Using Enterprise Budgets Help Determine Which Crop To Grow.
By Dusty Sonnenberg, CCA, Ohio Field Leader: a project of the Ohio Soybean Council and soybean checkoff.
High market prices incentivize farmers to consider raising crops that they may not otherwise grow given lower prices. While the higher prices may make a crop more profitable than it had been; making a fair assessment of the profitability level in comparison to other crops is important. The use of the Ohio Crop Enterprise Budgets is a good starting point to compare all the variables involved.
“An enterprise budget provides an estimate of potential revenue, expenses and profit for a single enterprise,” said Barry Ward, Leader in Production Business Management at The Ohio State University. “The Ohio State University College of Food Agriculture and Environmental Sciences (CAFES) has a long history of developing Enterprise Budgets that can be used as a starting point for producers in their budgeting process. The OSU enterprise budgets represent common, workable combinations of inputs that can achieve a given output.”
The figures used in each budget for the amounts of seed, types and quantities of fertilizer, chemicals, and other input items reflect university recommendations combined with input from farmers across the state. “Farmers are encouraged to use their own numbers for production costs and price levels as they fill out the budgets,” said Ward. “There are detailed footnotes included with the budgets to clarify the methods used to come up with some of the numbers. Enterprise budgets are compiled on a downloadable Excel Spreadsheet that contains macros for ease of use.”
With increasing costs of production, it is important to complete an enterprise budget to have the best information and make informed decisions. “A detailed enterprise budget allows farmers to experiment with different yields and prices, and input cost combinations to seek improvements in the specific crop return. Farmers can develop a baseline, as well as best-case and worst-case scenarios,” said Ward. “The budgets will allow users to experiment with different crop acreage mix to look for improvements in whole-farm returns. The budgets will uncover costs items that might otherwise be overlooked.”
Enterprise budgets can also be useful when meeting with lenders to support borrowing requests, when making land rental and purchase decisions, and when putting together a marketing plan.
Individual crop enterprise budgets allow farmers to compare and contrast between crops, such as corn, soybeans and wheat to determine profitability. It should be noted that the Ohio Crop Enterprise Budget for wheat does not factor in revenue for straw or any potential double crop revenue.
The crop enterprise budgets do not calculate specific benefits from crop rotation or other conservation practices. These factors should also be considered as long term cropping decisions are made.
The Ohio State University College of Food Agriculture and Environmental Sciences, Farm Management Office also conducts the annual Ohio Farm Custom Rates Survey. “Farm work completed by others is often referred to as custom work,” said Ward. “Statewide a survey of 377 farmers, custom operators farm managers, and landowners was compiled.” The 2020 results are available online. These results can be used in calculating expenses for the enterprise budgets. It should be noted that the custom rate survey does not always include all the costs of a service, so farmers should be sure to include all the expense they incur for an operation.
The Western Ohio Cropland Values and Cash Rents study was conducted from February through April in 2020. The opinion-based study surveyed professionals with a knowledge of Ohio’s cropland values and rental rates. Professionals such as rural appraisers, agricultural lenders, professional farm managers, ag business professionals, OSU Extension educators, farmers, landowners, and Farm Service Agency personnel were surveyed. The study results are based on 167 surveys.