ENTERPRISE BUDGETING Part 2: Hay

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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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AGENDA

• Introduction
• Explanation of the NCSU hay making and beef
  budgets
• Modifying the Spreadsheet versions NCSU hay and
  beef budgets
• Wrap-up

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Last 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)

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Modifications to Forage Costs
For planning purposes, Sunk Costs are not
included as costs unless they have salvage value
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Modifying the Hay Making Budget

• Bring up the Hay Making budget 24-2 Large Round
  Bales

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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 84-2
• Write down the total cost of hay making per ton
  of dry matter

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Tractor 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

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Budget Costs
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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?

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Hay Making, Budget 84-2, Modification 4, Tractor
Fuel
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Machinery 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/c
  rops/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/P
  M696.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/business
  management/DF6696.pdf

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QUESTIONS OR COMMENTS ON THE HAY MAKING BUDGET?
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Cattle Production

• Typically, low margins
• Varies from farm to farm
• Owners goals and motivation
• Type of operation
• Commercial brood cows
• Seed stock
• Stocker
• Finishing
• Scale of operation, management
• Stage in cattle cycle

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Beef Budgets

• Website
• http//www.ag-econ.ncsu.edu/extension/Ag_budgets.h
  tml
• 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

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Beef Production Costs, NCSU Enterprise Budgets,
2008, /head sold
Includes cost of cattle
GEOFF BENSON, ARE, NCSU
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NC 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.

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NC 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

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Grass Finishing Budget

• Bring up the Beef Finishing on Pasture Budget
  21-8

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NC 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

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NC 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

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QUESTIONS OR COMMENTS ON THE CATTLE BUDGETS?
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Modifying the Cow-Calf Budget

• Bring up the Cow-calf budget 20-1

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NC 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

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Modification 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 LOM/cow

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Modifications to Cow-calf 20-1
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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

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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)

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QUESTIONS OR COMMENTS ON THE COW-CALF BUDGET?
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What if you dont like the answer?
ITS BACK TO THE DRAWING BOARD!
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Looking for Profits

• Just because you can produce it doesnt mean
  its profitable to do so
• If you dont measure it, you cannot manage it
  need cost of production data
• Cost Cutters
• Good grazing
• Well managed grazing
• Stockpiled pasture
• Byproduct feeds
• Livestock manures
• Chicken litter for fertilizer or feed

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Looking 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

GEOFF BENSON, ARE, NCSU
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Looking 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

GEOFF BENSON, ARE, NCSU
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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
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Losses Grazing Management

• 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
• 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
• Add any cost of transporting cattle, etc.

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Looking for Profits

• Grazing Management Cost
• Investment in fencing, water, lanes, etc. (Table
  1)
• Time equipment to move livestock
• Example
• Pick-up _at_ 11.73 /hour
• Labor _at_ 10.00 /hour
• Total 21.73 /hour

GEOFF BENSON, ARE, NCSU
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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

GEOFF BENSON, ARE, NCSU
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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

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Whole Farm Issues

• 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
• Ag Use valuation for property taxes
• Filing taxes as a farmer
• Non-farm income and lifestyle

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Wrap 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
• Lenders
• Others, including politicians their advisors,
  researchers

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Enterprise 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

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Geoff Benson

• Phone [phone]
• Fax [phone]
• E-mail geoff_benson_at_ncsu.edu
• Web page
• http//www.ag-econ.ncsu.edu/ faculty/benson/bens
  on.html

GEOFF BENSON, ARE, NCSU
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