Developing Enterprise Budgets Session 4

Transcription

1 Developing Enterprise Budgets Session 4

2 Review Field Day Soils Class? What capital assets farms have? Was equipment component right for size of operation? What would you have added or not bought?

3 Homework for Session 4 List all capital items you will need to start your farm Buildings Equipment Fencing Irrigation Animals Tools In Ag Plan Facilities Capital request Management Team Personnel Plan

4 Review Homework How did you decide on Capital Assets you need Equipment Buildings Irrigation Fencing Were there any surprises?

5 Warm-up Smith s Case Study Bases on Smith s inventory of farm resources and capital costs eliminated Hops, blueberries, sheep, goats, cow-calf and pasture pork Blackberries and agritourism Still considering 12 enterprises What were the considerations for dropping these enterprises

6 Smith s Farm Goal We would like our farm to make $20,000 net profit in Have $30,000 for start-up costs.

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8 Mushroom Start Up

9 Cow/Calf Fix Cost Fix Costs Years Total Per Cow Pasture Pasture Equipment 1, Water Infrast. 5, Fencing 23, , Tractor 12, * 12 Truck 15, Equipment 12, Corral 10, Total Fix Cost $78,804 $3,794 $151

10 Tractor Purchasing a used tractor Hours of use Useful life around 12,000 hours Available part and service Three ways to buy tractor Auctions Dealerships Classified ads Fastline Tractorhouse Market Farm Implement

11 Tools for 1-3 acres Organic Farmer Business Handbook Bare minimum: Shovel, rake, oscillating hoe wheel barrow, (wheel hoe), hoses, hand sprayer Earthway seeder Pick up truck Troybuilt rototiller (small greenhouse) Digital platform scale (20 lb) Scaling up: hp 2WD tractor 3 PTH rototiller 3 PTH mini chisels 3 PTH cultivators Walk in cooler Wash and pack station

12 Grower to Grower 5 acre Farm

13 Developing the Cost of Production Numbers Farmer Speaker 4:20-5:10

14 Objectives for Session What are the differences between fixed and variable cost expense? How do we establish a farm revenue? How do we use capital cost estimates in enterprise budgets? How do we use enterprise budgets to establish breakeven prices?

15 Smith s Farm Goal We would like our farm to make $20,000 net profit in What information do we need to know? Gross sales Amount vegetables or animals sold Prices sold each sold What inputs needed for production Labor Equipment Fertilizer Seed What machinery and equipment needed?

16 Net Cash Income Per Acre Farm Scale Range Average <3 acres $1,854-$9,487 $5,664 3 to 6 acres $1,767-$8,547 $5, acres $1,331-$5,842 $3,550 >12 acres $1,103-$7,430 $3,757 Grower to grower: Creating a livelihood on a fresh market vegetable farm, p. 17 (2005), John Hendrickson, CIAS Outreach Specialist

17 Terms Enterprise budget: An estimate of the revenues and costs for the production of a certain product Revenue: The cash income received from an enterprise. Variable/ operating costs-costs that are directly tied to the operation of a farm enterprise. Feed, seed, fertilizer, animal health costs, hired labor and fuel are common farm operating costs. Capital/fixed/ overhead costs- Equipment, facilities and other purchases that will be used longer than one year for farm production.

18 Two Examples of Commercially Available Individual Crop Cost Methods.

19 Profit = Income Expenses

20 Defining Your Enterprises Each enterprise is a profit center. You define them to fit your needs! Examples might help: 1. Fruit crops berries, 2. Vegetables tomatoes, peppers, okra 3. Corn maze w/ snack bar, hayrides 20

21 Crops Budgets* *From: Organic Farmers Business Handbook Richard Wiswall

22 Budgeting A way of estimating profit Organized into Revenue Income Variable costs Fixed costs Estimates based on production, technology, and size

23 Units of Production Sales Volume = Unit of Quantity Sheep lbs. of wool lbs. of meat cwt. at auction number of bread ewes units of milk Chickens dozen eggs lbs. of meat number of chicks number of hens/roosters

24 Units of Production SALES VOLUME X SALES PRICE = GROSS INCOME

25 Revenue Cash received from an enterprise Same product may be sold at different prices to different markets May produce more than one kind of saleable product 500 $3.00 /pint = $1,500 or 200 pints upick $2.00 =$ pints prepack 2.75 =$ pints sold at farmers market $600 Total Revenue $1,275

26 Finding Probable Prices Price is one of most important factors in determining profitability What price or prices should I use to project revenue in a budget? Retail prices are obtained by selling farm products directly to customers Wholesale prices are usually less than retail because firms handle product between farmer sand customers Season average prices because prices make change with the season NC Farm School website pricing resources

27 Variable Cost Used in the short run Cash expenditures used within the year General directly used/consumed with crop or animal production Changes with small changes in production scale Relevant to size of the operation No additional capitol purchases required to increase in size

28 Fixed Cost Used in the Long Run Capitol expenditures Generally not directly consumed/used by crops or animals Changes with large changes in production scale Relevant to size of the operation Additional capitol purchases required to increase in size

29 Fixed Costs Important for making decisions, are we making a profit yet? Important for items that have a useful life > than 1 year Deprecation is the loss of value or obsolescence of an asset over time (not related to tax deprecation) Focus on machinery, equipment, & buildings

30 Per Unit Depreciation Assigning a depreciation value on a per hour or per unit basis $20,000 new tractor- $5000 salvage value at the end of 15 years = $15,000 $1000 per year depreciation Assume you are going to put 500 hours on the tractor each year $1000 per year / 500 hours per year = $2/ hour of use Assuming you are going to put 200 hours each year then $1000 per year / 200 hours = $5/ hour

31 Tractor Costs Tractor model JD 2240 Ford 4000 Cub Original cost/useful life 7000/ / /25 Annual cost, w/o interest Average annual repairs Annual fuel $3/gallon Total annual cost Hours used annually Tractor cost/hour Tractor with driver: $/hour

32 Farmers Market Costs Farmers Market Costs Cost Calculate for ONE market Labor: load truck(s) hr (2 hr each) Labor: travel, set up hr (2 people) Labor: market vending hr (2 people) Labor: pack, travel, unpack, tally sales hrs (2 people) Vehicle(s) cost at.40/mile miles round trip per market Rental fees scales $1500, umbrellas $400, tables $200, signs $200 $2300/15-year useful life/20 markets per season = $7.67 per market Amortized FM equipment 7.67 Subtotal, one market: # of markets 6 Total costs for # markets Crop sales % x total market costs 73.94

33 Ten Minute Break

34 Egg Budget Exercise

35 In-Class Example Chicks vs Pullets Complete the Chicks vs. Pullets worksheet to help define your enterprise: Chicks Pullets Day old chick 3 20 Feed for 6 months Mortality 5% Feeder and Waters

36 High Tunnel Budgets

37 Construction Cost

38 Construction Cost 96 by 30 Companies High Tunnel 7,972 6,060 8,860 Other items Irrigation Plastic Cover Labor Site Preparation Backup heater Water Service Weed Matt Delivery

39 Construction Cost Construction Cost Materials Labor Site Preparation Greenhouse layout Frame 5, Lumber Hardware Endwall finish Irrigation Backup heater 225 Water Service Weed Matt 200 Harvest container 200

40 Construction Cost Construction Cost Materials Useful Life Annual cost Site Preparation Greenhouse layout Frame 5, Lumber Hardware Endwall finish Irrigation Backup heater Water Service Weed Matt Harvest container Labor 1, Total 637

41 Total Revenue Most budgets include a revenue section What yields What price

42 Retail Tomato Prices

43 Total Revenue LBS/Plant Price Tomato 12 $ plants per high tunnel $11,520

44 Enterprise Budgets Variable costs- vary with the yield Ex: Plants, fertilizer, fuel, repairs Fixed costs- costs you incur, whatever the level of production Ex: depreciation, taxes, insurance, interest and land Labor - Own vs. Hired

45 Variable Cost Plants 700 Fertilizer 175 Irrigation supplies 10 Stakes, string, clips 200 Heater fuel 75 Bees for pollination 100 Poly Cover (prorated 4 yrs) 200 Mis supplies 150 Sub total 1,610

46 Labor Cost Bed prep and fertilization 144 Transplanting, lay drip tape, weed matt 144 Site mowing and weeding 144 Pruning and trellising 576 Harvesting grading and packing 480 Clean up 120 Maintenance 96 Environmental management 360 Sub total 2,064

47 Total Cost Total Per LB Annualized Construction Cost Fixed cost (interest, taxes, land) , Variable Cost 1, Labor 2, Total Cost 5,

48 Returns At Various Prices $2.00/LB $1.50/LB $1.25/LB Gross Returns $11,520 $8,640 $7,200 Variable Cost $3,674 $3,674 $3,674 Returns over Variable Cost $7,846 $4,966 $3,526 Fixed Cost $1,085 $1,085 $1,085 Returns over Total Cost $6,761 $3,881 $2,441

49 Breakeven Analysis Variable cost and labor $3,674 $3,674/yields of 5,760 LBS Per acre price needed to cover variable costs = $0.63 Total costs: $3,674+$1,722=$5,396/High Tunnel Price needed to cover total costs =$.94/LBS

50 Breakeven Analysis What if yields were 10 pounds per plant Breakeven price would be $1.12 Yields of 14 pounds per plant Breakeven price would be $0.80

51 Pasture Pork Budget

52 Setting up a Budget Decide on enterprise Production Model Organic or convention Marketing model Research prices Research input and output university budgets

53 The Pork Budget Questions to answer Number of pigs or sows? Raise feeder or buy Production system? Organic, pasture Conventional Production assumption LBS of gain per day Price per LBS Mortality rate

54 The Pork Budget Questions to answer 1. Housing Space, nest boxes needs 2. Pasture space needed, Fencing Equipment Needs, Feeders and waters 3. Labor feeding, marketing? 4. Marketing costs, Where will you sell

55 Total Revenue Pasture Pork revenue What yields What price

56 Total Revenue LBS/Animal Price Whole pig 140 $5.00 Cuts 140 $ Hogs Carcass 5,220 LBS Dressed 3,567 LBS Carcass $26,100 Cuts $29,178

57 Variable Costs Pasture Pork Feeder pigs 75 2,250 Variable Cost Feed 222 6,494 Pasture Seed Electricity Repairs Fencing 1% of $3, Meds Production Labor 69 1,035 Kill Fee 50 1,462 Processing Fee 150 4,387 Marketing Booth Marketing labor 200 1,600 Total Variable Cost $18,471

58 Breakeven Analysis Variable cost and labor $3,674 $3,674/yields of 5,760 LBS Per acre price needed to cover variable costs = $0.63 Total costs: $3,674+$1,722=$5,396/High Tunnel Price needed to cover total costs =$.94/LBS

59 Fixed Cost Fixed Cost Materials Quantity Years 6 month dep Waterer Hog Feeder 1, Hog Structure Fence Charger Water system 1, , Fencing Acres in Rotation Acres out of rotation Total 11,

60 Total Cost Total Per LB Dressed Per LB Carcass Fixed Cost $ Feed Cost $6, Variable Cost $4, Marketing $7, Total Cost $19, $3.64

61 Pasture Pork Budget

62 Returns At Various Prices $6.50/LB $7.5/LB $8.5/LB Gross Returns $23,185 $26,752 $30,319 Variable Cost $18,471 $18,471 $18,471 Returns over Variable Cost $4,714 $8,281 $11,848 Fixed Cost $636 $636 $636 Returns over Total Cost $4,078 $7,645 $11,212

63 Breakeven Analysis Breakeven Price Live weight $2.61 Carcass Weight $3.63 Dressed Weight $4.91

64 Livestock Budgets Analysis What are expenses compared to total revenue? How many labor hours required? When is labor needed? What are machinery cost? What is breakeven price?

65 Homework Description What to DO: In your business plan in AgPlan Operations Sections Products Services Production systems Customer service Develop your enterprise budgets

66 Field Day April 19, 2017

67 Evaluation