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ENTERPRISE BUDGETING Part 2: Hay & Beef Budgets

ENTERPRISE BUDGETING Part 2: Hay & Beef Budgets. Geoff Benson, PhD Extension Economist Dept. of Agricultural and Resource Economics NC State University. AGENDA. Introduction Explanation of the NCSU hay making and beef budgets Modifying the Spreadsheet versions NCSU hay and beef budgets

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ENTERPRISE BUDGETING Part 2: Hay & Beef Budgets

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  1. ENTERPRISE BUDGETING Part 2: Hay & Beef Budgets Geoff Benson, PhD Extension Economist Dept. of Agricultural and Resource Economics NC State University

  2. GEOFF BENSON, ARE, NCSU

  3. AGENDA 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

  4. Last 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

  5. Modifications to Forage Costs *For planning purposes, “Sunk Costs” are not included as costs unless they have salvage value GEOFF BENSON, ARE, NCSU

  6. Modifying the Hay Making Budget Bring up the Hay Making budget 24-2 – Large Round Bales GEOFF BENSON, ARE, NCSU

  7. 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 84-2 • Write down the total cost of hay making per ton of dry matter GEOFF BENSON, ARE, NCSU

  8. Tractor 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 GEOFF BENSON, ARE, NCSU

  9. Budget Costs GEOFF BENSON, ARE, NCSU

  10. 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? GEOFF BENSON, ARE, NCSU

  11. Hay Making, Budget 84-2, Modification 4, Tractor Fuel GEOFF BENSON, ARE, NCSU

  12. Machinery 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

  13. QUESTIONS OR COMMENTS ON THE HAY MAKING BUDGET? GEOFF BENSON, ARE, NCSU

  14. Cattle Production Typically, low margins Varies from farm to farm Owners goals and motivation Type of operation Commercial brood cows Seed stock Stocker Finishing Scale of operation, management Stage in cattle cycle GEOFF BENSON, ARE, NCSU 14

  15. Beef Budgets • Website http://www.ag-econ.ncsu.edu/extension/Ag_budgets.html • Beef Budgets - Spreadsheet Version • Introduction to spreadsheet (please read first) • Beef Cow-Calf Budget 20-1 • Beef Wintering Budget 21-1 • Beef Grazing Budget 21-4 • Beef Finishing Budget 21-6 • Beef Finishing on Pasture Budget 21-8 • Beef Preconditioning 21-9* GEOFF BENSON, ARE, NCSU

  16. Beef Production Costs, NCSU Enterprise Budgets, 2008, $/head sold * Includes cost of cattle GEOFF BENSON, ARE, NCSU GEOFF BENSON, ARE, NCSU 16

  17. NC 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

  18. NC 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

  19. Grass Finishing Budget Bring up the Beef Finishing on Pasture Budget 21-8 GEOFF BENSON, ARE, NCSU

  20. NC 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

  21. NC 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

  22. QUESTIONS OR COMMENTS ON THE CATTLE BUDGETS? GEOFF BENSON, ARE, NCSU

  23. Modifying the Cow-Calf Budget Bring up the Cow-calf budget 20-1 GEOFF BENSON, ARE, NCSU

  24. NC 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

  25. Modification 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

  26. Modifications to Cow-calf 20-1 GEOFF BENSON, ARE, NCSU

  27. 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

  28. 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

  29. QUESTIONS OR COMMENTS ON THE COW-CALF BUDGET? GEOFF BENSON, ARE, NCSU

  30. What if you don’t like the answer? ITS BACK TO THE DRAWING BOARD! GEOFF BENSON, ARE, NCSU

  31. Looking 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 grazing • Well managed grazing • Stockpiled pasture • Byproduct feeds • Livestock manures • Chicken litter for fertilizer or feed GEOFF BENSON, ARE, NCSU

  32. Looking 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 GEOFF BENSON, ARE, NCSU 32

  33. 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 Looking for Profits GEOFF BENSON, ARE, NCSU GEOFF BENSON, ARE, NCSU 33

  34. 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 GEOFF BENSON, ARE, NCSU • Use controlled grazing to reduce waste • Loss ~ 25% with strip or rotational grazing • Loss ~ 50% if cattle are grazed for, say, three weeks in the same pasture • Controlled Grazing Example • 10 acres at 2 tons DM/acre • Permanent fencing & water exist • It costs $15 per move X 12 moves = $180 • Cattle eat 15 tons v. 10 tons if set stocked • Cost of saved feed = $180/5 tons = $36/ton DM • Add any cost of transporting cattle, etc.

  36. Looking 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 GEOFF BENSON, ARE, NCSU 36

  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 GEOFF BENSON, ARE, NCSU 37

  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 GEOFF BENSON, ARE, NCSU

  39. Whole Farm Issues • Financial decisions depend on the whole farm and family situation • Other farm enterprises, e.g., cattle on poultry and hog farms, supplementary enterprises on crop farms • Farm overhead costs • Farm tax benefits • Ag Use valuation for property taxes • Filing taxes as a farmer • Non-farm income and lifestyle GEOFF BENSON, ARE, NCSU

  40. Wrap 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 • Lenders • Others, including politicians & their advisors, researchers GEOFF BENSON, ARE, NCSU

  41. Enterprise 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

  42. Geoff Benson • Phone: (919) 515-5184 • Fax: (919) 515-6268 • E-mail: geoff_benson@ncsu.edu • Web page: http://www.ag-econ.ncsu.edu/ faculty/benson/benson.html GEOFF BENSON, ARE, NCSU GEOFF BENSON, ARE, NCSU 42

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