ÷ 24-person capacity = 42% occupancy). Data from growers and contractors indicated an 8-person unit with 864 square feet had turnkey construction costs – including septic and well – of $56 per square feet. We budgeted an additional $4 per square foot for miscellaneous costs such as land forming, site preparation, and road gravel. Therefore, the total construction cost for new housing was $60 per square foot. This estimate was used in combination with grower estimates of annual repair costs to calculate annual housing costs (Table 2).
We estimated this housing to have a 30-year useful life. Several knowledgeable real estate professionals and a commercial producer that built housing that is now 28 years old estimated that residual value (salvage value) with the maintenance budget used would be approximately 50% of new cost. Interest was charged using average investment value.
Annual housing costs also include utilities such as electricity, heating, and air conditioning. One-half of the growers that provided housing paid these utilities (4 of 9), while one-half required the workers to pay (4 of 9). Growers that did not pay utilities felt it incentivized the workers to use energy efficiently. A final grower (1 of 9) did not provide housing. These budgets did not include the grower paying utilities.
Labor costs – harvest.
Asparagus is hand-harvested. Fields can be picked more than 20 times during the harvest season. A 5-person harvest crew picking a field in peak production can pick up to 10,000 pounds per day. Most harvest crews are paid on a piece rate.
The confidential grower interviews indicated the following piece rate ranges (Table 3). Additionally, employers paid Social Security, Medicare and unemployment insurance.
Tailgate price is defined as the price paid to the producer after reductions in price due to grade. For example, the contracted price for cuts and tips was $.79 per pound, but because 96% of the delivered product met grade, the actual price to the producer was $.76 per pound (Table 4). This was also true for spears and fresh. The revenue in the budgets is based on what the producer was paid for. Note that tailgate prices for fresh asparagus showed significant variation among farms (Table 4).
Pre- and post-harvest sprays.
All growers applied a mix of post- and pre-emergence herbicides and chlorpyrifos for cutworms before harvest. Based on grower data (Table 5), we budgeted for a pre-harvest spray of Roundup PowerMax, Spartan, diuron 80DF and chlorpyrifos 4E at average rates. After harvest, growers either mowed or relied on a clean picking to avoid herbicide damage from lay-by applications. All applied glyphosate at lay-by, but 6 of 9 growers added a second burndown material, most commonly 2,4-D but also dicamba. Growers commonly made a second application of diuron post-harvest for broadleaves (Table 5). Most also applied metribuzin pre- or post-harvest, with post-harvest application more common. For grasses, Dual Magnum was typically applied once, either pre- or post-harvest, with a post-harvest application more common. We budgeted for a post-harvest spray of Roundup PowerMax, Formula 40 (2,4-D), Dual Magnum, diuron 80DF, and metribuzin 75DF.
Beetle sprays during harvest.
Growers reported they apply carbaryl from zero to three times during harvest for common asparagus beetle. We budgeted for two applications of carbaryl.
Growers applied an average of four sprays during the fern season (ranging from 3 to 6 applications). All growers applied chlorothalonil for purple spot and the majority applied carbaryl and/or permethrin for common asparagus beetle and tarnished plant bug (Table 6). For rust, 5 of 9 growers applied tebuconazole. Two growers instead applied mancozeb in combination with chlorothalonil, while another grower with primarily Jersey varieties only applied tebuconazole to acreage of Millennium, which is more susceptible to rust.
Land rental rates varied greatly between growers. As with any lease, both the landowner and producer were meeting their objectives, but in different ways. For example, a grower paying near the low end of the range in the early years might pay near the high end when full production began. It was common for growers to pay less cash rent early and gradually ramp up the rental rate as production began to increase. Others started off near the middle of the range and ramped up rental rates as production increased, but did not pay at the higher end when full production was reached.
Below are the rental rates and ranges:
• Planting year: Rents ranged from $0 to $50 per acre with $50 being the most predominant.
• Year 2 (year after planting): Rents ranged from $50 per acre to 150 pounds per acre at the Michigan Agricultural Cooperative Marketing Association (MACMA) contract price. The 150 pounds at the MACMA price ($118.50 per acre) was a guaranteed rate regardless of actual yield. We used the average, or $69.75 per acre.
• Year 3: The range of rental rates was $50 per acre to 150 pounds per acre at the MACMA price ($118.50 per acre). The average of $96 per acre was selected.
• Years 4–13: Rental rates ranged from $50 per acre to 200 pounds per acre at the MACMA price ($158 per acre). The average of $130 per acre was used.
ENTERPRISE COSTS & RETURNS AND NET CASH FLOW OVER TIME.
Net revenue during peak production increased in comparison to 2009 for these reasons:
• A higher peak yield (4,000 pounds per acre vs. 3,500).
• Higher sales prices in the spear and fresh markets compared to cuts and tips (Table 4).
• Six years of peak yields in 2015 in comparison to 4 years in 2009.
The development of the spear and fresh markets has been customer driven. Consumers now prefer fresh, with the market for frozen spears developing, compared to cuts and tips used in frozen foods. This marketing change – in addition to higher contract prices for cuts and tips – has produced a weighted average price of $0.80 per pound across all years and all harvests in comparison to the budgeted price of $0.70 per pound in 2009. Budgeted net cash revenue during peak years in 2009 was $509 per acre, while it was $1,422 per acre in 2015.
During peak years, sales of higher value product ($.88 per pound for spears and $.90 per pound for fresh), plus higher peak yields (3,500 pounds per acre in 2009 vs. 4,000 pounds per acre in 2015), led to an increase of $857 in gross revenue compared to 2009. Cash expenses during peak years were also budgeted at $60 per year less in 2015 than 2009. This decrease could in part be due to decreased input costs, but also from differences in the way expenses were calculated.
In Year 4, cash revenues exceeded cash expenses (Figure 2). The positive cash flows starting in Year 4 and afterward can be used to pay back the initial pre-production costs and negative cash flows during the pre-production years. Cumulative cash flows turn positive in Year 8, indicating that all investment and the negative cash flows from earlier years have been recovered.
BREAK EVEN PRICE AND RATES OF RETURN.
Table 7 summarizes expected yield and key economic measures, by year, over the 13-year life of the stand including present value analysis. Present value is the current worth of a future sum of money or stream of cash flows at a specified rate of return, or discount. For example, receiving $1,000 now is worth more than $1,000 5 years from now, because if you got the money now, you could invest it and receive an additional return over the 5 years. The budget model in this report produced a 12% rate of return. That is, future cash flows would have to earn a 12% rate of return to equal present cash flows (Table 7). This evaluation process is sometimes called life-cycle accounting.
Over the 13-year production period, total cash required was $23,204 per acre and 36,390 pounds of asparagus was produced, so that a total of $0.64 cash per pound was required to pay expenses. Total revenue was $29,276, producing an average price over all years of $.80 per pound. A net cash flow of $0.17 per pound was produced.
Table 8 depicts the peak yield and price necessary to achieve different targeted rates of return. With the cost of borrowed capital at 5%, a producer’s profitability goal should be higher, with some additional margin to buffer against risk. A 7% target rate of return could achieve this. We estimate growers would need to receive $0.72 per pound at a 4,000 pound peak yield to achieve a 7% return (Table 8). The price needed to achieve a given return will vary with peak yield. For example, we estimate that growers with peak yields of 3,000 pounds per acre would need a higher price of $0.89 per pound to achieve a 7% return, growers with peak yields of 3,500 pounds per acre would require $0.80 per pound, and growers with 5,000 pounds per acre peak yields could achieve this return at $0.63 per pound (Table 8).
How much production would be required to achieve a 7% rate of return? Based on these budgets, a stand producing 3,446 pounds per acre during peak years could achieve this rate of return at current prices. This stand would be expected to produce 31,355 pounds per acre over its lifetime, for an average of 2612 pounds per acre per year over the bearing years.
Asparagus is a long-term investment that can payoff. The key to long-term profitability is to do everything with a long-term view. Doing things right in the early years should result in a long-lived, profitable stand. Improvements in technology and management have translated to higher peak yields and a longer number of peak yield years in comparison to earlier studies. Management practices that help maintain stand longevity – including variety selection and fumigation – help accomplish this.
The authors would like to thank the commercial asparagus growers that participated in this project; John Bakker, director of the Michigan Asparagus Advisory Board; and the commercial agricultural input suppliers for their assistance. Thanks also to the editorial and design staff of ANR Creative, MSU Extension.
Bakker, J., & Ball, T. (2014). Third international cultivar trial (2003). In Michigan Asparagus Research 2014 (pp. 5–9). Dewitt, MI: Michigan Asparagus Research Committee.
Dartt, B. (2009). 2009 draft asparagus cost of production. Portage, MI: Lookout Ridge Consulting.
Hausbeck, M. K., & Cortright, B. (2008, December). New management techniques for Fusarium and Phytophthora control in asparagus production. Presented at the Great Lakes Fruit, Vegetable and Farm Market Expo, Grand Rapids, MI. Retrieved from http://www.glexpo.com/ summaries/2008summaries/asparagus.pdf.
Stein, D. (2015). 2015 Custom machine work costs (FIRM Team Fact Sheet Number 15-01) (p. 4). East Lansing, MI: Michigan State University, MSU FIRM Team. Retrieved from http://www.firm.msue.msu.edu.
USDA National Agricultural Statistics Service. (2015). Quick stats tool. Retrieved April 18, 2016, from https://www.nass.usda.gov/Quick_Stats/.