Exam 2 lecture 7 (enterprise budgets)

AGECO

what does an enterprise budget provide

an estimate of potential revenue, expenses, and profit for a single enterprise

single enterprise

• cattle

• cow calf

• break down by specifics

Base unit

crop is usually one acre (not on a per bushel baises)

for livestock my be one head or some other conveinient size

• size: cow,calf 

• one head: feeder stocker 

cwt 

hundred weight 

cna have more than one revenue in a enterprise budget 

how many commonditys 

ONE 

insert, watermelon ex

estimated profit , how to find

TR-TC

Fixed costs: Machinery depreciation, interest, taxes and insurance exist no matter what or revenue

accounting (pie symbol) 

economic (pie symbol) 

includes oppurtinity costs

crop enterprise budget

all revenue from one specific crop

Operating or variable expenses

only exisit if we are operating (machine moving?)

profit 

looking at return to all resources usualy all resources 

gross margin

amount of money that we have avaible after paying variable expenses

tells you whether you should opperate or not

total expenes

operating plus ownership

125 bushels per acre and the price was 3.68 per bushel 

seed cost per acre, price per bag/thousands = plant rate per acre

lime - 500lns per acre

intrest (understand how to calulate)

SUM operating expenses times n/12 times rate

• n=number of month

ownership always on

base unit

planting rate 26,000 seeds per acre and 1 bag of seed contains 78,000 seeds and costs $300 

seed: (application rate) 26000/1000 = 26 

7800/1000= 78 

300/78

3.85

labor

may be cash or oppurtunity cost - economic profit

gross margin

helps with determining shutdown point 

share of expenses 

dependent upon use

enterprise budgets can be scaled up or down

livestock budgets

per head instead of per acre

the percents in livestock budgets 

includes retained heiffers that were not sold 

bredding animals and livestock

considered long term assests

If budget is for next year

planning will require the best estimate of next year’s price and yield

If budget is for long-term planning

use estimates of average prices and yields over the long run

• 5 plus years of data

An economic enterprise budget includes….

information on opportunity costs of labor, capital, land and perhaps management

how do you get cost of production (equation)

total cost/expected yield

profit is when 

selling price is greater than cost of production , gets you to break even

“breakeven”

zero profit to where your expenses are still covered

break even price equation 

break- even price = costs/output 

as yield increases what happens to break even price

it decreases, more you have to sell the cheaper you can sell it and stil have a profit equal to zero

as output increases teh break even price

decreases

as prices get high your break even yield

decreases 

“law of supply and demand”

• Expected cottonseed yield: 1,250 pounds per acre

• Expected cottonseed price: $0.12 per pound

• Cost to produce cotton: $700 per acre

how to find revenue of cottonseed 

Pcs times Qcs = 0.12/lbs  times

$150 per acre (base unit)

whats the break even yield equation 

𝐵𝑟𝑒𝑎𝑘 − 𝐸𝑣𝑒𝑛 𝑌𝑖𝑒𝑙𝑑 = 𝐶𝑜𝑠𝑡𝑠/𝑃𝑟𝑖𝑐e

variable expenses usually depend on output

how to develop enterprise budgets

1. Identify what you are producing or plan to produce (sarces of revenue)

2. Detail the production process for the enterprise

3. Define the unit of analysis and budget time period (comon: year)

4. Where to find information to develop a budget (extenstion resource)

Identify what you are producing or plan to produce

Define your enterprises

• Examples: corn, cotton, sheep, cow-calf

  • Dryland corn, irrigated corn, reduced tillage corn, corn for silage, corn for grain…

  • Be as specific as you need to be in defining enterprises

Detail the production process for the enterprise

What resources are needed

• Land, labor, equipment, machinery, capital ($)

• What is the timeline of activities for the enterprise? (biological lag)

  • Examples:

  • Crops: field prep, planting, pest control, harvest

  • Cow-calf: Breeding, calving, weaning, sale, feeding, and animal care

Define the unit of analysis and budget time period

Unit of analysis

• Field crops: per acre is commonly used

• Livestock: per head for cattle, per flock for poultry, etc.

• Time period

  • Most cover one-year period

  • May be different for some commodities • Christmas trees, fruit trees (might have establishment years separate from full production years)

Where to find information to develop a budget

Cooperative Extension

• Publish estimated budgets

• Personnel can share information on prices, quantities, and production processes.

• Own farm business records (production and financial) production differences

• Other farmers

• Input suppliers (seed, fertilizer, equipment, etc.)