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


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)


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


*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


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



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




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





Cost per ton of DM at $2.00/gal fuel $65.79


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



QUESTIONS OR COMMENTS ON THE HAY MAKING BUDGET?


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*



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.


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


Grass Finishing BudgetGrass Finishing Budget

Bring up the Beef Finishing on Pasture Budget 21-8


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


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



QUESTIONS OR COMMENTS ON THE CATTLE BUDGETS?

Modifying the Cow-Calf BudgetModifying the Cow-Calf Budget

Bring up the Cow-calf budget 20-1


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


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


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


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


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)



QUESTIONS OR COMMENTS ON THE COW-CALF BUDGET?

What if you don’t like the answer?What if you don’t like the answer?


ITS BACK TO THE DRAWING BOARD!


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


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


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


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.


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


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


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


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



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 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

ENTERPRISE BUDGETING Part 2: Hay & Beef Budgets Geoff Benson, PhD Extension Economist Dept. of...

Documents

Transcript of ENTERPRISE BUDGETING Part 2: Hay & Beef Budgets Geoff Benson, PhD Extension Economist Dept. of...