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Whole Farm Planning —Ch.12

Whole Farm Planning —Ch.12. Key questions What are the steps in preparing a whole farm budget ? What is it used for? How do short-run and long-run budgets differ?. Whole Farm Planning.

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Whole Farm Planning —Ch.12

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  1. Whole Farm Planning—Ch.12 Key questions • What are the steps in preparing a whole farm budget? • What is it used for? • How do short-run and long-run budgets differ?

  2. Whole Farm Planning • “Successful farming is an individual, economic problem. The farm is a combination of enterprises, and its individual organization will determine in a large measure its profitableness.” • E.H. Thompson, U.S. Department of Agriculture, 1914.

  3. Uses • Project profitability of the whole farming operation—total $ • Compare profitability of alternative farm plans • Estimate requirements for labor, capital, feed, etc.

  4. Developing a Whole Farm Budget • Identify resources available (land, labor, livestock facilities) • Identify enterprises to carry out (part of the strategic plan) 3. Develop enterprise budgets ($ per acre, per head, etc) 4. Multiply gross revenue and variable costs by no. of units

  5. Developing a Whole Farm Budget 5. Sum for all enterprises 6. Add other income, if any 7. Include fixed costs 8. Profit for the whole farm

  6. Summary Gross Revenue - variable and fixed costs = profit & return to management Don’t subtract opportunity costs for • Operator labor • Equity capital Equals Net Farm Income

  7. Short-run versus Long-run Budgets Short-runLong-run Coming year “Typical” year Current prices Average prices Yields this year Average yields Beginning inventories Ignore them Operating loans Ignore them

  8. Sensitivity Analysis Change the value of key values, such as prices or yields Compare the effect on net farm income Add Resources Rent or buy more land Hire more labor Buy feed Borrow money Further Analysis

  9. Cautions!(for a new plan) • Are performance levels realistic? • How much risk is involved? • Do better alternatives exist? • Will management requirements change? • What is the effect on cash flow?

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