of cows assumes that there is a stall available to receive the cow, thus, 

 it represents the annual net return to both the cow and the stall. 



The marginal-value product of replacements increases as more 

 cows are added to a fixed acreage, but the range in values products is 

 narrow. Its lower limit is the price for which a replacement may be 

 sold and its upper limit is the purchase price of a replacement. 



The marginal-value product of forage is the opportunity cost of 

 producing a ton of hay equivalent. It increase^) as the ratio of cows 

 to cropland increases. In other words, a more intensive use of land 

 increases the opportunity costs of producing forage. 



The marginal return over feed cost is the shadow price of the 

 cow-feeding process. This quantity is the residual income left above 

 all cash and opportunity costs of producing and feeding forage and 

 grain to the marginal dairy cow. The marginal return over feed costs 

 decreases as more cows are added and results from increased grain 

 feeding as well as increased forage costs. It is important to note that 

 one does not maximize net farm income by maximizing return over 

 feed costs. 



Break-even Prices of Cropland and Cows 



The marginal-value products are estimates of the annual net 

 return associated with the marginal unit of each of the resources 

 and intermediate products. In the case of forage and replacements 

 this is their break-even price since they are expended in the 1-year 

 production period. Cropland and cows, on the other hand, provide a 

 flow of services over several production periods. Since this is true, the 

 break-even prices must be calculated by applying proper discounting 

 procedures to the expected return over the life of the resource. 



The nature of the resources suggests similar methods of dis- 

 counting for cropland and cows. Cropland can be considered to yield 

 a perpetual return. Likewise, dairy cows provide a perpetual return 

 because they provide for their own replacements in this analysis. 



Both cropland and cows may have an annual tax associated with 

 them. These annual taxes must be subtracted from the marginal- 

 value products before discounting their future returns. 



The break-even prices of land and cows are given by the follow- 

 ing formulae. 



Marginal-value product of land 

 Break-even price of land = (minus) annual tax on land 



Desired rate of return 



Marginal-value of product of cows 

 Break-even price of cows = (minus) annual tax on cows 



Desired rate of return 

 32 



