6 - 2020 Soybean Management Field Days - Soybean Production Costs and What’s New in Enterprise Budgeting

Nebraska Soybean Board & Nebraska Extension Author

09/26/2020 Added

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An Overview of the New Ag Budget Calculator - Glennis McClure, Nebraska Extension Extension Farm and Ranch Management Analyst provides a brief look at the new UNL Ag Budget Calculator with an invitation to beta test the program

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[00:00:01.051](upbeat music)
[00:00:07.280]Hi, I'm Glennis McClure,
[00:00:09.020]and I'm going to talk with you today about
[00:00:11.320]enterprise budgeting and in association with,
[00:00:14.860]particularly soybeans, since this is part of
[00:00:17.570]Nebraska Soybean Days 2020.
[00:00:21.070]I am an extension educator
[00:00:22.960]in the Department of Agriculture Economics
[00:00:25.130]and also a farm and ranch management analyst.
[00:00:27.670]And then in that position,
[00:00:28.740]I'm really fortunate that I get to work
[00:00:30.230]with the University of Nebraska Crop Budgets,
[00:00:32.670]the livestock budgets,
[00:00:33.970]and also the custom rates report
[00:00:35.900]amongst other research projects
[00:00:37.500]that occur in the department.
[00:00:39.740]We just completed the 2020 Custom Rates survey.
[00:00:43.270]So if you're interested in that report,
[00:00:45.474]all of these resources can be found at farm.unl.edu.
[00:00:50.650]Very simply there is a ton of resources on there.
[00:00:53.030]So if you want to refer back
[00:00:54.130]to anything that I talk about today, you can find it there.
[00:00:59.070]So why should we work with enterprise budgets?
[00:01:03.200]What is it, what is the importance of doing that?
[00:01:05.390]And there are really, basically four things
[00:01:07.540]I'd like to point out to you today.
[00:01:09.250]One would be to compare the profitability
[00:01:12.290]between our enterprises.
[00:01:13.950]I think it's really important
[00:01:15.200]that folks take a look at, you know,
[00:01:18.730]what's happening with soybeans on a particular farm
[00:01:21.390]or corn or whatever that you're planting
[00:01:25.010]to really understand what those costs are
[00:01:28.120]and what those break even points are.
[00:01:29.580]When you look at break even information
[00:01:32.440]above operating costs, ownership costs,
[00:01:35.460]and also keep in mind those items that are cash
[00:01:38.660]or non-cash costs,
[00:01:40.850]and a combination of operating and ownership costs.
[00:01:43.700]So really in the long run
[00:01:45.360]from the standpoint of economics,
[00:01:47.260]we want to cover all costs.
[00:01:50.210]And another point with enterprise budgets
[00:01:52.990]is to help with marketing and pricing decisions.
[00:01:55.670]If you know what your costs are,
[00:01:57.180]and you can price ahead,
[00:02:00.050]and, you know, know that you're gonna have a profit,
[00:02:03.520]you know, that's one of the, what's one of the keys
[00:02:05.680]I think with enterprise budgeting sometimes
[00:02:07.480]is really knowing what your costs are.
[00:02:09.100]And then also to understand,
[00:02:11.290]you know what it might take,
[00:02:13.680]if you tweak your production practices
[00:02:16.830]and your costs associated with those practices.
[00:02:20.130]You know, the bottom line is we want to be successful.
[00:02:22.620]We want to make a profit
[00:02:23.800]and in reducing costs, that's one way to do that.
[00:02:28.810]I'm gonna point out to you today,
[00:02:30.430]some information about the soybean budgets.
[00:02:33.020]And in 2020, we did 10 soybean budgets.
[00:02:38.350]This is a part of the university
[00:02:40.370]current system of budgeting.
[00:02:42.500]We had three dry land soybean budgets.
[00:02:44.940]You can see that that yield estimate was 45 bushel,
[00:02:49.490]and the cash cost per bushel was $5.49.
[00:02:53.590]Economic costs, $8.04.
[00:02:57.060]We had seven irrigated soybean budgets
[00:02:59.680]for a yield average of about 73 bushel,
[00:03:02.920]cash costs of $4.90 per bushel,
[00:03:05.880]or total economic cost is $7.87.
[00:03:09.280]And how do we do these budgets each year?
[00:03:11.730]Well it's really important
[00:03:12.710]that we do work with crop specialists.
[00:03:14.870]Bob Klein in the North Platte Center with Extension,
[00:03:21.940]you know, has done these for many, many years.
[00:03:23.610]I work with Bob.
[00:03:24.450]Bob works with a team of crop specialists,
[00:03:27.040]and some of my peers and ag economics
[00:03:30.400]also have a hand in the say
[00:03:32.470]in what we're doing with the crop budgets.
[00:03:34.430]So that's kind of, that's our process.
[00:03:36.400]And we come up with these budgets.
[00:03:38.230]For 2020, we had 82 different crop budgets.
[00:03:42.810]And I think there's probably 15 different crops
[00:03:45.270]included in that.
[00:03:46.103]And you can see 10 soybean budgets.
[00:03:48.030]And then I'll mention corn.
[00:03:49.880]Corn we had about 24 different budgets,
[00:03:53.350]several that are 10,
[00:03:54.750]10 that are dry land corn budgets.
[00:03:57.130]There again, we see a yield estimate average of 150 on those
[00:04:01.750]for $2 and 45 cents cash cost per bushel,
[00:04:05.100]or $3 and 51 cents economic cost per bushel.
[00:04:08.660]So then the economic or the irrigated corn budgets,
[00:04:13.070]we had about 14 of those budgets.
[00:04:16.140]And you can see where we're using an average
[00:04:17.900]of 242 bushels per acre.
[00:04:20.810]So $2 and 38 cents cash costs,
[00:04:23.600]and $3 and 24 cents on the economic side of things.
[00:04:27.360]Economic meaning all costs are covered.
[00:04:30.230]Ownership, operating, cash, non-cash
[00:04:33.110]types of costs are covered.
[00:04:34.300]So that's what we mean by when we say
[00:04:36.210]economic costs per bushel.
[00:04:39.180]So this chart shows us,
[00:04:40.940]I'm gonna zero in a little bit on
[00:04:43.460]a soybean budget number 64, which is an irrigated budget.
[00:04:48.980]And if you look at that particular budget,
[00:04:51.340]the reason I picked that is that
[00:04:52.580]it's sort of representative of the fields that we have
[00:04:55.070]for Nebraska Soybean Days for 2020.
[00:04:57.660]And so looking at that, that we see that land costs
[00:05:02.440]make up about 46% of the total costs of production here.
[00:05:07.270]We have a real estate opportunity cost.
[00:05:09.660]Now that could be that, that could mean,
[00:05:11.850]that rather than having, my investment in my land
[00:05:15.970]that I'm operating, or that I own,
[00:05:18.150]and I'm using in my production,
[00:05:20.930]I could have invested that funds someplace else.
[00:05:24.890]And what would be my return on those funds?
[00:05:28.560]And so the, so what's the opportunity cost of farming
[00:05:32.320]versus non farming without investment?
[00:05:34.480]Or another way to look at it is,
[00:05:36.550]if I weren't farming it,
[00:05:38.230]what could I cash rent that farm out for?
[00:05:41.610]So that would be what the opportunity cost
[00:05:44.020]of real estate would be.
[00:05:45.510]And then also we have real estate taxes.
[00:05:47.450]So those two things combine make up 46%
[00:05:50.830]of the soybean budget number 64.
[00:05:54.460]And then you'll see seed and pesticides
[00:05:57.430]make up 27% of the costs and field operations.
[00:06:02.070]You know, we have to account for our time, our labor,
[00:06:05.200]our fuel, the operating costs of the field operations,
[00:06:08.930]and also the ownership cost
[00:06:10.220]of the machinery that we have invested in
[00:06:14.170]doing field operations.
[00:06:15.380]And that makes up 19% with 8% on the other side.
[00:06:19.060]So you see the total cash cost per acre
[00:06:22.860]on this owned piece of, this owned ground that I'm farming
[00:06:27.230]using doing irrigated soybeans, $251 per acre.
[00:06:32.150]And the total of all costs is $571 per acre.
[00:06:35.680]And we were using a 78 bushel yield
[00:06:38.470]to come up with cash costs of 460 per bushel,
[00:06:41.890]and the economic, or the total cost is $7.32.
[00:06:47.570]So I took that same budget,
[00:06:50.100]and I'm showing you here that column one
[00:06:53.040]is how things are presented in the budget.
[00:06:55.760]As I mentioned,
[00:06:56.780]we have the economic and the cash cost shown there.
[00:06:59.600]We have, you know, the land costs at $260 per acre.
[00:07:06.690]And then we also just used fungicide
[00:07:08.920]on 20% of the acres.
[00:07:11.260]That could also be representative of,
[00:07:13.410]you know, once every so often
[00:07:15.250]we spray fungicide, or we do a portion every year.
[00:07:18.800]Okay, that kind of thing.
[00:07:19.740]So that's how we look at the column one
[00:07:22.090]and the budget as it is.
[00:07:24.020]Now let's say our yield drops to 68 bushel per acre.
[00:07:27.890]What does that do?
[00:07:28.970]You can see here the economic cost changes
[00:07:31.410]to $9.09 per bushel.
[00:07:33.830]And the cash cost is $5.23.
[00:07:37.380]So in column three what we did there
[00:07:39.280]is we changed the land cost.
[00:07:41.330]And I'm showing this now as a cash rental situation
[00:07:44.860]at $230 per acre.
[00:07:47.160]So now we have economic costs have dropped to $7.02
[00:07:51.710]and cash cost per bushel now are higher
[00:07:54.230]because I'm paying a cash rent.
[00:07:56.150]So that would be $6.59.
[00:07:59.180]So then if I decided that I'm going to spray
[00:08:02.470]a 100% fungicide, and that expense is larger.
[00:08:05.930]You can see going from 20% to 100%.
[00:08:08.877]$5 and $63 an acre up to $28.13 cents an acre.
[00:08:13.850]My economic costs now are $7.62,
[00:08:16.680]or the cash cost per bushel of 49.
[00:08:19.610]So once we have a baseline on a budget,
[00:08:22.550]we can do some what ifs.
[00:08:24.510]What if I change what I was doing with my chemical cost,
[00:08:29.410]or what if I had less of a production?
[00:08:32.620]What does my cost per bushel look like overall?
[00:08:39.820]So the current UNL budgets can be found online.
[00:08:42.980]And again, refer to the farm.unl.edu website,
[00:08:46.880]or the Crop Watch page found at the university.
[00:08:50.630]So our current budgets are prepared in Excel format.
[00:08:54.780]The current budgets can be modified
[00:08:56.680]to better fit your operation to some extent.
[00:08:58.940]However, a free online interactive budget calculator
[00:09:03.010]is being developed to help producers customize their budget.
[00:09:06.010]So we're really excited about this opportunity.
[00:09:08.530]The Ag Budget Calculator, that we're calling ABC for short,
[00:09:12.810]will guide producers in entering their field operations,
[00:09:16.350]equipment, material costs, projected revenue,
[00:09:19.650]and other expenses step-by-step.
[00:09:22.920]It will be easier than ever now
[00:09:24.650]to create customized enterprise budgets
[00:09:27.390]to match your cropping systems and your operations.
[00:09:34.300]So there's key data that we're working with
[00:09:37.400]that will be utilized in the enterprise budgeting system.
[00:09:40.890]So here's a list of the types of information
[00:09:43.090]that will be entered in the new program.
[00:09:45.220]So you want to be prepared with the following information.
[00:09:48.970]So your cropping system information,
[00:09:50.990]such as no till corn soybean rotation,
[00:09:55.270]dry land or irrigated.
[00:09:56.520]So you'll enter that information.
[00:09:58.560]The annual rates and prices that you use,
[00:10:00.990]like your operating interest rate, your fuel prices,
[00:10:04.770]those kinds of things will be entered in on an annual basis.
[00:10:08.380]Field operations including machinery and implement costs
[00:10:12.160]will be utilized, you know, and entered into the program.
[00:10:15.690]Material inputs and service costs,
[00:10:18.160]such as your price per unit of inputs,
[00:10:21.410]your seed, your pesticides.
[00:10:23.610]If you're paying for custom work, what are those rates?
[00:10:27.230]The irrigation system expenses will be entered.
[00:10:29.840]You'll talk about your system, and what those costs are.
[00:10:34.140]And then yield and revenue projections will be added in,
[00:10:37.470]along with general farm overhead expenses
[00:10:39.940]to account for general insurance,
[00:10:41.970]office expenses, supplies, and accounting in your operation.
[00:10:49.480]So, in the new enterprise budget system,
[00:10:53.270]users will be able to enter crop enterprises one at a time.
[00:10:57.470]For instance, all of your soybean acres
[00:10:59.550]can be entered at once.
[00:11:01.700]However, we encourage dry land and irrigated crops
[00:11:05.480]to be entered as separate enterprises.
[00:11:07.830]So irrigation costs can be properly assigned
[00:11:10.470]to irrigated acres.
[00:11:12.300]So let's say you have six soybean fields.
[00:11:15.340]With this system, you can detail out those fields
[00:11:18.410]and identified them separately,
[00:11:20.430]like the North Quarter, Home Place
[00:11:23.050]the McClure Farm, whatever it might be.
[00:11:25.780]You know, we all have different names for our fields,
[00:11:28.930]and may want to analyze those fields and crops separately.
[00:11:33.000]You'll be able to edit or manage the enterprises
[00:11:36.050]you have entered on an ongoing basis.
[00:11:38.930]The new system will allow you to create
[00:11:40.850]new enterprise budgets,
[00:11:42.540]and duplicate those that you've already entered,
[00:11:45.090]which will be a really nice feature.
[00:11:47.140]For 2021, the UNL crop budgets
[00:11:49.840]will be populated into this new system,
[00:11:52.350]so you can upon them, or one of those
[00:11:55.710]that may fit your operation closely and duplicate it,
[00:11:59.560]then interchanges for your own operation from there.
[00:12:03.120]Or let's say you have 10 crop enterprises
[00:12:05.480]entered for 2020 now.
[00:12:07.720]For next year 2021,
[00:12:09.960]you could duplicate those budgets from the 2020 system,
[00:12:13.980]and just go in and make changes for the new crop year.
[00:12:17.550]So as with any new program,
[00:12:19.560]there will be a learning curve.
[00:12:21.830]But we've learned a bunch
[00:12:23.010]since we've started creating the new program.
[00:12:25.380]And as you work with the program,
[00:12:26.950]it definitely will become easier to use
[00:12:29.060]as time goes along.
[00:12:30.940]So phase one of our, of the program ,
[00:12:34.440]is really about the field operations.
[00:12:36.880]And you're entering your materials
[00:12:38.480]and your services used to raise a particular crop.
[00:12:42.296]Here you'll describe the field operation first,
[00:12:45.870]like spraying burn down pesticides.
[00:12:48.180]And then you'll talk about your cultivation,
[00:12:50.180]what implements and power unit you use.
[00:12:53.650]Then planting, post of your site application,
[00:12:56.820]all the way down to your harvest and your hauling operations
[00:13:00.860]could be part of this.
[00:13:02.270]For each operation,
[00:13:04.410]so you'll enter the following,
[00:13:07.370]materials and services, examples like your pesticides,
[00:13:10.730]fertilizer, seed, the labor used in the operation,
[00:13:15.120]the implement, the power unit that you're using,
[00:13:18.720]and really if an operation is custom hired,
[00:13:21.360]you would enter the material expense
[00:13:23.400]and the custom hire expense amount
[00:13:25.630]when it is paid for.
[00:13:30.730]After operation details and material inputs are entered,
[00:13:34.110]along with revenue projections,
[00:13:36.200]you'll see a report like this
[00:13:38.920]with a number of sub reports that provide details.
[00:13:41.940]This report shows operating costs per acre,
[00:13:46.110]per bushel, and total operating costs
[00:13:48.880]for this particular enterprise.
[00:13:53.550]So these are just some examples of the reports.
[00:13:56.310]And here, this continues on.
[00:13:58.280]The enterprise budget report continues
[00:14:00.680]with cash overhead costs,
[00:14:02.870]then total cash costs, and then total cost
[00:14:05.660]to arrive at net returns above total costs,
[00:14:09.110]as shown down here.
[00:14:13.030]We'll have some additional features
[00:14:14.570]of the Ag Budget Calculator,
[00:14:15.810]which we're really excited about.
[00:14:17.960]So after the enterprise information is entered
[00:14:19.990]for the farm or ranch operation,
[00:14:21.950]then reconciling total costs and cash uses,
[00:14:25.560]a whole farm cash flow statement can be generated.
[00:14:28.600]So that's what we're looking forward to
[00:14:29.950]as we develop the program.
[00:14:33.840]So we're planning now to beta test the program
[00:14:37.830]and roll out the ABC.
[00:14:39.610]ABC's the short for Ag Budget Calculator.
[00:14:42.550]And so if you're interested in beta testing
[00:14:45.740]this program now, here's the website that you can go to
[00:14:49.670]and register, we'd like to know your contact information.
[00:14:53.010]So after about 30 days,
[00:14:55.000]as you give it a test, we'd like to follow up with you
[00:14:58.440]with a questionnaire and maybe even a phone call
[00:15:01.080]to ask you what did you think?
[00:15:03.030]What kind of changes?
[00:15:04.040]What should we be tweaking now
[00:15:05.510]as we're putting this program together?
[00:15:07.800]So there'll also be a tutorial overview
[00:15:11.100]of the ABC program.
[00:15:12.910]And that will be located now on the
[00:15:15.310]Soybean Management Field Days website
[00:15:18.090]so that you can take a look at
[00:15:19.500]sort of the introductory
[00:15:20.660]of what this program is about, how it's going to work,
[00:15:23.700]and it'll guide you as you go into the system
[00:15:26.200]and start using it for the first time or two.
[00:15:31.780]So my take home points from the presentation today
[00:15:35.540]are basically three points here.
[00:15:38.110]It's important to focus on production cost control,
[00:15:41.070]and using budgets to accurately record and monitor costs.
[00:15:44.800]And that's a really important part of effective management.
[00:15:48.460]Knowing your costs and your breakeven
[00:15:50.520]is a foundation for other risk management decisions.
[00:15:53.950]And then keep in mind,
[00:15:55.130]we have the new Ag Budget Calculator programs,
[00:15:57.800]a new resource that we're going to be using,
[00:16:01.640]starting here, well, it's being tested now,
[00:16:04.250]in 2021 and beyond that's where our
[00:16:06.700]university budgets will be going.
[00:16:08.570]And then we also will be adding a
[00:16:10.400]livestock enterprise budget feature
[00:16:12.520]as soon as we can get through the crop side of things.
[00:16:15.640]And that that's should be coming shortly.
[00:16:19.150]I do want to mention that in this year of 2020,
[00:16:22.840]and COVID, and all that we've been dealing with,
[00:16:26.440]it really has been a stressful year.
[00:16:28.680]Agriculture has you know,
[00:16:31.310]there's often stressors in agriculture.
[00:16:33.430]We have weather issues,
[00:16:35.240]as we had last year in the,
[00:16:37.400]with the 2019 flood and the blizzard.
[00:16:39.880]Okay, so things really, you know,
[00:16:43.370]sometimes this year it's just been
[00:16:45.330]quite something to deal with,
[00:16:46.450]but we want to remind you that
[00:16:48.480]the Nebraska Rural Response Hotline
[00:16:50.510]is a great resource in Nebraska.
[00:16:52.910]And their number's posted here +1 800-464-0258.
[00:16:57.540]So if you're feeling stressed,
[00:16:59.210]you're feeling like you need to talk with someone
[00:17:01.640]about all that you're going through
[00:17:03.890]with the situation this year and farming, if you will,
[00:17:07.720]that's a good resource to call upon.
[00:17:11.180]And also, University Now,
[00:17:13.360]we have a ruralwellness.unl.edu website
[00:17:17.940]that I think that you'll find really, really helpful.
[00:17:20.170]There's a, a bunch of resources on there.
[00:17:22.610]And we want to make sure that you know about that resource.
[00:17:24.890]So I've included that here today for you in this slide.
[00:17:28.840]So again, here's my contact information.
[00:17:31.110]If you have any questions about enterprise budgeting,
[00:17:34.870]our new system, please give me a call,
[00:17:37.120]or an email, and I'll be glad to help you however I can.
[00:17:40.270]Thank you.

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6 - 2020 Soybean Management Field Days - Soybean Production Costs and What’s New in Enterprise Budgeting

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