Master of Agribusiness / Department of Agricultural Economics / Allen M. Featherstone / Providing a recommendation on whether to make a capacity expanding capital investment in an existing butter plant is the subject of this thesis. This is important as the success of this project will have a significant impact on the future profitability of Land O'Lakes and provide a significant home for its member's milk production. The dairy industry has undergone change over the past decades. Milk production has moved from the traditional production area of the Upper Midwest to drier, more arid areas such as California. This has led to milk price premiums in the Upper Midwest and since milk is the major input to butter manufacturing, it has become more attractive to produce butter in other areas such as California. Much of the data collected in review of the industry were obtained from the USDA. This data were used to describe the industry and focus on the number of butter plants over time, the milk productivity per cow, and the total milk production by state. It provides a clear picture of fewer bigger plants, more productive cows, and a dramatic shift in milk production to the West, primarily California. A Net Present Value (NPV) model is developed to analyze the trade off between the initial capital investment and less costly milk procurement over time. The model also considers maintenance costs, salvage values, plant startup delays, and a one time salvage value gain by shutting down an Upper Midwest plant. After the initial model is developed, sensitivity analysis is conducted, focusing on key variables such as demand growth, and the spread between California and Upper Midwest milk prices. The conclusion is that additional investment in California butter production would be profitable, earning a positive NPV and an Internal Rate of Return (IRR) greater than the Land O'Lakes cost of capital. The solution is robust as they remain the same even after modeling lower demand and smaller milk price differentials. Therefore, I recommend that Land O'Lakes move ahead with this capital investment.

Master of Agribusiness / Department of Agricultural Economics / Michael W. Woolverton / The sheep dairy industry in the United States is small. Producers are concentrated in a few areas geographically with the greatest demand for sheep milk products located on the east and west coasts. The purpose of this analysis is to determine if a family-run sheep dairy located in Central Iowa could produce an annual profit of $40,000 without utilizing labor hired outside the family. Budgets were created and used to determine the revenues and costs of operating a sheep dairy, and producing and selling three different end products for sale: fluid milk, cheese and bars of soap. Microsoft Solver was used to determine the product mix that would maximize the total profit of the enterprise. The profit of the enterprise depends on a number of factors including the cost of feed, the number of ewes milked and the amount of milk each ewe produces. A maximum profit of $66,993 could be generated by selling 74% of the milk as fluid milk, 25% of the milk processed into cheese and 1% of the milk processed into soap. The diversification of products would help buffer the enterprise from volatility in the product markets. While the budgets show that this enterprise is profitable, local markets for these products must be identified and/or developed for the profits to be realized.

Masters of Science / Department of Agricultural Economics / Jeffrey M. Peterson / The expansion of the biofuels industry, world demand, and various other factors are having a historic impact on the price of grains. These high prices have been creating a large increase in production of many water intensive crops such as corn. As corn is among the most input-intensive crops, this extra production has raised concerns about environmental impacts and pressures on water resources in particular. While water quality has been a longstanding concern in the cornbelt, much of the new production is in nontraditional corn regions including the southeast, the High Plains, and the western states. In these areas, there is mounting concern over depletion of already stressed water supplies. In the High Plains, the chief water source is the Ogallala aquifer, one of the largest water resources in the world that underlies eight states from South Dakota to Texas. The Ogallala has enabled many agricultural industries, such as irrigated crops, cattle feeding, and meat processing, to establish themselves in areas that would not be possible otherwise. A consequence is that the economy of this region has become dependent on groundwater availability. Continued overdrafts of the aquifer have caused a long-term drop in water levels and some areas have now reached effective depletion. This thesis seeks to estimate the impact of the rising commodity prices on groundwater consumption and cropping patterns in the Kansas portion of the Ogallala. The economy of this region is particularly dependent on water and irrigated crops, with more than 3 million head of feeder cattle and irrigated crop revenues exceeding $600 million annually. Sheridan (northwestern Kansas), Seward (southwestern Kansas), and Scott (west central Kansas) counties have been selected as representative case study regions. These counties have a wide range of aquifer levels with Seward having an abundant supply, Sheridan an intermediate supply, and Scott nearing effective depletion. Cropping patterns in these counties are typical of the western Kansas region, with most irrigated acreage being planted to corn and with dominant nonirrigated rotations of wheat-fallow and wheat-sorghum-fallow. A Positive Mathematical Programming (PMP) model was developed and calibrated to land- and water-use data in the case counties for a base period of 1999-2003. The PMP approach produces a constrained nonlinear optimization model that mimics the land- and water- allocation decision facing producers each year. The choice variables in the model are the acreages planted to each of the major crops and the water use by crop. The model was run for each of the case counties. The PMP calibration procedure ensures that the model solutions fall within a small tolerance of the base period observations. Once calibrated, the models were executed to simulate the impacts of the emerging energy demand for crops over a 60-year period. After the baseline projections were found, the model was then run under increased crop prices that reflect the higher prices observed in 2006 and after. The thesis found that under the high price scenario, both irrigated crop production and water application per acre increased significantly during the early years of the simulated period in all modeled counties. The size of the increases depended on the amount of original water available in each county. The increases generally diminished in magnitude toward the end of the simulation period, but led to smaller ending levels of saturated thickness as compared to the base price in all counties. Finally, in two of the three counties, it was observed that initial increases in irrigated crop acres and water application forces a decline in the aquifer such that less water can be applied per acre in the final years of the simulation. This suggests that high commodity prices forces a higher emphasis on early production levels than later production levels. Additionally, the higher prices have a significant effect on the rate of decline of the Ogallala aquifer.

Master of Agribusiness / Department of Agricultural Economics / David G. Barton / The goal of this thesis is to evaluate future financial strategies for the Garden City Co-op (GCC). The evaluation will include a standard financial analysis of historical financial information and pro forma financial projections of selected strategies. The strategies will be evaluated using management assumptions in which liquidity and solvency are proactively managed. The ultimate goal of the GCC is to return as much profit to its patron-owners as possible but at the same time provided them with the product and services they need for their own business at a competitive level. The GCC has recently experiencing unusually high profits and believes this will be the trend over the next six to eight years due to the business ventures and relationships that currently are in place to grow sales outside the Co-op's traditional trade territories. The increased revenues and profits have come primarily from profitable joint ventures, especially from a very high volume of petroleum sales to non-member patrons. The most critical relationship is member patron-owner relationship with CHS Inc., a large regional cooperative that owns two oil refineries and is the primary supplier of petroleum products to GCC. The profits being made by CHS Inc.'s fuel refineries are distributed to GCC as patronage refunds based on the volume of refined fuels purchased from them. This much larger stream of patronage refunds from CHS and other regional co-op's being distributed to GCC is causing GCC to pause and evaluate how best to move forward. The GCC has the challenge of what to do with increased earnings. Does the GCC return earnings back to its member-owners retain earnings for future investment opportunities, or do they commit them to help finance current investment opportunities? Does GCC grow its most profitable business lines, such as nonmember-nonpatron petroleum sales? Given the close relationship with CHS in terms of income distributions and equity management, including cash patronage refunds and cash equity redemptions of retained patronage refunds, and the close relationship with its own member patron-owners, is its current income distribution and equity management program sustainable under various strategies?

Doctor of Philosophy / Department of Agricultural Economics / Michael R. Langemeier / This study applies recent advances in nonparametric techniques to investigate growth in labor productivity and convergence in the Kansas farm sector for a panel of 564 farms for the period 1993-2007. The study seeks to answer two questions: First, what are the sources of labor productivity growth in the farm sector and second, is there evidence of convergence or divergence in the growth rate of labor productivity across farms? Following Kumar and Russell (2002), the nonparametric production frontier approach is used to decompose the growth in output per worker into three components: efficiency change, technical change, and capital deepening. Kernel density estimation methods are used to investigate the evolution of the entire distribution of labor productivity and the effects of each of those three growth components on the evolution of the distributions over the sample periods, 1993-07, 1993-02, and 1996-05. Cross-sectional regression methods (ordinary least square, partial linear model, and smooth coefficient model) are later employed to test for convergence in labor productivity growth and the contribution of each of the components to the convergence process. The study yields the following results. First, capital deepening and technical change are the main sources of labor productivity growth. Efficiency change is a source of regress in productivity growth. Second, technical change is not neutral. Third, the distribution of labor productivity in the farm sector has remained unimodal. Capital deepening and technical change are the main factors contributing to labor productivity distributions. Fourth, despite no evidence of technological catching-up, efficiency change and capital deepening contributed to convergence in the growth rate of labor productivity during the entire sample period. Technical change contributes to productivity disparity in the 1993-07 period. The contribution of technical change in the 1993-02 and 1996-05 periods are mixed with evidence of both convergence and disparity. Finally, the results for the 1993-07 period support the existence of a positive relationship between the annual growth in technical change and initial level of capital-labor ratio, suggesting that technology is embodied in capital accumulation.

Doctor of Philosophy / Department of Agricultural Economics / Jeffrey M. Peterson / The High Plains aquifer is a primary source of irrigation in western Kansas. Since World War II, producers increased irrigation and the irrigated acreage with the widespread adoption of newer irrigation technologies, causing a reduction in the saturated thickness of the High Plains aquifer. In an effort to conserve water and reduce further decline of the aquifer, the state of Kansas administered cost-share programs to producers who upgraded to an efficient irrigation system. But evidence suggests that the efforts to reduce water consumption have been undermined by producers, who under certain conditions have increased irrigation and irrigated acreage of high-valued and water-intensive crops. The state of Kansas is in a quandary to reduce water consumption and stabilize the saturated thickness of the aquifer while maintaining the economic viability of irrigated agriculture. A producer is faced with the choice of crop, irrigation timing and irrigation technology at the start of the season. This research identifies the conditions for risk-efficient crop choices and estimates the effect of an irrigation technology upgrade on the aquifer. Simulation models based on data from Tribune, Kansas were executed under various scenarios, varying by crop (corn or sorghum), irrigation system (conventional center-pivot or center-pivot with drop nozzles) and well capacity (190, 285 or 570 gallons per minute). Each well capacity was associated with a pre-season soil moisture level (0.40, 0.60 or 0.80 of field capacity). Each scenario was simulated over weather data observed during the 36-year period (1971-2006). Results indicate that producers with slower wells could maximize their net returns while conserving water by choosing less water-intensive crops like sorghum, while irrigating with a conventional center-pivot irrigation system. Producers with faster wells could maximize net returns by choosing water-intensive crops like corn and irrigate with the more efficient center-pivot with drop nozzle irrigation system. In order to reduce groundwater consumption and maintain the saturated thickness of the aquifer, water policies should internalize the interests of all stakeholders and be a combination of irrigation technology, economic factors, hydrological conditions, agronomic practices, conservation practices and local dynamics of the region.

Master of Agribusiness / Department of Agricultural Economics / Bradley J. White / Recent literature regarding potential shortages of food animal veterinarians has sparked interest in how to improve economic sustainability in this profession. Business management practices influence profitability, but relatively little work has been done evaluating the impact specific practices have on mixed animal veterinary practice growth. The objectives of this research were to determine potential associations between practice management factors and both practice size and practice growth measured over a 5-year period. Results from a cross sectional survey of mixed animal veterinary practitioners (n=54) were analyzed to address these research objectives. Survey participants had practiced a mean of 19.6 years and most (85%) practiced in towns with populations of less than 25,000. Practice size was measured by the 5-year average of number of veterinarians (NV), gross practice income (GPI), and gross income per veterinarian (GPIV). Positive associations were identified among all three measures, and active client communication was associated with higher GPI. Practices employing a business manager were associated with increased GPI and GPIV. Practice growth was measured by the mean percent change in number of veterinarians (NVG), percent growth in income per veterinarian (DVMG), and percent growth in gross income (GRSG). Practice size variables indicate influences of business management practices on the size of veterinary practices while practice growth variables indicate whether the practice has changed in size and how business management practices are associated with those changes. On average, practices exhibited positive growth in NVG (4.4%), DVMG (8.1%) and GRSG (8.5%) during the study period, but the growth rate was highly variable among practices. Practices with a marketing plan exhibited a higher DVMG, while frequency of adjusting prices and pricing structures were associated with higher GRSG. Results from this study provide insight into the associations between specific management techniques and veterinary practice size and growth rate.

Master of Agribusiness / Department of Agricultural Economics / Michael W. Babcock / Today’s rail industry is the outcome of years of regulatory and technological change. Since the passage of the Staggers Rail Act of 1980 the industry has seen consolidation through mergers and acquisitions. The rail industry in Montana has a rich rail history that includes the completion of a northern east-west route over 100 years ago that provided a commerce route from the interior of the US heartland to the ocean ports in the Pacific Northwest. In those hundred years the rail traffic across Montana has seen dramatic change. In the past, those routes have provided access for Montana freight; today those routes primarily serve the needs of consumers and industries far beyond Montana. While the state’s economy is primarily agricultural, the largest user of rail transportation is the energy industry. This leaves the agriculture industry with a lower priority for access, providing a quandary for rail service for the grain industry in the state. In a state where more than eight national and regional rail carriers once operated, Montana is now only serviced by a small handful, one of which operates over 80% of the rail miles within its borders. Furthermore that carrier provides service through those regions that are almost strictly agricultural, needing the greatest access to the most cost effective means of transportation for the bulk movement of grain. The objectives of this thesis are to develop a model to measure railroad costs and competition; determine the principal cost determinants and measure intramodal competition by comparing the rates in a captive market (Montana) to one with more intramodal competition (Kansas).

Master of Agribusiness / Department of Agricultural Economics / Vincent R. Amanor-Boadu / Over the last few years there have been many changes to the container export industry. There are a variety of reasons for these changes including exchange rate fluctuations, fuel and energy price fluctuations and their effects on bulk freight rates. The pressure to enhance and remain competitive has also increased amid these rapid changes. An effective strategy is for companies to focus attentions on costs they can control. In the container freight industry, one of these costs is reducing the “paper” aspects of operations and increasing its “electronic” aspects. This thesis focuses specifically on evaluating FileBound®, document management software, for the purpose of going “paperless” in a Container Freight, Non-Vessel Operating Common Carrier (NVOCC) and freight forwarding company. Going paperless has many advantages: increased efficiency, paper and printing cost savings, time savings, storage cost savings, environmental benefits, efficient file retrieval, and enhanced customer service. By adopting the FileBound® technology, the case study company hopes to achieve most of these benefits, allowing it to reduce overall costs, and especially, reduce the number of employees managing physical documents and move people into sales and marketing. The critical assumption of the study was that the electronic processes contributed to time savings and it is from these time savings that most of the other benefits emanated. Therefore, a time study was conducted to determine the time savings resulting from using FileBound® in comparison to the current method in the file completion process. The data collected was analyzed using regression analysis to determine the factors that influenced time savings, if any, and their statistical significance. There are three specific activities involved with the process of completing a transaction in the container freight business: booking, instruction and bill of lading. The analysis was conducted for each of these steps in the process. The results show that the different methods, FileBound® or manual, were not statistically significant on determining the time it took to complete the file. That being said, this thesis recommends that a mixture of both the FileBound® and manual method be used to take advantage of the potential cost savings.

Master of Agribusiness / Department of Agricultural Economics / Vincent R. Amanor-Boadu / Biofuels such as ethanol and biodiesel are looked upon as the future source of alternative energy. These biofuels will supplement the needs of the ever increasing demand for fuel. Bio-energy feedstock is in high demand and current bio-crude oil prices such as soybeans and palm oil are higher than fossil fuel crude oil prices. Unless the price of fossil fuel crude oil increases beyond that, it would not be economically viable to produce biofuels from these feedstock. Jatropha curcas has been touted as the future of biodiesel. The seeds from the Jatropha curcas are crushed and processed using transesterification. The product of the chemical reaction results in bio-oil and glycerin. The objective of this paper is to study the economics of Jatropha curcas as an alternative bio-energy feedstock. Comparisons are done on Jatropha curcas oil, soybean oil, and palm oil. The Jatropha curcas industry is at its infancy, and crude Jatropha curcas oil is either not available in the open market or extremely difficult to find in any significant amount. However, soybean oil and crude palm oil are traded commodities and their prices are dependent on their demand and supply pressures. Given these conditions, the approach adopted here involved the establishment of a vertically integrated company that grows and harvests the Jatropha curcas feedstock and crushes the seeds to obtain the crude oil, and finally processes it to obtain biodiesel and glycerin. The financial analysis provided results that indicate that the Jatropha curcas has the potential to be a successful feedstock. The conclusion after conducting net present value comparisons shows that the price per kilogram of the Jatropha curcas seed would be the determining factor in the success of this bio-fuel feedstock. As more work goes into the genetic selection of Jatropha curcas for high yield varieties, the feedstock’s potential increases and its potential as a solution to the search for the competitive sources of biodiesel becomes more real.