Dee Singh-Knights , Agricultural Economics Specialist
WVU Extension Service
May 7th, 2013, Charleston, WV
Dosingh-knights@mail.wvu.edu, 304-293-7606
Dwight Eisenhower: “In preparing for battle I have
always found that plans are useless, but planning is
indispensable.”
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A good product
Marketing your product to the right set of
customers
Selling at the right price and the right
amount to be profitable
All of the above
Value-Adding and
Direct Marketing
Financial
Management
Partnership
Market
Analysis
Business
Skills
Building
Sustainable
Production Practices
Risk
Management
(Food/Farm Safety)
Networking
The Business Plan Ties Everything Together
The Business Plan
Goals
Products
Financial
Production
Risks
Personal
Characteristics
Marketing
Investment
Financial
Risks
Equipment
and Supplies
Projected
Sales
Budgets
Marketing
Risks
Resources
Competition
Costs
Legal Risks
Skills
Customers
Financial
Statements
Human Risks
Labor
Price
Taxes
The Business Plan
Contingency
Plans
Where are you,
what can I do,
and what have
you got?
Where do
you want to
go?
How are you
going to get
there?
Where are
you, what can
I do, and what
have you got?
What are my Farm Numbers?
What do these Number Mean?
How do I Improve my Farm Numbers?
Farm and
Family Goals
1. Budgets (Plans)
2. Keep Good Records
3. Financial
Statement –
Balance Sheet
3. Financial
Statement –
Income Statement
4. Business Planning
3. Financial
Statement – Cash
Flow Statement
Farm and
Family Goals
Top reasons not to keep
records
Uses of Records
◦ I don’t have time
◦ Taxes
◦ I’m not that organized
◦ Gov’t Programs
◦ I consume everything I
raise
◦ Loans/Credits
◦ Leasing Agreements
◦ Farm Planning and
Management
Use Enterprise Budgets to
estimate your break-even point
Before
production
Begins
Keep all income and expense
receipts
Record all transactions
During
Production
Year
Transfer entries into monthly
ledger
Develop Income Statement Estimate farm profits or losses
Conduct enterprise analysis
End of
Production
Year
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An enterprise budget is a written GOAL statement
for a crop or livestock production activity.
It summarizes:
◦ production goal,
◦ expected market price and gross receipts,
◦ planned management activities with required resource inputs
and costs, and
◦ estimated net return and break even price (BEP) for the goal
production.

Sample Enterprise Budget – Sweet Corn
Revenue, which is the expected Market
Price multiplied by the quantity you
will sell.
Variable Costs, which is the expected
costs of all inputs needed to produce
the corn crop.
Fixed Costs, which is the expected
costs of all capital items needed to
produce the corn crop.
Returns or Expected Profits, which is
the expected returns minus the
expected costs of the corn crop.
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Total – Whole Farm Budget
◦ What are my costs and returns for the whole farm
having multiple enterprises

Enterprise Budgets
◦ Which enterprise is more profitable

Partial Budget
◦ How will a proposed change affect my business
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Estimate Costs and Returns
Pricing
Determine most profitable
enterprise.

Assess product mix

Track key costs

Enterprise Diversification
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Answer ‘what if’ scenarios
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Make changes to your
farm:
◦ adopting a new technology
◦ Expanding an enterprise
◦ adding new enterprises
◦ Using different production
practices
◦ custom operation or buy or
lease
◦ making a capital
improvement
◦ value of a marketing plan
change
 The Whole Farm
Budget
 Estimates Incomes is
on the left
 Estimates Expenses
on the right
 The Whole-Farm
Budget estimates
potential
profitability
Whole Farm Budget
For the period 01/01 – 12/31
Operating Receipts
Operating Expenses
Egg Sales
$4,800
Car & Truck
$168
Lamb Sales
$6,800
Chemicals
$167
Feed
$2,435
Fertilizer
$2,478
Fuel & Oil
$2,235
Insurance
$268
Repairs
$590
Seed & Plants
$6,254
Supplies
$3,108
Veterinary
$228
Utilities
$228
Total Expense
$18,620
Vegetables Sales $18,000
 Getting the
maximum net farm
income is the goal
of most farmers
 To do this, you
must select the
most profitable
enterprises
Total Receipts
$29,600
NET FARM INCOME = $10,980
 The layer
enterprise
generated
$4,800 is
revenue and
$5,680 in
expenses for a
net loss of
$880
 This is
important in
deciding which
combination of
enterprises will
be most
profitable
Dee’s Farm – 100 layers
Enterprise Budget
For the period 01/01 – 12/31
Item
Egg Sales
Total
Receipts
Operating
Receipts
$4,800
$4,800
Per
Layer
$48.00
$48.00
Item
Operating
Expenses
Per
Layer
Car & Truck
$25
$0.25
Levies
$1500
$15
Feed
$2,500
$25
Fertilizer
$0
$0
Fuel & Oil
$225
$2.25
Insurance
$50
$0.50
Repairs
$120
$1.20
Seed &
Plants
$0
$0
Pullets
$700
$7
Veterinary
$240
$2.4
Utilities
$160
$1.60
Total
Expense
NET INCOME
$5,680
$56.80
($880.00)
($8.80)
 The sheep
enterprise
generated
$6,800 is
revenue and
$3,915 in
expenses for a
net profit of
$2,885
 This is
important in
deciding which
combination of
enterprises will
be most
profitable
Dee’s Farm – 100 sheep
Enterprise Budget
For the period 01/01 – 12/31
Item
Lamb
Sales
Total
Receipts
Operating
Receipts
$6,800
$6,800
Per
Sheep
$68.00
$68.00
Item
Operating
Expenses
Per
Sheep
Car & Truck
$25
$0.25
Interest
$1504
$15.04
Feed
$1,435
$14.35
Water
$714
$7.14
Fuel & Oil
$508
$5.08
Insurance
$50
$0.50
Repairs
$120
$1.20
Marketing
$130
$1.30
Supplies
$53
$0.53
Veterinary
$216
$2.16
Utilities
$160
$1.60
Total
Expense
NET INCOME
$3,915
$39.15
$2,885
$28.85
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Estimate Costs and Returns
Pricing
Determine most profitable
enterprise.

Assess product mix

Track key costs

Enterprise Diversification

Answer ‘what if’ scenarios

Make changes to your
farm:
◦ adopting a new technology
◦ Expanding an enterprise
◦ adding new enterprises
◦ Using different production
practices
◦ custom operation or buy or
lease
◦ making a capital
improvement
◦ value of a marketing plan
change
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

Determine most profitable enterprise.
Handouts for Presentation\Cornell High Tunnel
Enterprise Budgets - DSK Edits.xls
Can also use it to assess your product mix
Product
Returns over
Total Costs
Hours of Labor
Returns over
Total/Hr.
Product 1
$ 547.21
17.50
$ 31.27*
Product 2
$ 181.11
11.20
$ 16.17
Product 3
$ 164.19
6.90
$ 23.80
Product 4
$ 131.50
6.15
$ 21.38
Product 6
$ 102.90
2.80
$ 36.75***
Product 5
$ 85.02
6.45
$ 13.18
Product 7
$ 61.65
5.10
$ 12.09
Product 8
$ 58.45
7.65
$ 7.64
Product 9
$ 55.46
1.55
$ 35.78**
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Pricing Decisions
◦ Much should I charge for a pound of tomatoes
◦ Get Break-even Price: take total expenses per tunnel/pounds
of tomatoes sold per tunnel
 Total expenses = $2,123 per tunnel
 Lbs of tomatoes sold/tunnel = 5,869 lbs
 Break-even price = minimum acceptable selling price
 $2,123/5,849 = $0.38/lb
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Tomatoes in an Unheated High-Tunnel Template:
◦ Handouts for Presentation\Cornell High Tunnel Enterprise
Budgets - DSK Edits.xls
Break-Even Price
To Cover Variable Costs:
$404.03/1000lbs =
$0.40/doz.
To Cover Total Costs:
$663.03/1000lbs =
$0.66/doz.
Break-even Price =
Minimum Selling Price
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Track Key Costs
◦ Handouts for Presentation\Cornell High Tunnel
Enterprise Budgets - DSK Edits.xls
◦ Are your major costs in line with your expectations?
 Lower – good
 Higher – is it acceptable? can it be better managed?
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Answer ‘what if’ scenarios – Price Sensitivity
Analysis
Sensitivity Analysis
◦ What happens if I produce more or less than expected –
how does that change my break-even point?
◦ What happens if the market price is different than I
expect?
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What is your net income goal?
A common net income estimate is 20% to 25%
of your gross income
◦ In our example (Dee’s Farm), it was 37%
Net Income Goal
Calculation
Revenue Needed
$1,000
$1,000/.25
$5,000
$5,000
$5,000/.25
$20,000
$10,000
$10,000/.25
$40,000
$20,000
$20,000/.25
$80,000
$38,000
$38,000/.25
$152,000
$55,000
$55,000/.25
$220,000
Big enough to satisfy
your income needs
Net Income
Goal
Revenue
Needed
$5,000
$20,000
$38,000
$152,000
$55,000
$220,000
Big enough to access
profitable markets

You must have a appropriate
farm size to have a steady
and appropriate volume of
product
Big enough to Capture
‘economies of scale’ – the
bigger you are, the lower your
fixed costs

Keeping good records can help you to prepare:
◦ an enterprise budget – what are my costs and returns
◦ an annual Balance Sheet – is my equity growing
◦ an annual Income Statement – am I making a profit
◦ an annual Cash Flow Statement – do I have cash to pay
my bills
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Once I understand my farm numbers, I can use
them to make better farm decisions
Top reasons not to keep
records
Uses of Records
◦ I don’t have time
◦ Taxes
◦ I’m not that
organized
◦ Gov’t Programs
◦ I consume
everything I raise
◦ Leasing Agreements
◦ Loans/Credits
◦ Farm Planning and
Management
Handouts for Presentation\Record-Keeping
Toolkit.docx
Dee Singh-Knights , Agricultural Economics Specialist
WVU Extension Service
Dosingh-knights@mail.wvu.edu
304-680-9925

Can I pay my bills when they come due Liquidity?
◦ Provides information on the farm’s ability to
meet financial obligations when they come due
◦ Helps to identify the sources and uses of cash
in the business
◦ Early warning system for cash flow shortages
◦ Does NOT provide an estimate of profitability
◦ Helps plan for cash fluctuations in the business
Now I understand my Farm Numbers?
Which Markets are best suited to my Operation?
Which Markets will Help me Realize my Farm Goals?
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What is your net income goal?
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Which marketing option will help me reach this
goal
◦ Am I a low-cost producer
 Can be price-taker or price-maker
◦ Am I a high-cost producer of a unique, limited, valueadded product
 Choose marketing option in which I am a price-maker
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To-market-to-market Workbook
◦ http://aesop.rutgers.edu/~farmmgmt/marketing/tomarket.pdf
Making sure all the parts of the business work together –
Do my Farm Numbers match my overall Farm Plans?
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Enterprise Budgets
◦ http://www.hort.cornell.edu/hightunnel/business/budget.htm
◦ http://www.uky.edu/Ag/NewCrops/budgets.html
◦ http://www.uky.edu/Ag/AgEcon/pubs/software/budgets_livestock.html
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Trends in Pricing
◦ WVDA posts a Livestock Price Report every week
 http://www.wvagriculture.org/Division_Webpages/marketing.html
◦ Boston Terminal (where fruits and veggies come into the east coast for
Distribution) posts daily price reports:
 http://www.terminalmarkets.com/bostonterminal.htm
◦ Rodale Institute publishes a Daily Organic Price Report:
 http://www.rodaleinstitute.org/Organic-Price-Report
◦ MOFGA Organic Price Reports are monthly
 http://mofga.org/Publications/OrganicPriceReports/tabid/260/Default.aspx
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Market Options and Transaction Costs
◦ http://aesop.rutgers.edu/~farmmgmt/marketing/tomarket.pdf