When it comes to preparing your 2015 budget make sure you plan ahead said David Reinbott, agriculture business county program director for Scott County and the Southeast Region for the University of Missouri Extension program.
“There is an old saying, ‘He did not plan to fail, but failed to plan,’” Reinbott said. Budgeting is one of the first steps to planning. A budget is a good road map to see what it will cost to produce a crop in 2015 and the prices and yields necessary to meet profit goals.
“When putting together a budget I like to divide the costs into the variable and fixed costs,” Reinbott said. The variable costs are dependent upon crop production practices, such as no-till or conventional tillage, single or double crop, or GMO or non-GMO, and irrigated or non-irrigated. The most common variable costs are seed, fertilizer and pesticides, he added.
The indirect costs include fuel, repairs, miscellaneous overhead, labor, hauling and transportation, and operating interest. “While these costs are variable, they have a tendency to be spread out over the entire farming operation rather than to a specific crop or production practice,” Reinbott said.
“For most farmers the best source of data for these costs are from their past year’s records,” he added. “They can give a trend and help in budgeting for the coming year. The fixed costs would be the machinery, buildings, cash rents or land costs.”
Archie Flanders, extension assistant professor for the Department of Agricultural Economics and Agribusiness at the University of Arkansas Northeast Research and Extension Center has developed a fully interactive budget calculator. When calculating a crop budget, all production inputs including seed, fertilizers, chemicals, custom applications and supplies such as polypipe should be used. “The budget calculator estimates costs for fuel and annualized expenses for repairs and maintenance of equipment,” he said.
According to Flanders, the crop enterprise budgets will provide an estimate of the costs of production inputs for each crop produced. This information can be useful in determining loan requirements for production expenses.
The University of Arkansas budget calculator is an interactive program that has the capability for producers to enter their unique production inputs, expected yields and crop prices to obtain an estimate of expected financial returns on a per crop basis.
Reinbott recommended that the best source of data is from their own farm records or they can pull these costs off their tax returns. “This gives a trend of costs over a time period and can help in projecting for 2015,” he added.
“I have found over time that while most farmers individual costs will differ from the university budget, the total variable and fixed costs do come fairly close,” Reinbott added. “If they do differ by a large amount, it gives the farmer time to determine why and see if there are changes that need to be made or possible costs that were omitted or double counted.”
“The 2015 budget program will be posted in mid-December and will include a new format for whole farm budgets that estimates financial returns for all the crops produced in combination,” Flanders said. “The program estimates fixed capital expenses, but producers have the option to enter their expense information for fixed costs. The new format provides a cash flow estimate for the farm.”
Producers are encouraged to contact their local county extension agent or find their closest agricultural economics specialist for more assistance in preparing their 2015 budget.
