Part 1, Section 12: Farm Management: Enterprise Budgets
Farm Management: Enterprise Budgets
SAMPLE ENTERPRISE BUDGETS
Sample budgets for corn grain, corn silage, oats, barley, wheat, double-crop barley with soybeans, double-crop wheat with soybeans, grain sorghum, forage sorghum, canola, alfalfa, and grass hay are given in Tables 1.12-1 to 1.12-9. These budgets were developed using a computerized budget generator and reflect Penn State recommended production practices and assumptions concerning 2009 commodity prices and input costs. The budgets were prepared to provide general information for several different uses. They do not apply directly to individual fields or to any specific area. They should be used, with appropriate modifications, as guides for preparing budgets for individual situations. The budget layouts should help ensure that all costs are included. Costs often are difficult to estimate in budget preparation because they are numerous and variable. Therefore, you should think of these budgets as a first approximation and then make appropriate adjustments using the “YOUR ESTIMATE” column to add, delete, and adjust items to reflect your specific production situation.
Major subheadings in the budgets include receipts, variable costs, fixed costs, total costs, and net returns to management. They are defined as follows:
- Receipts are the gross returns from production. Because yields and prices are so variable, growers should use representative values for their operation.
- Variable costs are costs that vary depending on the level of production. These include inputs such as seed, fertilizer, herbicides, insecticides, fungicides, and labor. With the exception of the corn silage and forage sorghum budgets, commercial fertilizers were used as the fertility source in all the budgets. Other variable costs that have not been included in the budgets might include crop management services, crop insurance, marketing, and storage.
- Fixed costs are costs that do not vary by level of production and are incurred by virtue of owning assets such as machinery and land. Depreciation, insurance, principal and interest payments, and property taxes are examples of fixed costs. A flat $100-per-acre charge for land is included as a fixed cost in the sample budgets. Land charges are highly variable and can be either a variable cost (for rented land) or a fixed cost (for long-term leases and owned land. You should include rental charges or interest and principal payments plus property taxes to account for all your costs of crop production. If you own the land, figure your land charge based on the agricultural value of the land rather than its potential value for developement.
- Total specified costs are the sum of variable and fixed costs, but do not include costs for crop storage or marketing.
- Returns to land and management is the profit attributable to the use of the land and risk-taking by the operator.
Representative break-even prices and yields are given at the bottom of each budget. The break-even price is the minimum price required to cover all costs at the anticipated yield. The break-even yield is the minimum yield required to cover all costs at the anticipated price.
For a more detailed discussion of the use of crop budgets to improve crop decision making, see the farm management publication Agricultural Alternatives: Enterprise Budgeting Analysis, available from your local Penn State Cooperative Extension office or online at agalternatives.aers.psu.edu.