Every farmer makes tough decisions about production practices within the constraints of the land, labor and capital they have available. Tracking profitability in diverse operations is particularly hard because multiple enterprises often share equipment, labor and other inputs. Without a clear understanding of production costs and returns, it can be difficult to evaluate enterprise performance, set prices or plan future investments.
SARE’s newest bulletin, Enterprise Budgets for Diversified Farms: Tools for Understanding Your Bottom Line provides guidance on using enterprise budgets, recordkeeping systems and partial budget analysis to evaluate management decisions for diversified farm operations.
Five case studies demonstrate how these tools can be applied in real-world situations:
- Economic Profitability from a Cow-Calf Operation: A 50-head operation in western Washington appeared profitable based on cash flow, but a deeper analysis showed losses once long-term capital, labor and equipment costs were included.
- Hay Production Budgets: Careful tracking of labor, machinery and input costs is used to examine how producing round bales of hay for on-farm use on a cow-calf operation compares to producing square bales for the retail market.
- Bottom Line Profitability for Grassfed Steers: Data from the cow-calf and hay enterprises is used to compare the profitability of selling grassfed beef directly to consumers versus USDA-inspected boxed beef markets.
- The Breakeven Price for an Alternative Crop: A winter wheat producer uses multi-year budgets to evaluate the economic impact of replacing summer fallow with spring canola in a rotation of winter wheat, spring barley, and summer fallow.
- Measuring Perennial Crop Profitability: This case study uses strawberries as an example of how to amortize (or spread out) the establishment costs and changing annual yields of a perennial crop, providing a more complete and reliable estimate of annual returns of the perennial crop.
Diversified Farms: Tools for Understanding Your Bottom Line is available online at https://www.sare.org/enterprise-budgets-for-diversified-farms.