Budgeting Decision Tools

Samuel D. ZapataAssistant Professor & Extension

Economist

Master Marketer Seminar Series10-01-20

Enterprise Budget

n Detailed representation of revenues, costs, and profits associated with the production of agricultural products.

REVENUES- EXPENSES

PROFIT

Determining Your Numbers

n It is essential to keep recordsq Yieldsq Price receivedq Production activitiesq Input pricesq Input quantities

n Consistent estimates require at least twoproduction cycles

Production Records To Use

n Grand Average:q All records

n Rolling Average:q Most recent

n “Olympic” Average:q Eliminate top and

bottom

1 2 3 4 5

Valu

e

Production Cycle

1 2 3 4 5

Valu

e

Production Cycle

1 2 3 4 5Va

lue

Production Cycle

Cost Allocation Considerations

n Single farm with different enterprisesn Same inputs are used by several enterprisesn Define the appropriate units:

q Unit of area: n per acre, plot, greenhouse

q Unit of product: n per Ton, per head, per bushel

CORN BUDGET

Revenue

Expenses

CORN BUDGET

Variable Costs

Fixed Costs

CORN BUDGET

Inputs

CORN BUDGET

Quantities Used

CORN BUDGET Prices

CORN BUDGET Dollar Value ($/ac)

CORN BUDGET Enterprise Size

EnterpriseValues

Uses of Enterprise Budgets

n Estimate the profits of the entire farmn Identify the most profitable crops n Analyze the financial impact of production

decisionsn Price estimationn Identify the major sources of production costn Support farm loan applications

Breakeven Analysis

n Breakeven price:q Minimum price per unit required to cover all projected

costs

q Breakeven price = Expected costExpected yield

n Breakeven yield:q Minimum yield required to cover all projected costs

q Breakeven yield = Fixed costExpected price – Average variable cost

Breakeven Analysis

CORN BUDGET

Breakeven Price –Variable Costs

Breakeven Price –Total Cost

Enterprise Budget Resources

n Available tools:q Texas crop and livestock budgetsq Spreadsheet budgets – build your ownq Machinery Cost Estimator

Online search: “AgriLife crop budgets”

https://agecoext.tamu.edu/resources

Available Resources

Budget Resources

Texas Crop and Livestock Budgets

Select a district

Available enterprise budgets (PDF format)

Download Excel file

Machinery Cost Estimator

Download Excel file

Questions

Samuel D. ZapataAssistant Professor and Extension Economist Department of Agricultural EconomicsTexas A&M AgriLife Extension Servicesamuel.zapata@ag.tamu.edu956.968.5581

@SZapataD12https://agrilife.org/samuelzapata