Whole Farm Planning—Ch.12 Key questions n What are the steps in preparing a whole farm budget? n What is it used for? n How do short-run and long-run budgets differ?

Whole Farm Planning n “Successful farming is an individual, economic problem. The farm is a combination of enterprises, and its individual organization will determine in a large measure its profitableness.” n E.H. Thompson, U.S. Department of Agriculture, 1914.

Uses n Project profitability of the whole farming operation—total $ n Compare profitability of alternative farm plans n Estimate requirements for labor, capital, feed, etc.

Developing a Whole Farm Budget 1.Identify resources available (land, labor, livestock facilities) 2.Identify enterprises to carry out (part of the strategic plan) 3. Develop enterprise budgets ($ per acre, per head, etc) 4. Multiply gross revenue and variable costs by no. of units

Developing a Whole Farm Budget 5. Sum for all enterprises 6. Add other income, if any 7. Include fixed costs 8. Profit for the whole farm

Summary Gross Revenue - variable and fixed costs = profit & return to management Don’t subtract opportunity costs for –Operator labor –Equity capital Equals Net Farm Income

Short-run versus Long-run Budgets Short-runLong-run Coming year“Typical” year Current pricesAverage prices Yields this yearAverage yields Beginning inventoriesIgnore them Operating loansIgnore them

Further Analysis n Sensitivity Analysis –Change the value of key values, such as prices or yields –Compare the effect on net farm income n Add Resources –Rent or buy more land –Hire more labor –Buy feed –Borrow money

Cautions! (for a new plan) n Are performance levels realistic? n How much risk is involved? n Do better alternatives exist? n Will management requirements change ? n What is the effect on cash flow?