Chapter 12: WholeFarm Planning

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Chapter 12Whole-Farm Planning
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Objectives

• To show how whole-farm planning differs from the
  planning of individual enterprises
• To learn the steps and procedures in developing a
  whole-farm plan
• To understand the various uses for a whole-farm
  budget

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Whole-Farm Plan

• Whole-Farm Plan summary or outline of the type
  and volume of production to be carried out by the
  entire farm, and the resources necessary to do
  it.
• Sufficient detail is needed
• When expected costs and returns for each part of
  the plan are organized into a detailed
  projection, the result is a whole-farm budget
• Enterprise budgets serve as the building blocks
  for developing a whole-farm plan

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Whole-Farm Planning Procedure

• Review goals and specify objectives
• Inventory available resources
• Identify possible enterprises and technical
  coefficients
• Estimate Gross Margins
• Choose a combination of enterprises
• Prepare a whole-farm budget

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1 Review Goal and Specify Objectives

• Given overall goals, both business and personal,
  a specific set of performance goals should be
  specified.
• Can be defined in terms of yield, COP, net
  income, livestock production rates, or other
  measures

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2 Inventory Resources

• Determine the type, quantity, and quality of
  available resources
• Land
• number of acres in crops, vineyards, pasture,
  orchards, timber
• Climatic factors (temperature, rainfall)
• Soil types, fertility, and conservation practices
• Water supply / drainage
• Crop bases, long-term contracts
• Weeds and pests
• Leasing term

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2 Inventory Resources

• Buildings
• List inventory along with condition, capacity,
  and potential uses
• Labor
• Analyze with respect to quantity and quality
• Quantity is number of hours available from
  family, hired labor, and the seasonal
  distribution
• Quality is special training, experience
• Machinery
• Capacity limits may determine size of enterprise

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2 Inventory Resources

• Capital
• Lack of cash or limited access to credit
  reluctance to tie up capital in fixed assets may
  limit expansion
• Management
• Experience, past performance, skills, weaknesses
• Other resources
• Local market availability, transportation,
  consultants, marketing quotas, or specialized
  inputs needed

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3 Identify Enterprises and Technical
Coefficients

• Budgeting units are typically 1 acre for crops
  and 1 head for livestock
• Technical coefficients are the resource
  requirements per unit
• Ex One acre of corn may require 4 hours of
  labor, 3.5 hours of tractor time, 135 of
  operating capital
• Ex One beef cow may require 4 acres of pasture,
  10 hours of labor, 120 of operating capital
• Enterprise budgets are useful in obtaining this
  information

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4 Estimate the Gross Margin per Unit

• Gross Margin Income TVC
• Gross margin is the contribution towards TFC

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5 Choose the Enterprises

• Personal experience
• Preference
• Fixed investments for certain enterprises
• Regional comparative advantage
• May want to experiment with several budget
  scenarios to choose combination

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6 Prepare the Whole-Farm Budget

• Purposes
• Estimate income, expenses, and profit
• Estimate cash inflows, outflows and liquidity
• Compare alternative farm plans on profitability,
  liquidity, etc
• Estimate resource needs
• Communicate farm plan to lender, landowner,
  partner, stockholder

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Enterprise A
Enterprise B
Enterprise C
units of A
units of C
units of B
x
x
x
Gross Revenue per Unit Variable Costs per Unit
Gross Revenue per Unit Variable Costs per Unit
Gross Revenue per Unit Variable Costs per Unit
WHOLE FARM

• Gross Revenue
• Variable Costs
• Gross Margin
• Misc. Income
• - FC
• NFI

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Example

• 1 Goals and Objectives
• Choose a combination of crop and livestock
  enterprises that will MAX total gross margin

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Example

• 2 Resource Inventory
• Resource Amount and Comments
• Class A Cropland 400acres
• Class B Cropland 200 acres
• Pasture 600 acres
• Buildings Only hay shed and cattle shed
  available
• Labor 2,400 hours available annually
• Capital Adequate for any farm plan
• Machinery Adequate for any farm plan, harvest is
  custom hire
• Management Appears capable and experienced in
  crops and livestock
• Other limitations Any hay produced must be fed
  on farm, not sold

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Example

• 3 Enterprise and Technical Coefficients
• Class A Cropland cotton, milo, wheat
• Class B Cropland milo wheat

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Example

• Crops (per acre)
• Class A land Class B land Livestock (head)
• Resource Quantity Cotton Milo Wheat
  Milo Wheat Beef Stocker
• A land 400 ac 1 1 1
• B land 200 ac 1 1
  0.5
• Pasture 600 ac 6 3
• Labor 2400 hr 4 3 2.5
  3 2.5 6 1
• Oper.Capital 250 100 80 80
  65 470 550

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Example

• 4 Gross Margins

Class A land Class B land Livestock
(head) Cotton Milo Wheat Milo Wheat Beef Stocke
r Yield 500 lb. 80 cwt. 52 bu. 66 cwt. 36
bu. Price () 0.80 2.50 3.75 2.50 3.75 Gross
Income 400 200 195 165 135 675 620 TVC
() 250 100 80 80 65 470 550 Gross
Margin 150 100 115 85 70 205 70
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Example

• 5 Choosing Enterprise Combination
• Economic analysis
• Profit MAX

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Example

• 6 Whole-Farm Budget
• See p.203

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Sensitivity Analysis

• Even with projections that have a positive net
  income, unexpected changes in prices and
  production levels can quickly turn that into a
  loss
• Reduce production levels, input and output
  prices, and evaluate what happens to income