how prices and costs affect ipm

How Prices and How Prices and Costs Affect IPMCosts Affect IPM

Paul D. Mitchell and Eileen CullenPaul D. Mitchell and Eileen CullenAssistant ProfessorsAssistant ProfessorsAg and Applied EconAg and Applied Econ

Entomology Entomology University of Wisconsin-MadisonUniversity of Wisconsin-Madison

Wisconsin Crop Wisconsin Crop Management ConferenceManagement Conference

Madison, WIMadison, WIJanuary 17, 2008January 17, 2008

Crop Prices are HighCrop Prices are High Closing prices on CBOT Tuesday 1/15Closing prices on CBOT Tuesday 1/15 Dec 08 corn $5.29/buDec 08 corn $5.29/bu Nov 08 soybean $12.85/buNov 08 soybean $12.85/bu Sep 08 wheat $8.57/buSep 08 wheat $8.57/bu Sep 08 oats $3.47/buSep 08 oats $3.47/bu These price drive the image that These price drive the image that

farmers are rolling in the moneyfarmers are rolling in the money

Yields are IncreasingYields are Increasing

Annual Annual increase increase (bu/ac) in (bu/ac) in NASS county NASS county average yield average yield for for corncorn from from 1977 to 2006, 1977 to 2006, estimated by estimated by regressionregression

Input Costs Have IncreasedInput Costs Have Increased Fertilizer prices are leading the wayFertilizer prices are leading the way

Anhydrous and Nitrogen Solutions up about Anhydrous and Nitrogen Solutions up about 50% from last year50% from last year

Phosphorus and potassium even more Phosphorus and potassium even more Seed prices have risen as wellSeed prices have risen as well

Seed corn up about 15%Seed corn up about 15% Depends on the varieties and traits you buyDepends on the varieties and traits you buy

Inflationary pressure on remaining Inflationary pressure on remaining inputs driven by energy costs and weak inputs driven by energy costs and weak dollardollar

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U of IL non-land costs for corn and U of IL non-land costs for corn and soybean production in northern ILsoybean production in northern IL

Corn up $42/ac Corn up $42/ac from 2007from 2007

Soybeans up Soybeans up $18/ac$18/ac

Today’s Questions and Today’s Questions and GoalsGoals

These cost and price changes affect These cost and price changes affect the value of IPM and thresholds, but the value of IPM and thresholds, but how?how?

Are they so far from the usual prices Are they so far from the usual prices and costs that IPM has to catch up?and costs that IPM has to catch up?

Present the theory of IPM and how Present the theory of IPM and how prices and costs affect thresholdsprices and costs affect thresholds

Present some empirical resultsPresent some empirical results

Economics of IPM: TheoryEconomics of IPM: Theory Returns without pest controlReturns without pest control

RRnono = PY(1 – IDN) – G = PY(1 – IDN) – G Returns with pest controlReturns with pest control

RRtrttrt = PY(1 – IDN(1 – K)) – C – G = PY(1 – IDN(1 – K)) – C – G

PP = crop price= crop price Y = crop yieldY = crop yieldI I = injury per pest (e.g. corn borer tunneling)= injury per pest (e.g. corn borer tunneling)D D = yield loss per unit injury= yield loss per unit injuryN N = pest population density= pest population densityK K = pest control efficacy (% kill)= pest control efficacy (% kill)GG = cost of production= cost of production C = cost of pest C = cost of pest controlcontrol

Economics of IPM: TheoryEconomics of IPM: Theory

IPM observes the pest density N and if it’s IPM observes the pest density N and if it’s high enough, recommends treatmenthigh enough, recommends treatment

How high is high enough?How high is high enough? Find the pest density N where RFind the pest density N where Rnono equals R equals Rtrttrt

Set RSet Rnono = R = Rtrttrt and solve for N and solve for N This N is called the Economic Injury Level This N is called the Economic Injury Level

(EIL)(EIL) CN = EIL =

PYIDK

Pest Density NPest Density N

Return Return RR

EILEIL

With Pest ControlWith Pest ControlWithout Pest ControlWithout Pest Control

Graphical Derivation of EILGraphical Derivation of EIL

EIL and IPMEIL and IPM

If the observed pest density is less If the observed pest density is less than the EIL, better off not treatingthan the EIL, better off not treating

If the observed pest density exceeds If the observed pest density exceeds the EIL, then better off treatingthe EIL, then better off treating

Example: If western crw adult beetles Example: If western crw adult beetles on yellow sticky traps in soybean on yellow sticky traps in soybean field exceed threshold, then treat for field exceed threshold, then treat for crw next yearcrw next year

EIL, Prices, and CostsEIL, Prices, and Costs Use this equation EIL = C / (PYIDK) to Use this equation EIL = C / (PYIDK) to

examine effect of prices and costs on IPMexamine effect of prices and costs on IPM Notice cost of production G not part of Notice cost of production G not part of

EILEIL Cost of fertilizer, tillage, etc. do not affect IPMCost of fertilizer, tillage, etc. do not affect IPM

Yield (Y) specific to the crop and farmerYield (Y) specific to the crop and farmer Injury per pest (I) and yield loss per unit Injury per pest (I) and yield loss per unit

of injury (D) are pest specificof injury (D) are pest specific Treatment efficacy (K) specific to the Treatment efficacy (K) specific to the

pest control treatmentpest control treatment

EIL, Prices, and CostsEIL, Prices, and Costs

Simplify EIL = C / (PYIDK)Simplify EIL = C / (PYIDK) Define Define = YIDK = number specific to = YIDK = number specific to

pest, pest treatment, and croppest, pest treatment, and crop EIL becomes EIL = C / (EIL becomes EIL = C / (P), or the P), or the

ratio of the cost of the pest control ratio of the cost of the pest control treatment (C) over the “adjusted” treatment (C) over the “adjusted” crop price (crop price (P)P)

The The factor adjusts the crop price factor adjusts the crop price for the specifics of the pest, the crop, for the specifics of the pest, the crop, and the pest control technologyand the pest control technology

The EIL Is Another Price The EIL Is Another Price Ratio!!!Ratio!!!

EIL = C / EIL = C / P is another price ratioP is another price ratio N fertilizer rate via N:Corn price ratioN fertilizer rate via N:Corn price ratio Corn plant density via Seed:Corn price Corn plant density via Seed:Corn price

ratioratio EIL = Insecticide:Corn price ratioEIL = Insecticide:Corn price ratio EIL = TechFee:Corn price ratioEIL = TechFee:Corn price ratio Just adjust price ratio for the specifics Just adjust price ratio for the specifics

of the pest, the crop, and the of the pest, the crop, and the technology (technology ())


If control cost increases 10%, increase If control cost increases 10%, increase EIL 10% and use less pest controlEIL 10% and use less pest control EILEILnewnew = (1.1C) / = (1.1C) / P = 1.1 x EILP = 1.1 x EILoldold

If crop price increase 10%, decrease EIL If crop price increase 10%, decrease EIL not quitenot quite 10% and use more pest 10% and use more pest controlcontrol EILEILnewnew = C / ( = C / (1.1P) = EIL1.1P) = EILoldold / 1.1 / 1.1 EILEILoldold / 1.1 = 0.909 x EIL / 1.1 = 0.909 x EILold, old, or a 9.1% dropor a 9.1% drop

If both the cost of control and the crop If both the cost of control and the crop increase 10%, EIL does not changeincrease 10%, EIL does not change

Is it really this simple?—Not Is it really this simple?—Not Quite!Quite!

EIL changes with specifics of the pest, the EIL changes with specifics of the pest, the crop, and the technology (crop, and the technology ( = YIDK) = YIDK) Pests evolve, hybrids improve, and Pests evolve, hybrids improve, and

technologies changetechnologies change Returns equations (RReturns equations (Rnono & R & Rtrttrt) usually non-) usually non-

linear, making it difficult to solve for EIL linear, making it difficult to solve for EIL Most of these variables are actually Most of these variables are actually

random, greatly complicating the analysisrandom, greatly complicating the analysis

IPM, Prices and Costs: IPM, Prices and Costs: PracticePractice

Two types of pest control with IPMTwo types of pest control with IPM Curative (in-season)Curative (in-season)

Wait to see pest, then decide if/when to treat Wait to see pest, then decide if/when to treat Foliar sprays for soybean aphids, Colorado Foliar sprays for soybean aphids, Colorado

potato beetle, leaf hoppers, etc.potato beetle, leaf hoppers, etc. Preventative (pre-season)Preventative (pre-season)

Apply treatment at planting before see pestApply treatment at planting before see pest Bt corn, soil insecticide, seed treatments and Bt corn, soil insecticide, seed treatments and

systemic insecticides for CRW, ECB, etc.systemic insecticides for CRW, ECB, etc.


Curative Control: IPM uses economic Curative Control: IPM uses economic threshold (ET), not EILthreshold (ET), not EIL Dynamic pest population during seasonDynamic pest population during season If wait until pest at EIL, too late, damage If wait until pest at EIL, too late, damage

donedone Time lag to apply treatmentTime lag to apply treatment Takes time for treatment to workTakes time for treatment to work

Set ET < EIL to adjust for time gapSet ET < EIL to adjust for time gap

EILEIL

ETET

Economic Threshold (ET) andEconomic Threshold (ET) andPrices and CostsPrices and Costs

““Slack” built into curative IPM system Slack” built into curative IPM system ET accounts for this, so use ET, ET accounts for this, so use ET,

despite changes in prices and costsdespite changes in prices and costs EIL moves around as prices and costs EIL moves around as prices and costs

change (plus Y, I, D, and K), but ET stays change (plus Y, I, D, and K), but ET stays samesame

Update ET when have major changesUpdate ET when have major changes Soybean aphid ET = 250 aphids/plantSoybean aphid ET = 250 aphids/plant 150 bu/ac or $20/bu soybeans150 bu/ac or $20/bu soybeans

EILEIL

ETET


Preventative Control: EIL’s respond to Preventative Control: EIL’s respond to price and cost changesprice and cost changes

North Central IPM: Cullen, Mitchell, & North Central IPM: Cullen, Mitchell, & StuteStute Western corn rootworm soybean variant IPM Western corn rootworm soybean variant IPM

in 1in 1stst year corn based on yellow sticky traps year corn based on yellow sticky traps in soybean fields the preceding yearin soybean fields the preceding year

Deriving EIL’s for RW Bt corn, soil insecticides Deriving EIL’s for RW Bt corn, soil insecticides and seed treatmentsand seed treatments

Finding ways to reduce cost of IPMFinding ways to reduce cost of IPM

WCRW Soybean Variant IPMWCRW Soybean Variant IPM

Collecting field data and developing Collecting field data and developing economic model of IPM to derive EILeconomic model of IPM to derive EIL

Not as simple as plotted beforeNot as simple as plotted before Curved functions, random variablesCurved functions, random variables

Generally supported the 5 BTD EILGenerally supported the 5 BTD EIL Then corn prices increased, a lot!Then corn prices increased, a lot!

EIL and Corn PriceEIL and Corn Price(($19.20/A RW Bt corn Tech Fee)$19.20/A RW Bt corn Tech Fee)

Mean YieldMean Yield 150 bu/A150 bu/A 200 bu/A200 bu/A

Corn PriceCorn Price EIL (BTD)EIL (BTD) EIL (%EIL (%))

2.002.00 6.066.06 3.29 (-46%)3.29 (-46%)

2.502.50 3.293.29 2.69 (-18%)2.69 (-18%)

3.003.00 2.502.50 2.33 (-7%)2.33 (-7%)

3.503.50 1.961.96 1.68 (-14%)1.68 (-14%)

4.004.00 1.221.22 0.57 (-53%)0.57 (-53%)

4.504.50 0.830.83 0.30 (-64%)0.30 (-64%)

5.005.00 00 0 (-0%)0 (-0%)

EIL and Corn PriceEIL and Corn Price((150 bu/A mean yield)150 bu/A mean yield)

Tech FeeTech Fee $19.20/A$19.20/A $25.00/A$25.00/A

Corn PriceCorn Price EIL (BTD)EIL (BTD) EIL (%EIL (%))

2.002.00 6.066.06 6.84 (13%)6.84 (13%)

2.502.50 3.293.29 3.61 (10%) 3.61 (10%)

3.003.00 2.502.50 2.62 (5%)2.62 (5%)

3.503.50 1.961.96 2.08 (6%) 2.08 (6%)

4.004.00 1.221.22 1.41 (16%)1.41 (16%)

4.504.50 0.830.83 0.95 (14%)0.95 (14%)

5.005.00 00 0.60 (--)0.60 (--)

EIL and Corn PriceEIL and Corn Price((150 bu/A mean yield, $19.20 tech 150 bu/A mean yield, $19.20 tech

fee)fee)Corn Corn PricePrice

Price %Price % EIL %EIL %

2.002.00 -43%-43% 209%209%

2.502.50 -29%-29% 68%68%

3.003.00 -14%-14% 28%28%

3.50*3.50* 0%0% 0%0%

4.004.00 14%14% -38%-38%

4.504.50 29%29% -58%-58%

5.005.00 43%43% -100%-100%*$3.50/bu is the base case for %*$3.50/bu is the base case for %

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Corn Price ($/bu)

Y 150, C 19

Y 200, C 19

Y 150, C 25EILEIL

EIL, Prices, and CostsEIL, Prices, and Costs Increasing Cost from $19.20 to $25 is Increasing Cost from $19.20 to $25 is

a 32% increase in Ca 32% increase in C EIL increases 5% to 16% non-linearlyEIL increases 5% to 16% non-linearly

Increasing mean yield from 150 to 200 Increasing mean yield from 150 to 200 is like a 33% increase in priceis like a 33% increase in price EIL decreases 7% to 64% non-linearlyEIL decreases 7% to 64% non-linearly

Varying corn price between $2 to $5 is Varying corn price between $2 to $5 is plus/minus 43% relative to $3.50/buplus/minus 43% relative to $3.50/bu EIL varies +200% to -100%EIL varies +200% to -100%


Direction of EIL response is as expectedDirection of EIL response is as expected Increasing treatment cost increases EIL so Increasing treatment cost increases EIL so

treat less oftentreat less often Increasing crop price (or yield) decreases EIL Increasing crop price (or yield) decreases EIL

so treat more oftenso treat more often Model non-linearity and randomness Model non-linearity and randomness

cause EIL to not respond as neatly as in cause EIL to not respond as neatly as in theorytheory Results are Results are very specificvery specific to this pest-crop- to this pest-crop-

control systemcontrol system

Effect of Prices and Costs on Effect of Prices and Costs on IPMIPM

Curative/in-season economic thresholds Curative/in-season economic thresholds Generally not responsive to prices & costs, Generally not responsive to prices & costs,

as the system has built in “slack”as the system has built in “slack” Use 250 aphids/plant ET for soybean Use 250 aphids/plant ET for soybean

aphidsaphids Preventative EILPreventative EIL

Respond to prices & costs, but non-linearlyRespond to prices & costs, but non-linearly Cost increases, raise EIL so treat lessCost increases, raise EIL so treat less Price, Yield, Efficacy increase, lower EIL so Price, Yield, Efficacy increase, lower EIL so

treat moretreat more If $5/bu corn prices, plant RW Bt corn in If $5/bu corn prices, plant RW Bt corn in

variant areas, unless has a very high pricevariant areas, unless has a very high price

how prices and costs affect ipm

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