Modifying Enterprise Budgets for the Farm Plan

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Modifying Enterprise Budgets for the Farm Plan

• Constructing Table 9

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Enterprise Budgets
Get an enterprise budget from ACES for every crop
and livestock enterprise currently produced by
the farm. http//www.ag.auburn.edu/aec/pubs/budg
ets/
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Make Budgets Fit Your Farm

• For crops project price and yield and add to
  budgets
• For livestock, check the revenue assumptions and
  adjust if needed.
• Modify the variable costs
• Calculate return above variable costs
• Recalculate total costs
• Calculate net profits
• Calculate break-even yields and prices

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Modifying Your Enterprise Budgetsfor the Farm
Plan
Youll need to make price and yield estimates for
crops. You can use last years price and yield
(in the data) or use other estimates.
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Modify the Variable Costs
If this were your actual farm, you could make
line by line modifications as with homework 4.
With the information you were given, thats not
possible, but we can get some idea of how are
farms variable costs compare to the ACES values.
We do this by finding relative cost
structure, which is table 9 of the farm plan.
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Relative Cost Structure, Table 9
1) Collect actual variable costs from table 6 and
sum them up. 2) Figure out what variable costs
would have been if the farm had exactly followed
ACES enterprise budgets.
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Some Data from a Sample Farm
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Information from the Data
How many acres of each crop enterprise
are produced? Find this information in table 4.
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Cattle Data
Average size of this herd is (155145)/2 or 150
cows.
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Cost Information
Items in italics were not supplied in original
data, but were calculated for completion of table
6.
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The next farm plan table.
Table 9. Relative Cost Structure
Actual VC comes from your completed table 6.
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Table 9 Continued

• Level is the amount of the enterprise you
  produced, compared to the ACES amount
• For crops, it is just the acres
• Fill in the acres of crops and then get the per
  acre variable costs from the ACES budgets.

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Get ACES VC from Budgets
To fill in the ACES VC column, go to the ACES
budgets and copy numbers into table 9.
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The ACES Corn Budget
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Calculate Implied VC
If the farm had exactly followed the enterprise
budgets, the VC would equal the sum of the level
of each enterprise times the VC per unit.
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Fill in Crop Levels and Implied Costs
Implied VC entries are the level (number of
acres) times ACES VC per acre.
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ACES Cattle Budget
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Cow-Calf Units

• ACES Budget defines a 30-cow unit.
• On average, over the year, you have 150 cows
  (145155)/2
• You have 5 30-cow units and you can use that
  number in your calculations.
• Alternatively, you can use the per-cow figures in
  the extreme right column to develop table 9.
• I have worked it both ways.

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Table 9, Completed
Here, I have completed my cost calculations. I
have used the 30 cow units as a basis. I have 5
such units. (530 150) My actual costs for 2005
were 83 percent of what ACES estimated they
would be in 2006, following the recommended
practices. (One reason for the lower number is
that the costs of fertilizer have gone up quite a
bit since 2005. )
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Table 9, Alternative
Here I use actual average number of cows and the
cost per cow. There is a slight difference in
the ratio, because of rounding.
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Find Cow-Calf Level, Repeat
I have 155 cows at the beginning of the year and
145 at the end, for an average of 150 cows.
The ACES budget is for 30 cows. I have 5 of
those units, if I measure costs that way. Or I
have 150 cows if I use per cow variable cost.
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Next step is to modify the ACES Enterprise Budgets
Yields and prices are your best judgment. Modify
the VC figures using the ratio from table 9.
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Modify the Budget VC
Multiply VC on the budget by the relative cost
ratio (here .83). Re-compute all totals.
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230.58.83
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Break-even Calculations
For every crop enterprise, calculate the
break-even yield and price for all costs and for
variable costs.
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Do the same for all the budgets
Repeat the same procedure for all the budgets
you will use in your farm plan. Get an
enterprise budget for every enterprise already on
the farm and for every enterprise you are
considering for next year.
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For Cow-Calf Budget

• Modify the existing revenue figures if desired.
• Modify the VC in same manner as for crop budgets.
• Recalculate return above variable cost, total
  cost, and net profit, with new VC figure.
• Dont calculate break-even figures.