According to Dan Childs, it’s more important than ever for farmers and ranchers to prepare a whole-farm budget – not just for the farming enterprises.
Childs, a senior agricultural consultant with the Samuel R. Noble Foundation in Ardmore, Okla., said it’s more popular among farmers to budget only for the enterprise-related expenses.
“I would say that the era that agriculture is beginning right now, with grain prices and livestock prices lower and almost all enterprises across agriculture are stressed, those fixed costs are the ones that will get you in trouble,” he told Ozarks Farm and Neighbor. “It’s important, especially during these times, to look at the whole farm budget, see what your total debt is and be able to manage it. You may have to sell some equipment or downsize somehow if the cash flow is going to support all of the farm obligations. “
To prepare a whole-farm budget, Childs said producers need to get a good handle on fixed costs like annual payments on long term debt, intermediate-term debts on items like breeding animals and equipment, and other everyday bills to pay like property tax, insurance and family living.
“If you’re a full-time farmer, you’ve got to buy groceries through revenue generated by the farm,” he explained. “When you talk about a whole farm budget, those expenses that would occur even though they choose not to operate –don’t plant any crops or raise any cattle, not have any operating costs – I would say most farmers and ranchers struggle with more than they do with enterprise or operational expenses each year.”
Childs said whole-farm budgets should be prepared on a monthly basis to take into account recurring expenses like utilities. That compares with many of the enterprise expenses, which only come once a year.
They also come to conclusions differently.
“We know what corn seed costs on a per acre basis,” he said. “Enterprise budgets are generally prepared on a per unit basis, like per acre or per head on a livestock operation. The whole farm takes all of those multiplied by the acres or the number of head, and you come up with total numbers for the farm. Then, your total numbers from your fixed cost items get added to that, to provide all of the information for completing a whole farm budget.”
If the producer does not have history built up for his operation, many state Extension Services offer generic budgets for different crops and livestock. “The ‘I states’ (Iowa, Illinois, Indiana)are pretty good at the traditional grain crops, and Kansas and Oklahoma have generic budgets for small grains, primarily wheat,” he said. At the same time, the producer should start keeping close tabs on expenses and revenues in order to prepare budgets based on the operation’s past performance.
The University of Missouri has Excel spreadsheets for beef cattle operations in the northern and southern parts of the state and for feeding yearling steers. They also offer budgets for forage, and for silage and baleage, as well as assumptions that can be plugged into budgets to offer realistic goals. Extension Economist Dr. Raymond Massey developed forecast prices for 2016 based on current prices and information from USDA’s National Agricultural Statistics Service, the Department of Energy and the Federal Reserve Bank of Kansas City. He is pegging alfalfa at $200 a ton, cool season grass hay at $60/ton, mixed fescue/clover hay at $80/ton and pasture at $12.50 per animal unit, or cow/calf pair, month (AUM). Some of the inputs are $2.50/gallon for diesel, electricity at ten cents per kilowatt/hour, anhydrous at 40 cents per pound of nitrogen, and interest at the complete list.
