Planning for the coming year has begun as farmers are deciding the desired crop mix to plant in 2013. How many acres of corn? How many acres of soybeans? Or possibly a third crop? There are specific agronomic decisions to make too -- buying seed, fertilizer and other inputs.
On the livestock side, producers will run the numbers and make estimates to determine pro?t potential for their enterprises in coming months. With high feed costs, margins look tight for 2013. Feed inventory or the availability of corn and hay, the number of livestock to be marketed, amount of livestock products such as milk and eggs intended to be produced, are figures that will be run through calculators and computer spreadsheets.
End of the year, time to make estimates and plans for 2013
"Proper economic, ?nancial and production analysis to answer the questions farmers face is required to ensure long-term profitability of a farming operation," notes Kristen Schulte, farm business management specialist for ISU Extension in northeast Iowa. Whether you are making an agronomic decision or doing an analysis to measure the ef?ciency of using a product or a practice, "pushing the pencil" is required.
"Closely analyzing the different activities in the business can be critical to determining the success of the farm," says Schulte. Many businesses, especially farms, are comprised of several enterprises. More than one commodity contributes to net revenue. These enterprises may compete, complement or supplement one another depending on associated requirements of inputs such as capital, facilities, feed, land or labor.
Using enterprise analysis helps you do the best job of allocating limited resources
Enterprise analysis helps to allocate the limited resources of land, labor and capital of a farming operation to speci?c enterprises to determine each enterprise's profitability and contribution to the whole operation. Additionally, based on the contribution to farm pro?t and use of input resources, you can evaluate the proper enterprise mix for your farm.
"Enterprise analysis can also help to determine the desired selling price of a commodity or to evaluate production practices and associated cost of production," says Schulte.
~~~PAGE_BREAK_HERE~~~For example, if a farm has a 200-head beef feedlot, what's the appropriate crop mix and number of required acres to complement the beef feedlot? This decision may be based on feed requirements or providing adequate returns to the whole farm within restrictions of available labor and machinery.
Best mix of enterprises on a farm may depend on capital and labor
The appropriate mix may also be based on capital and labor available, says Schulte. For example, forage crops require more labor hours annually than a corn enterprise; the availability and timing of labor and machinery may de?ne the types of crops and associated acres chosen.
Another example is a producer raising specialty crops. Fruit or vegetable crops take a varying amount of labor, capital and land. Some vegetable and fruit crops can generate positive returns on a relatively small amount of acreage compared to conventional crops. However, these enterprises may, in turn, have higher labor or capital investment requirements. Thus, if a producer has a small land base and ample labor availability, a specialty crop acre mix to effectively use labor and capital to generate returns can be determined from enterprise analysis.
Enterprise budgets are provided by ISU Extension on ISU's Ag Decision Maker website. Budgets are available for crops including conventional and organic corn, soybeans, oats and forage; pasture; and fruit and vegetable production. Livestock budgets are available for swine and beef production at various production stages, along with budgets for sheep and dairy production.
Calculate a break-even price for each commodity you produce
In each ISU Extension budget, a break-even price for the commodity produced is calculated. "When comparing between enterprises, only variable costs, such as machinery fuel and repair costs, need to be included," she notes. "Fixed costs do not need to be considered because they will remain the same regardless of which enterprises are selected. However, ?xed costs, such as cost for land or buildings, should be included when evaluating an enterprise to determine break-even cost of production."
~~~PAGE_BREAK_HERE~~~Enterprise budgets also include receipts from the enterprise. Be sure to include all sources of revenue, including manure for a livestock enterprise or cornstalk bales for a corn enterprise. Subtracting variable costs from expected revenue calculates a net return over variable costs per acre or hour for each enterprise, which can be used as criteria for choosing among them for an adequate mix on a whole farm basis.
You can use ISU's budgets as a benchmark, and plug in your own figures for your particular farming operation and situation
"When evaluating enterprises, remember a snapshot of one production year may not be typical," says Schulte. "Due to unusual growing conditions or crop rotations, one year may not be representative of the pro?tability of that enterprise. Thus, an average of returns and inputs over time or a projection of long-term returns based on crop rotations may more accurately re?ect potential pro?tability."
When using budgets, keep in mind that individual farm factors such as availability to input suppliers and markets may affect costs and returns, so each farmer should adjust the inputs entered into the budget to represent his or her own situation. "The ISU budgets can be used as a benchmark to show you what the averages are in Iowa. Or you can plug your own figures into the spreadsheet. You can use the budgets as a starting place to make your own adjustments to do an analysis for your particular situation and farming operation," says Schulte.
The farm enterprise budgets are available on the Ag Decision Maker site at www.extension.iastate.edu/agdm, or by contacting your local ISU Extension of?ce.
For farm management information and analysis go to ISU's Ag Decision Maker site www.extension.iastate.edu/agdm and Extension farm management specialist Steve Johnson's site www.extension.iastate.edu/polk/farm-management.