AGEC 407 Whole-farm Planning 1.Which enterprises to include? 2.How many units for each? 3.For the upcoming year or for a representative year 4.Done as a short-term or long-term plan

AGEC 407 Whole-farm Planning Six steps involved: –Review goals and objectives –Inventory resources –Identify possible enterprises and their requirements –Calculate the gross margins for each –Select a plan (combination of enterprises) –Develop a whole-farm budget

AGEC 407 Inventory Resources Need to know what is available Most important to know what the constraints are

AGEC 407 Inventory Resources Things to inventory –Land –Buildings and machinery –Labor –Capital; position and availability –Management ability

AGEC 407 Identify Enterprises Likely choices are often known Might pay to “think outside the box” Resource requirements –Land –Labor –Capital –From enterprise budgets Resource availability

AGEC 407 Estimate Gross Margins Income over variable costs –From enterprise budgets –For short-run planning –fixed costs are constant, does not affect profit-maximizing plan –contribution of enterprise to farm fixed costs and to profits

AGEC 407 Choose a Plan Combination of enterprises Must be feasible Want most profitable combination Can analyze selected scenarios Can use linear programming

AGEC 407 Develop a Budget Why? –Estimate profit and cash flow –Evaluate changes in the plan –Needed to acquire capital

AGEC 407 Develop a Budget Sum from each enterprise: # of units * gross margin gross margin = income - variable costs For whole farm: other income indirect costs Result: Net farm income

AGEC 407 Linear Programming Uses to find best combinations of enterprises Optimizes an objective subject to certain specified constraints