whole farm planning—ch.12 key questions n what are the steps in preparing a whole farm budget? n...
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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?
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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.
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Uses Project profitability of the whole
farming operation—total $ Compare profitability of
alternative farm plans Estimate requirements for labor,
capital, feed, etc.
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Developing a Whole Farm Budget
1. Identify resources available (land, labor, livestock facilities)
2. 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
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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
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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
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Short-run versus Long-run Budgets
Short-run Long-run
Coming year “Typical” year
Current prices Average prices
Yields this year Average yields
Beginning inventories Ignore them
Operating loans Ignore them
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Further Analysis
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
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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?