Transcript No Slide Title

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
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
Item
*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
Item
Cost
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
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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
Item
Cost
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
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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/crops/html/a329.html
 "Estimating Field Capacity of Farm Machines," PM 696,
Iowa State University, April 2001, on-line at
http://www.extension.iastate.edu/Publications/PM696.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/businessmana
gement/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
Seed stock
Stocker
Finishing
brood cows
Scale of operation, management
Stage in cattle cycle
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Beef Budgets
 Website
http://www.ag-econ.ncsu.edu/extension/Ag_budgets.html
 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
Enterprise
2006
2008
Cow-calf (88% calf crop)
858
1,136
Back-grounding on winter
annual pasture*
794
967
Summer grazing on spray
field pasture @ $0 fertilizer*
769
921
Finishing on grain*
1,152
1,432
Finishing on pasture*
1,007
1,168
* Includes cost of cattle
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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 LO&M/cow
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Modifications to Cow-calf 20-1
Commercial
Fertilizer
Poultry
Litter
-$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
Item
Returns to Land, Overhead &
Management
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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 don’t like the answer?
ITS BACK TO THE
DRAWING BOARD!
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Looking for Profits
 “Just because you can produce it doesn’t
mean it’s profitable to do so”
 “If you don’t 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
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Looking for Profits
Bale Feeding Costs
75 HP Tractor + spear,
+ $2/gal fuel


Annual ownership cost
$ 7.67/hr

Operating cost
$ 8.82/hr

Total Machine cost
$ 16.49/hr

+ Labor
$ 10.00/hr

Total cost
$ 26.49/hr
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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
@ $11.73 /hour
 Labor @ $10.00 /hour
 Total =
$21.73 /hour
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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
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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
0 Fert. 100 lb N 150 lb N
DM prod/ac
1,800
4,825
7,050
Acres/cow
6.0
2.2
1.5
Cows per
100 acres
17
45
65
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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: (919) 515-5184
 Fax: (919) 515-6268
 E-mail: [email protected]
 Web page:
http://www.ag-econ.ncsu.edu/
faculty/benson/benson.html
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