ENTERPRISE BUDGETING Part 2: Hay & Beef Budgets Geoff Benson, PhD Extension Economist Dept. of...
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Transcript of ENTERPRISE BUDGETING Part 2: Hay & Beef Budgets Geoff Benson, PhD Extension Economist Dept. of...
ENTERPRISE BUDGETING ENTERPRISE BUDGETING
Part 2: Hay & Beef BudgetsPart 2: Hay & Beef Budgets
Geoff Benson, PhDExtension Economist
Dept. of Agricultural and Resource Economics
NC State University
GEOFF BENSON, ARE, NCSU 2
AGENDAAGENDA
Introduction Explanation of the NCSU hay
making and beef budgets Modifying the Spreadsheet
versions NCSU hay and beef budgets
Wrap-up
GEOFF BENSON, ARE, NCSU 3
Last timeLast time Class Exercise Reviewed the forage budget structure Modified a perennial budget – 87-1 and 2
Compared a new stand of KY-31 with new MaxQ Compared an existing stand of KY with a new
stand of MaxQ Compared poultry litter with commercial fertilizer
Note that the form of the annual forage crop budgets like Pearl Millet and Corn Silage are very similar to the Annual cost and returns budget pages for perennial crops ( but without the pro-rated establishment costs)
GEOFF BENSON, ARE, NCSU 4
Modifications to Forage CostsModifications to Forage Costs
ItemNew
KY-31Established
KY-31New
Max QNew KY-31
+ Litter
Establishment cost per acre (87-1)
$307.41 $0* $347.14 $99.58
Annual cost per acre (87-2)
$192.80 $119.79 $202.23 $88.47
Cost per ton of dry matter (87-2)
$64.27 $39.93 $67.41 $29.49
GEOFF BENSON, ARE, NCSU 5
*For planning purposes, “Sunk Costs” are not included as costs unless they have salvage value
Modifying the Hay Making BudgetModifying the Hay Making Budget
Bring up the Hay Making budget 24-2 – Large Round Bales
GEOFF BENSON, ARE, NCSU 6
Hay Making Budget, 84-2 Hay Making Budget, 84-2 It has the same two-page structure as
the other budgets It does NOT include the cost of
growing the hay crop It includes the cost of moving the
bales off the field but does NOT include the cost of putting the hay into storage
Open up the hay budget 84-2Write down the total cost of hay
making per ton of dry matter
GEOFF BENSON, ARE, NCSU 7
GEOFF BENSON, ARE, NCSU 8
Tractor CostsTractor Costs Hay budget 84-2, Table 1, includes a 55
HP tractor for mowing. The tractor costs $20,500 and has a 10-year life.
Write down the “Expense per hour” (= DITI per hour) for this 55 HP tractor in Table 1 and the “Equip. Op. Cost” per hour for this tractor from Table 2.
Write down the “Expense per hour” and “Equip. Op. Cost” for the 75 HP tractor used for baling and compare this with the 55 HP costs
Budget CostsBudget Costs
Item Cost
Cost per ton of hay dry matter in 84-2 $77.85
55 HP Tractor DITI Expense/hour (fixed cost)
$4.90
75 HP Tractor DITI Expense/hour (fixed cost)
$7.08
55 HP Tractor Operating Expense/hour ($4) $11.95
75 HP Tractor Operating Expense/hour ($4) $16.36
GEOFF BENSON, ARE, NCSU 9
GEOFF BENSON, ARE, NCSU 10
Modification 4, Fuel Cost Modification 4, Fuel Cost
You notice the cost of fuel in Table 2 is $4.00 per gallon but current prices are $2.00 per gallon
Write down and compare the “Equip. Op. Cost” per acre for the 55 HP tractor and the 75 HP tractor at $4.00 per gallon and at $2.00.
What is the total cost per ton of DM of hay making at $2.00 gallon fuel cost?
Hay Making, Budget 84-2, Hay Making, Budget 84-2, Modification 4, Tractor FuelModification 4, Tractor FuelItem Cost
Original cost per ton of dry matter $77.85
55 HP Tractor DITI Expense/hour $4.90
75 HP Tractor DITI Expense/hour $7.08
55 HP Tractor Operating Expense/hour ($4) $11.95
75 HP Tractor Operating Expense/hour ($4) $16.36
55 HP Tractor Operating Expense/hour ($2) $6.39
75 HP Tractor Operating Expense/hour ($2) $8.77
Cost per ton of DM at $2.00/gal fuel $65.79
GEOFF BENSON, ARE, NCSU 11
Machinery Cost ResourcesMachinery Cost Resources Can be found in the “Introduction” to the
budgets document on the web page "Estimating Farm Machinery Costs," Ag Decision Maker
A3-29, Iowa State University, April 2002 on-line at http://www.extension.iastate.edu/agdm/crops/html/a3-29.html
"Estimating Field Capacity of Farm Machines," PM 696, Iowa State University, April 2001, on-line at http://www.extension.iastate.edu/Publications/PM696.pdf
“Farm Machinery Economic Cost Estimates,” William F. Lazarus, Department of Applied Economics, University of Minnesota, March 2008, on line at http://www.extension.umn.edu/distribution/businessmanagement/DF6696.pdf
GEOFF BENSON, ARE, NCSU 12
GEOFF BENSON, ARE, NCSU 13
QUESTIONS OR COMMENTS ON THE HAY MAKING BUDGET?
GEOFF BENSON, ARE, NCSU 1414
Cattle ProductionCattle Production Typically, low margins Varies from farm to farm
Owners goals and motivationType of operation
Commercial brood cows Seed stock Stocker Finishing
Scale of operation, managementStage in cattle cycle
Beef BudgetsBeef Budgets Websitehttp://www.ag-econ.ncsu.edu/extension/Ag_budgets.html
Beef Budgets - Spreadsheet Version Introduction to spreadsheet (please read
first)Beef Cow-Calf Budget 20-1Beef Wintering Budget 21-1Beef Grazing Budget 21-4Beef Finishing Budget 21-6Beef Finishing on Pasture Budget 21-8Beef Preconditioning 21-9*
GEOFF BENSON, ARE, NCSU 15
GEOFF BENSON, ARE, NCSU 16
Beef Production Costs, NCSU Enterprise Beef Production Costs, NCSU Enterprise Budgets, 2008, $/head soldBudgets, 2008, $/head sold
Enterprise 2006 2008
Cow-calf (88% calf crop) 858 1,136
Back-grounding on winter annual pasture*
794 967
Summer grazing on spray field pasture @ $0 fertilizer*
769 921
Finishing on grain* 1,152 1,432
Finishing on pasture* 1,007 1,168
GEOFF BENSON, ARE, NCSU 16* Includes cost of cattle
NC Beef Budget StructureNC Beef Budget Structure Five cattle budget spreadsheets have two worksheets
– Preconditioning does not The budget worksheet with a short description A second worksheet containing:
Table 1 -- a list of facilities & equipment used in the enterprise and the calculations of the annual fixed cost (DITI) estimates for the budget
Table 2 -- estimates of the operating costs for equipment and machinery labor for the budget
Table 3 -- a simple sensitivity analysis based on % cost increases and yields or differences in stand life
You can change any entries that are highlighted in yellow – text or numbers. Green and orange cells contain formulas but can be written over.
GEOFF BENSON, ARE, NCSU 17
NC Cattle Budgets StructureNC Cattle Budgets Structure The NCSU budgets include the following
The purchase price (or value) of the cattle at the start Forage annual operating costs (per acre) are taken from
the forage budgets. These are production costs. Forage management costs should be in the beef budget
Supplemental feed includes hay, mixed feed, etc. at a combined cost per head –separate feed budget is needed
Facilities repair is calculated as a % of the investment Equipment operating costs are calculated on the second
worksheet and transfer Fixed costs and labor are separate sections Several costs, revenue and net returns are calculated by
formulas that include several factors. You can change an item in a formula or overwrite it with your own total
GEOFF BENSON, ARE, NCSU 18
Grass Finishing BudgetGrass Finishing Budget
Bring up the Beef Finishing on Pasture Budget 21-8
GEOFF BENSON, ARE, NCSU 19
NC Cattle Budget StructureNC Cattle Budget Structure Table 1 lists the facilities and equipment used,
and perennial pasture establishment costs Powered equipment is linked to a tractor Cost calculations include these factors
Useful life or planning horizon “New” cost Salvage value (formula) Interest rate on investment Property tax & insurance rate (combined) Share of the annual cost to this enterprise The feedlot finishing budget includes the number
of batches finished per year
GEOFF BENSON, ARE, NCSU 20
NC Budget StructureNC Budget Structure Table 2 estimates equipment operating and
labor costs Equipment list carries over from Table 1 Cost calculations are based on entries for:
Fuel cost per gallon Labor cost per hour Tractor horse power Repairs & maintenance (% of new cost) Share to the enterprise and hours of use per year Pickup truck fuel
Repairs and maintenance of facilities and fencing are estimated on page 1 of the budget
GEOFF BENSON, ARE, NCSU 21
GEOFF BENSON, ARE, NCSU 22
QUESTIONS OR COMMENTS ON THE CATTLE BUDGETS?
Modifying the Cow-Calf BudgetModifying the Cow-Calf Budget
Bring up the Cow-calf budget 20-1
GEOFF BENSON, ARE, NCSU 23
NC Cow-calf Budget StructureNC Cow-calf Budget Structure A Cow-calf enterprise can be complicated – cows,
calves, bulls, replacement heifers, pasture, hay The NCSU budget includes the following
Forage costs (per acre) are taken from the forage budgets -- operating expenses and fixed costs of establishment are separated out
Supplemental feed includes hay, mixed feed, etc. at a combined cost per head – separate feed budget needed
Breeding costs are included as a charge per cow Replacements are purchased Several costs, revenue and net returns are calculated
by formulas that include several factors
GEOFF BENSON, ARE, NCSU 24
Modification 5 to Budget 20-1Modification 5 to Budget 20-1 Write down the Returns to Land, Overhead and
Management per cow from budget 20-1 In the first webinar we compared the cost of a
clover-cool season perennial pasture established (87-1) and fertilized each year (87-2) with a) commercial fertilizer and b) using poultry litter.
The pasture cost in the Cow-calf budget 20-1 assumes commercially fertilized pastures. Replace the costs in this budget with the poultry fertilized costs, as follows:
Total annual operating cost per acre of $54.99 Total establishment cost per acre of $99.58 (for all
75 acres) Write down & compare the Returns to LO&M/cow
GEOFF BENSON, ARE, NCSU 25
Modifications to Cow-calf 20-1Modifications to Cow-calf 20-1Item
Commercial Fertilizer
Poultry Litter
Returns to Land, Overhead & Management
-$22,054 -$16,090
Returns to Land, OH & Mgt per Cow -$441 -$322
Operating inputs -- pasture cost $8,246 $4,124
Total operating cost $35,490 $31,368
Total cost $50,016 $44,042
Pasture establishment cost(Table 1, Worksheet 2)
$23,056 $7,469
GEOFF BENSON, ARE, NCSU 26
Modifying Other Aspects Modifying Other Aspects Cow-calf Budget Worksheet 1
Herd size appears in all the formulas except in row 53
Acreages and operating costs are entered in rows 8 through 11
Calf crop % appears in rows 14 & 15 plus the revenue calculations in rows 43 & 44
Average daily gain does not enter directly but is a factor in the choice of the calves ending (sale) weight
GEOFF BENSON, ARE, NCSU 27
Modifying Other Aspects Modifying Other Aspects Cow-calf Budget Worksheet 2
Fencing and related facilities will vary with the acreage and layout
Other facilities and equipment depend on the production system
Perennial crop establishment costs are included in Table 1
The share of these fixed cost to the cattle operation depend on the whole farm operation and other enterprises
Table 2 also includes annual use (hours)
GEOFF BENSON, ARE, NCSU 28
GEOFF BENSON, ARE, NCSU 29
QUESTIONS OR COMMENTS ON THE COW-CALF BUDGET?
What if you don’t like the answer?What if you don’t like the answer?
GEOFF BENSON, ARE, NCSU 30
ITS BACK TO THE DRAWING BOARD!
GEOFF BENSON, ARE, NCSU 31
Looking for ProfitsLooking for Profits “Just because you can produce it doesn’t
mean it’s profitable to do so” “If you don’t measure it, you cannot manage it”
– need cost of production data Cost Cutters
Good grazingWell managed grazingStockpiled pastureByproduct feedsLivestock manuresChicken litter for fertilizer or feed
GEOFF BENSON, ARE, NCSU 32GEOFF BENSON, ARE, NCSU 32
Looking for ProfitsLooking for Profits Selecting alternative forages -- Choice of
forage has a big impact on cost per cow: For example, if a beef cow needs to be
offered 30 lb. of dry matter per day, feed needs are 900 lb. per cow per month
Full economic cost of forage production is: $29/month at $64 per ton of dry matter $74/month at $164 per ton of dry matter
This does not include the cost of managing grazing or putting out feed
GEOFF BENSON, ARE, NCSU 33GEOFF BENSON, ARE, NCSU 33
Looking for ProfitsLooking for Profits
Bale Feeding Costs
75 HP Tractor + spear, + $2/gal fuel
Annual ownership cost Operating cost Total Machine cost + Labor
Total cost
$ 7.67/hr
$ 8.82/hr
$ 16.49/hr
$ 10.00/hr
$ 26.49/hr
GEOFF BENSON, ARE, NCSU 34
Losses Add to Feed Costs Losses Add to Feed Costs
Harvest losses -- 5 to 50% of harvestable production
Storage losses -- 5 to 20% Feeding losses -- 5 to 15% Combined losses -- 15 to 50%
E.g. Hay bought or made at $75/ton with a 25% loss is $100/T hay eaten
Source: Sustainable Dairy Systems Manual, UT & UK
GEOFF BENSON, ARE, NCSU 35
Losses: Grazing Management Use controlled grazing to reduce waste
Loss ~ 25% with strip or rotational grazingLoss ~ 50% if cattle are grazed for, say, three
weeks in the same pasture Controlled Grazing Example
10 acres at 2 tons DM/acrePermanent fencing & water exist It costs $15 per move X 12 moves = $180Cattle eat 15 tons v. 10 tons if set stockedCost of saved feed = $180/5 tons = $36/ton DM
Add any cost of transporting cattle, etc.
GEOFF BENSON, ARE, NCSU 36GEOFF BENSON, ARE, NCSU 36
Looking for ProfitsLooking for Profits Grazing Management Cost
Investment in fencing, water, lanes, etc. (Table 1)
Time & equipment to move livestock
Example: Pick-up @ $11.73 /hour Labor @ $10.00 /hour Total = $21.73 /hour
GEOFF BENSON, ARE, NCSU 37GEOFF BENSON, ARE, NCSU 37
Keep the big picture in mind Yields & quality vary for different forages
-- Figure the nutritional needs of the animal to achieve desired performance
Include total ration cost when comparing alternative forages including: Supplementary feeds, minerals, etc. Storage and feeding losses The cost of putting out feed(s)
If different rations produce different levels of in animal performance, include both income and cost effects
GEOFF BENSON, ARE, NCSU 38
Carrying Capacity, Fescue e.g. Cow needs 30 lb DM per day X 180 days of
grazing/acre (no hay) with grazing loss of 50% = 10,800 lb DM production/cow
0 Fert. 100 lb N 150 lb N
DM prod/ac 1,800 4,825 7,050
Acres/cow 6.0 2.2 1.5
Cows per 100 acres
17
45
65
Whole Farm IssuesWhole Farm Issues Financial decisions depend on the
whole farm and family situationOther farm enterprises, e.g., cattle on
poultry and hog farms, supplementary enterprises on crop farms
Farm overhead costsFarm tax benefits
Ag Use valuation for property taxes Filing taxes as a farmer
Non-farm income and lifestyle
GEOFF BENSON, ARE, NCSU 39
Wrap upWrap up Who uses enterprise budgets?
Producers Existing producers looking for new enterprises
-- planning Existing producers evaluating enterprises or
alternative production practices – profitability New farmers – initial screening of opportunities
Advisors to producers, including extension faculty and industry
LendersOthers, including politicians & their advisors,
researchers
GEOFF BENSON, ARE, NCSU 40
GEOFF BENSON, ARE, NCSU 41
Enterprise BudgetsEnterprise Budgets Are guidelines or templates -- Modify
budgets for a particular farm situation & purpose
Budgets can be used to assess the impact of alternative production systems and practices
Budgets must be based on sound farm resource, production and management assumptions and the parts of the production system must be compatible
Budgets and any decisions made must be based on sound economic concepts
GEOFF BENSON, ARE, NCSU 42GEOFF BENSON, ARE, NCSU 42
Geoff BensonGeoff Benson
Phone: (919) 515-5184 Fax: (919) 515-6268 E-mail: [email protected] Web page:
http://www.ag-econ.ncsu.edu/ faculty/benson/benson.html