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

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Presentation on theme: "ENTERPRISE BUDGETING Part 2: Hay & Beef Budgets Geoff Benson, PhD Extension Economist Dept. of Agricultural and Resource Economics NC State University."— Presentation transcript:

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, NCSU2

3 AGENDA n Introduction n Explanation of the NCSU hay making and beef budgets n Modifying the Spreadsheet versions NCSU hay and beef budgets n Wrap-up GEOFF BENSON, ARE, NCSU3

4 Last time n Class Exercise n Reviewed the forage budget structure n 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 n 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, NCSU4

5 Modifications to Forage Costs Item New KY-31 Established KY-31 New Max Q New 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 GEOFF BENSON, ARE, NCSU5 *For planning purposes, “Sunk Costs” are not included as costs unless they have salvage value

6 Modifying the Hay Making Budget n Bring up the Hay Making budget 24- 2 – Large Round Bales GEOFF BENSON, ARE, NCSU6

7 Hay Making Budget, 84-2 n It has the same two-page structure as the other budgets n It does NOT include the cost of growing the hay crop n It includes the cost of moving the bales off the field but does NOT include the cost of putting the hay into storage n Open up the hay budget 84-2  Write down the total cost of hay making per ton of dry matter GEOFF BENSON, ARE, NCSU7

8 8 Tractor Costs n 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

9 Budget Costs ItemCost 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 75 HP Tractor Operating Expense/hour ($4)$16.36 GEOFF BENSON, ARE, NCSU9

10 10 Modification 4, Fuel Cost n 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?

11 Hay Making, Budget 84-2, Modification 4, Tractor Fuel ItemCost 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 55 HP Tractor Operating Expense/hour ($4)$11.95 75 HP Tractor Operating Expense/hour ($4)$16.36 55 HP Tractor Operating Expense/hour ($2)$6.39 75 HP Tractor Operating Expense/hour ($2)$8.77 Cost per ton of DM at $2.00/gal fuel$65.79 GEOFF BENSON, ARE, NCSU11

12 Machinery Cost Resources n Can be found in the “Introduction” to the budgets document on the web page n "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 n "Estimating Field Capacity of Farm Machines," PM 696, Iowa State University, April 2001, on-line at http://www.extension.iastate.edu/Publications/PM696.pdf n “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/businessmana gement/DF6696.pdf GEOFF BENSON, ARE, NCSU12

13 GEOFF BENSON, ARE, NCSU13 QUESTIONS OR COMMENTS ON THE HAY MAKING BUDGET?

14 GEOFF BENSON, ARE, NCSU14 Cattle Production n Typically, low margins n Varies from farm to farm  Owners goals and motivation  Type of operation v Commercial brood cows v Seed stock v Stocker v Finishing  Scale of operation, management  Stage in cattle cycle

15 Beef Budgets n Website http://www.ag-econ.ncsu.edu/extension/Ag_budgets.html n 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, NCSU15

16 GEOFF BENSON, ARE, NCSU16 Beef Production Costs, NCSU Enterprise Budgets, 2008, $/head sold Enterprise20062008 Cow-calf (88% calf crop)8581,136 Back-grounding on winter annual pasture* 794967 Summer grazing on spray field pasture @ $0 fertilizer* 769921 Finishing on grain*1,1521,432 Finishing on pasture*1,0071,168 GEOFF BENSON, ARE, NCSU16 * Includes cost of cattle

17 NC Beef Budget Structure n Five cattle budget spreadsheets have two worksheets – Preconditioning does not  The budget worksheet with a short description  A second worksheet containing: v Table 1 -- a list of facilities & equipment used in the enterprise and the calculations of the annual fixed cost (DITI) estimates for the budget v Table 2 -- estimates of the operating costs for equipment and machinery labor for the budget v Table 3 -- a simple sensitivity analysis based on % cost increases and yields or differences in stand life n 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, NCSU17

18 NC Cattle Budgets Structure n 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, NCSU18

19 Grass Finishing Budget n Bring up the Beef Finishing on Pasture Budget 21-8 GEOFF BENSON, ARE, NCSU19

20 NC Cattle Budget Structure n Table 1 lists the facilities and equipment used, and perennial pasture establishment costs n Powered equipment is linked to a tractor n 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, NCSU20

21 NC Budget Structure n Table 2 estimates equipment operating and labor costs n Equipment list carries over from Table 1 n 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 n Repairs and maintenance of facilities and fencing are estimated on page 1 of the budget GEOFF BENSON, ARE, NCSU21

22 GEOFF BENSON, ARE, NCSU22 QUESTIONS OR COMMENTS ON THE CATTLE BUDGETS?

23 Modifying the Cow-Calf Budget n Bring up the Cow-calf budget 20-1 GEOFF BENSON, ARE, NCSU23

24 NC Cow-calf Budget Structure n A Cow-calf enterprise can be complicated – cows, calves, bulls, replacement heifers, pasture, hay n 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, NCSU24

25 Modification 5 to Budget 20-1  Write down the Returns to Land, Overhead and Management per cow from budget 20-1 n 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. n 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: n Total annual operating cost per acre of $54.99 n Total establishment cost per acre of $99.58 (for all 75 acres)  Write down & compare the Returns to LO&M/cow GEOFF BENSON, ARE, NCSU25

26 Modifications to Cow-calf 20-1 Item 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 GEOFF BENSON, ARE, NCSU26

27 Modifying Other Aspects n 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, NCSU27

28 Modifying Other Aspects n 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, NCSU28

29 GEOFF BENSON, ARE, NCSU29 QUESTIONS OR COMMENTS ON THE COW-CALF BUDGET?

30 What if you don’t like the answer? GEOFF BENSON, ARE, NCSU30 ITS BACK TO THE DRAWING BOARD!

31 GEOFF BENSON, ARE, NCSU31 Looking for Profits n “Just because you can produce it doesn’t mean it’s profitable to do so” n “If you don’t measure it, you cannot manage it” – need cost of production data n Cost Cutters  Good grazing  Well managed grazing  Stockpiled pasture  Byproduct feeds  Livestock manures  Chicken litter for fertilizer or feed

32 GEOFF BENSON, ARE, NCSU32GEOFF BENSON, ARE, NCSU32 Looking for Profits n 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: v $29/month at $64 per ton of dry matter v $74/month at $164 per ton of dry matter  This does not include the cost of managing grazing or putting out feed

33 GEOFF BENSON, ARE, NCSU33GEOFF BENSON, ARE, NCSU33 Looking for Profits n Bale Feeding Costs 75 HP Tractor + spear, + $2/gal fuel n Annual ownership cost n Operating cost n Total Machine cost n + Labor n Total cost $ 7.67/hr $ 8.82/hr $ 16.49/hr $ 10.00/hr $ 26.49/hr

34 GEOFF BENSON, ARE, NCSU34 Losses Add to Feed Costs n Harvest losses -- 5 to 50% of harvestable production n Storage losses -- 5 to 20% n Feeding losses -- 5 to 15% n 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

35 GEOFF BENSON, ARE, NCSU35 Losses: Grazing Management n 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 n 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 n Add any cost of transporting cattle, etc.

36 GEOFF BENSON, ARE, NCSU36GEOFF BENSON, ARE, NCSU36 Looking for Profits n Grazing Management Cost  Investment in fencing, water, lanes, etc. (Table 1)  Time & equipment to move livestock Example: v Pick-up @ $11.73 /hour v Labor @ $10.00 /hour v Total = $21.73 /hour

37 GEOFF BENSON, ARE, NCSU37GEOFF BENSON, ARE, NCSU37 Keep the big picture in mind n Yields & quality vary for different forages - - Figure the nutritional needs of the animal to achieve desired performance n Include total ration cost when comparing alternative forages including:  Supplementary feeds, minerals, etc.  S torage and feeding losses  The cost of putting out feed(s) n If different rations produce different levels of in animal performance, include both income and cost effects

38 GEOFF BENSON, ARE, NCSU38 Carrying Capacity, Fescue e.g. n 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 N150 lb N DM prod/ac1,8004,8257,050 Acres/cow6.02.21.5 Cows per 100 acres 17 45 65

39 Whole Farm Issues n 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 v Ag Use valuation for property taxes v Filing taxes as a farmer  Non-farm income and lifestyle GEOFF BENSON, ARE, NCSU39

40 Wrap up n Who uses enterprise budgets?  Producers v Existing producers looking for new enterprises - - planning v Existing producers evaluating enterprises or alternative production practices – profitability v New farmers – initial screening of opportunities  Advisors to producers, including extension faculty and industry  Lenders  Others, including politicians & their advisors, researchers GEOFF BENSON, ARE, NCSU40

41 GEOFF BENSON, ARE, NCSU41 Enterprise Budgets n Are guidelines or templates -- Modify budgets for a particular farm situation & purpose n Budgets can be used to assess the impact of alternative production systems and practices n Budgets must be based on sound farm resource, production and management assumptions and the parts of the production system must be compatible n Budgets and any decisions made must be based on sound economic concepts

42 GEOFF BENSON, ARE, NCSU42GEOFF BENSON, ARE, NCSU42 Geoff Benson n Phone: (919) 515-5184 n Fax: (919) 515-6268 n E-mail: geoff_benson@ncsu.edu n Web page: http://www.ag-econ.ncsu.edu/ faculty/benson/benson.html


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