Managing your Inputs AG BM 460

Plan ahead. It wasn't raining when Noah built the Ark.

“You can't make a silk purse out of a sow's ear” Ancient Idiom

Introduction Inputs are important to success Homogeneity should not be assumed If you have special needs, you must incorporate them in your plans Must expect to pay extra for exactly what you want May need to contract

Evaluating Alternatives Need to do calculations for all grades of inputs Need to figure ratio of prices that make one a better deal – if Jersey milk is less than 12/9 of price of Holstein milk, buy it – if it is more, buy Holstein

Derived Demand How much can you afford to pay? Calculation is there for each retail price Prices are tied to quantities In simple form an input demand curve can be found

Retail D Proc Cost Input D

Some Notes on Contracts Contracts can ensure input supply Can also help scheduling of inputs Can satisfy food safety needs Must have quality premiums and discounts

Issues for farmers Size of sellers – market power Should I join a cooperative? Price risk – input and output Thin markets – not many sellers – not much volume Farmer is a small customer Too many decisions – hard to specialize – don’t have a procurement manager

Processors Inputs are farm outputs (milk, hogs, steers) Issues are quality, quantity, reliability, and control Traditionally just bought on open market Some industries integrated, esp. poultry and vegetable processing Reasons for more control include cost, food safety, and quality management Processors big compared to farms

Wholesalers and Chains Buy from processors and packers (fresh fruit & vegetables) Large volume buyers Some sellers have market power – branded or monopoly Stream of products Food safety important Milk in Australia!

Restaurants Small compared to seller Small volume restricts sources of supply Quality, reliability, quantity important

For Everyone Quality, quantity, reliability key factors Market power may be a factor Brand identity may be a factor – gives seller power, but gives buyer confidence Choices of source, quality Need to know your own needs & tradeoffs Need to understand what is variable and what is fixed

An Example – a dairy farm What are the inputs? Can you make substitutions? What are they? Does your choice matter? How?

Heifers When should you cull a cow? Should you raise your own heifers or buy them? How do you tell a good one from a bad one? Is it a good investment to buy quality? Can you justify paying $2,000 for a heifer with these milk prices? Should you contract for raising your heifers?

Semen How do you choose semen? Should you service the cows yourself or pay someone to do it? Is a “state of the art” bull worth it? Should you keep a bull around for those cows that don’t become pregnant?

Feed What is your ration? Can you afford to grow corn for grain? What substitutions can you make in your rations? Should you hire a feed consultant? Will your supplier allow you to forward contract?

Milk testing and other records Are good records worthwhile? Can you use the information you get? Do you use the information you get? Is the record system worth the money? Do you have the willpower to keep your records up to date?

How much do you need? N = (number of units raw/number of units finished) Q R =Q F N

How much can you afford to pay? P R = (1/N)(P F – C Proc )

An Example - Cheese For Holstein milk 100 lbs of milk creates 9 pounds of cheese For Jersey milk 100 lbs of milk creates 12 pounds of cheese Cheese sells for $2.00/lb. And it costs $0.75 to process

Value of milk

Concluding Comments Lots of choices Deciding requires lots of information Costs and benefits Other considerations Talk with others – quality control, sales, plant manager Find out what is flexible and what is not