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PLANNING A HIGH MANAGEMENT "PART TIME" BEEF HERD
BY
Gregory D. Hanson
Terry B. Hanson
Ebenezer F. Kolajo
CONTENTS
Introduction.0
Related Information......
The Farm Planning Process..
The Resource Base and Management Objectives.
Enterprise Budgets............. .
The Farm Plan.................
Income Projections Under Alternative Financial
Factors Affecting Profitability...... .. .
Summary and Conclusions........ .. .. .. .
Footnotes...................
Bibliography.............. ...
Appendix A - Simplified Programming.. .. ...
Conditions.
CON"
Appendix B - Enterprise Budget Tables...
Information contained herein is available to all persons without
regard to race, color, sex, or national origin.
2
3
6
8
11
14
15
18
21
23
24
26
PLANNING A HIGH MANAGEMENT "PART TIME" BEEF 
HERD
BY
Gregory D. Hanson
Terry B. Hanson
Ebenezer F. Kolajo
PLANNING A HIGH MANAGEMENT "PART TIME" 
BEEF HERD
Gregory D. Hanson*
Terry B. Hanson
Ebenezer F. Kolajo
INTRODUCTION
A farm planning "case study" is described 
in this report based upon
the current expansion of the beef 
herd enterprise of an on-going diversi-
fied farm in south Alabama. The two basic 
objectives of this beef analysis
are (1) to identify and analyze 
input and management components 
critical to
the establishment and long-term success 
of the beef enterprise, and (2) to
illustrate the financial budgeting 
and planning processes often 
used in
agricultural economics education and extension 
programs.
The problems faced by the case farmer 
are typical of those confronting
beef farmers throughout the Southeast: 
highly volatile beef prices and feed
prices, lower than desired conception 
and gain rates, and inadequate uti-
lization of land, labor, and management 
resources. The pervasiveness of
these problems has resulted 
in extremely depressed profitability 
in the
beef herd sector during recent years 
(Economic Indicators of the Farm
Sector.)
The farmer's beef production concerns 
can be broadly summarized as
inadequate returns to beef herd 
management. The business goal 
of the
farmer was to establish a profitable 
beef herd on a presently owned
*Respecti vely, Former Assistant Professor (now Section 
Leader, Economic
Indicators, ERS, USDA), former 
Graduate Research Assistant 
and Research
Associate of Agricultural Economics 
and Rural Sociology.
-2-
155-acre farm adjacent to the home farm. This beef herd project was "high
priority" because the farm was to be operated by a daughter and son-in-law,
with the express purpose of providing them a substantial share of their
family income.
Key components of the farm plan include an intensive, high tonnage
feed production system, improved genetic stock, intensive management of
conception and gain rates, marketing effectiveness, and careful control of
costs.
This study is specific to the region where the farm is located and to
the preferences and abilities of the farm manager. However, both
established and beginning farmers in other regions of the state may find
the illustration of budgeting and planning principles and the discussion of
effects on profitability of production, price, and expense factors to be
beneficial to their operations. The part-time nature of the operation
analyzed will be of particular interest to farmers who are increasingly
turning to off-farm sources of income to supplement presently depressed
levels of farm earnings.
RELATED INFORMATION
The Southeast had the highest proportion of cows and heifers in beef
herds, and by far the fastest rate of increase in the breeding herd.
Unprecedented changes in income in the 1970's and increases in variable
costs unrelated to the beef cycle have created financial difficulties for
farmers (5). This study also found that utilization of pasture and silage
increased with the intensity of the feeding program. Calf crops in the
-3-
Southeast were found to be more responsive to the cost of feed than in
other regions (1). Several studies have emphasized the vulnerability of
both small and large producers to rapid changes in feed supplies and prices
(5,2). These studies also indicate the importance of maintaining flexibi-
lity in resource use and management and provide useful enterprise budgeting
and investment analysis for the interested producer.
One of the widely recognized advantages of part-time beef operations
is the relatively low labor requirement necessary to maintain the herd. A
survey in Northeastern states found producers preferred cow/calf enter-
prises to augment income, effectively use available land and buildings,
employ the labor of family members, maintain land expenses, and lower taxes
(3).
THE FARM PLANNING PROCESS
The investment of a farmer's time and management resources in the
planning process has become increasingly necessary to ensure the highest
feasible returns in a time of rapidly changing technology and escalating
costs. Producing crops and livestock "the way it has always been done" is
not a guarantee of adequate returns.
1
/ Careful and systematic analysis of
production alternatives and the impacts of alternative plans on profitabi-
lity has become an increasing requirement of farm survival for
1/Continuing past production traditions has seldom provided a
guarahtee of success. In addition to accelerating technological changes in
agriculture, farmers currently must contend with widely fluctuating dollar
exchange rates, export policies, and interest rates. Future Federal farm
programs may be less supportive of income levels. Should this policy
change occur, management responsibilities will increase as program controls
and government income "buffering" measures in agriculture diminish.
-4-
many commercial size operations. The basic steps in the planning process
used in this case study are briefly illustrated below.
(1) Inventory available resources and specific operator objectives.
(2) Select enterprises to be considered.
(3) Prepare enterprise budgets.
(4) Develop a farm plan.
(5) Analyze the plan for profitability and financial feasibility.
The analysis of alternative options to the present organization of
production resources is based on a thorough understanding of personal
objectives, preferences, and abilities on comprehensive knowledge of
resources available to the farmer (step 1). The farmer analyzed in this
study satisfied these criteria very well. During several years of
experience he had developed an intimate knowledge of beef husbandry (with
periods of both profits and losses), had taken the time to become
acquainted with beef and feed production techniques used by his neighbors,
had acquired detailed knowledge of the productive characteristics of the
livestock, labor, and land resources controlled, and also had identified
basic personal and business goals.
Knowledge of available resources and management objectives comprises
the basic rationale for selecting enterprises to consider for the farm
(step 2). For example, it is of little use to analyze a hog enterprise if
the manager simply does not have personal interest in raising hogs. On the
other hand, the availability of specialized resources, such as a hog or
dairy parlor, increases the feasibility of these enterprises. The
-5-
preferences of individual farmers for reducing risk through enterprise
diversification should also be considered. The dependence on only one
source (enterprise) of income on the farm can result in large declines in
family income should prices for that enterprise fall.
Preparation of budgets for each enterprise selected for analysis can
be described as the "heart" of the planning process (step 3). This is
readily understandable since the accuracy and comprehensiveness of the cost
and receipt projections in the budget will be in large part responsible for
a "go" or "stop" signal to management. Without careful analysis of enter-
prise profitability, there will be limited confidence in the wisdom of
basing the planning and reorganization of the farm on the enterprise pro-
jections.
Formulation of the farm plan in this case study was based on the
principle of maximizing returns to resources limiting the farm's productive
capability (step 4). The plan is based on the interplay between available
farm resources (e.g., tillable land and labor) and resource requirements
for each enterprise (e.g., inputs needed to produce each acre of corn).
This step will be discussed in greater detail later in the report.
For farm situations where enterprises considered are few, and there is
limited competition for the land and labor resources among the alternative
enterprises (because of specialized enterprise requirements), the planning
process can be adequately developed with careful evaluation of inputs and
returns information in the enterprise budgets (and without simplified pro-
gramming). The "simplified programming" method employed to plan the
-6-
case farm is a more systematic version of the enterprise planning that many
farmers develop with "back of an 
envelope" arithmetic.
2
/ A brief des-
cription of the resource allocation rules used in the farm plan and a use-
ful reference for the interested reader are also provided in Appendix A.
After completion of the initial planning process, analysis of the farm
plan's overall profitability and financial feasibility is the final step in
the planning process (step 5). The adequacy of both financing and bot-
tom-line profitability determines which of the following to do:
(1) Proceed with the plan
(2) Evaluate the need and potential for cost-cutting
(3) Consider the development of substitute enterprises to potentially
improve profits or
(4) In limited cases to consider "cutting back" or disinvesting to
improve farm returns.
THE RESOURCE BASE AND MANAGEMENT OBJECTIVES
The case farm consisted of 120 acres of pasture, 35 acres of well
drained tillable land, and 5 acres with a house, two small barns, machine
shed, livestock scales, and a 2-acre pond. Because of the importance of
pasture, most of which was not suitable for tillage because of relatively
steep slope and consequent vulnerability to erosion, the farm has been pri-
marily used for a beef herd. The herd had been based on traditional
LiThe least acceptable planning method is not to develop and compare
projected enterprise costs and sales receipts. It is of critical impor-
tance to know which crop and livestock enterprises are responsible for both
profits and losses on the farm.
-7-
breeds, such as Hereford and Angus. Overall conception and calf gain rates
were slightly above average for the region. However, the farmer desired to
increase conception and gain rates to superior levels. The farmer has
recently obtained superior production performance from a limited number of
Brahmma/Angus cross cows and an exotic breed bull (Simmetal). The 35 acres
of tillable land have typically produced corn grain and soybeans, with
average yields of approximately 110 and 40 bushels, respectively. Irriga-
tion with pond collected surface runoff water is feasible for the cropped
land.
Potential enterprises, projected permanent assets, and priority
management objectives for the case farm are described in table 1. As
shown, six production enterprises were selected for analysis, consisting of
three livestock (including catfish) and three crop types. Note that the
crop enterprises compete for the 35 acres of tillable land. While future
expansion with rented or purchased tillable land is possible, the decision
has been made at this stage of farm development to restrict the farm to
land currently owned.
3
/ Assets that are not enterprise specific are indi-
cated near the bottom of the table. The availability of structurally
/The success of expansion through land purchase often critically
depen~s on the timing of the land acquisition. During the late 1970's and
early 1980's, aggressive land expansion proved to be less successful than
in the early 1970's. Expansion with rented crop or winter grazing land may
be currently feasible, however, the preference is to wait until the farm
has become better established financially, the transition to the beginning
farmer has been made, and the management tools of the beginning farmer have
been proven. Also, observe in table 1 that the importance of determining
the resource base is readily evident in the planning context. One must
know what assets are available in order to decide on their optimal use.
-8-
sound house was important to the feasibility of 
this part-time operation
since it saved rent. Although not purchased at the time the plan was for-
mulated, the machinery assets are included to 
better permit the development
of cost projections. Machinery investment is very limited because 
of the
initial preference to consider custom hiring of cropping 
activities for the
small amount of cropland.
Management objectives for the cow/calf and silage enterprises 
are more
detailed. The focus on these enterprises was based 
on two objectives
viewed to be important: (1) a highly productive livestock enterprise 
to
utilize pasture land, and (2) the availability of plentiful, home-grown
feed supplies. The objectives relating to the cow/calf herd in table 
1
exceed the present performance of the herd, and no doubt exceed the typical
beef herd performance in the State. Based on past experience with the
herd, the most difficult goal may be the 95 percent conception rate.
However, given high quality genetic stock and intensive results-oriented
management, all objectives are believed to be attainable.
ENTERPRISE BUDGETS
Budget information for the cow/calf herd and silage production enter-
prises is provided in tables 2-3. The enterprise budgets developed
for the four additional enterprises shown in table 1, stockers, channel
catfish, dryland corn, and irrigated corn, are included in Appendix B. A
typical budget format consists of gross receipts, variable costs, income
above variable costs, fixed costs, total costs, and finally net returns 
to
land, labor, and management (table 2, lines 1-6). Land, labor, and manage-
-9-
ment costs are usually not included in representative 
budgets because these
costs vary widely across operations. The cow/calf 
and double-cropped
silage enterprises provide an excellent illustration 
of the individual and
unique nature of the budgeting exercise. The information 
in tables 2-3
differs from Alabama and Florida Cooperative 
Extension Service budgets for
the following reasons.4_
(A) Prices are based on the farmer's individual 
expectations.
An excellent example is the $0.75 per pound paid recently
for breeding stock heifers of similar genetic stock 
to the planned
Simmetal-Brahmma/Angus cross. The steer calf price of $0.66 
per pound
was thought to be reasonable over the long-run.
(B) Yield levels correspond to characteristics 
of the resource base
and management.
Steer calf weights of 625 pounds at 300 days, table 1, and
silage yields of 16 tons corn and 12 tons grain sorghum, table 2,
illustrate this point. Soil fertility in the immediate area studied
is quite high compared to most of the state. (The average corn and
sorghum silage yields in Alabama in 1985 were, respectively, 12 and
10.5 tons.)
4
J/State Cooperative Extension Service budgets are developed to provide
general guidelines to the farmer based on above average management
practices. While every attempt is made to ensure that the cost and price
projections are representative, there exists no farmer with costs that
exactly coincide with the Extension budgets. This is why farmers are
strongly encouraged to individualize budget costs and returns to more
accurately represent their own farm operations.
-10-
(C) Variable input prices and quantities differ by farm.
Because grain sorghum silage is high in protein, the protein
supplement cost has been reduced compared to a more representative
budget, table 2. Also, most cow/calf enterprise budgets 
do not rely
as heavily on silage for feed.
(D) Fixed costs are firm specific.
The age, condition, whether purchased new or used, and the
quantity of fixed assets largely determine fixed costs. In table 2,
fixed costs are dominated by opportunity interest on the cow herd (the
foregone interest if the herd were sold and the proceeds deposited in
a savings account). The tractor and machinery fixed costs level in
table 3 of $51.02 suggest that custom hiring of most machinery
operations would be preferable to incurring the fixed depreciation,
interest and repair costs associated with machinery ownerhship.
Both enterprises shown in tables 2-3 have positive returns to land,
labor, and management (bottom or tables). The cow/calf return of $17,239
appears large, however, this amount must also cover the time spent managing
the operation plus the investment cost of pasture, table 2. The net return
in the silage enterprise budget of $170 per acre, before land, labor, and
management costs, is very favorable. This indicates that the feed pro-
ductivity of this enterprise is quite substantial when valued at $15 per
ton, a price believed to be reasonable for the area studied.
Finally, note that the full cost of the 662 tons of silage fed to the
beef herd has been included as a cost in the beef budget, table 2. This
-11-
permits the silage budget to in effect, "stand alone." The production of
each enterprise is credited to that enterprise. This allocation permits
the farmer to identify livestock profits or losses with either the feed
production or meat production phase of the operation. The farm planning
process (below) incorporates the returns from each enterprise budget
(including those in Appendix B) in the development of a "whole farm" plan.
THE FARM PLAN
The key information necessary to prepare the farm plan includes
description of resource availability, resource requirements, and net income
above variable costs on an enterprise basis, table 4. This information is
then systematically processed into the "plan" itself, with allocation and
profit maximization rules, table 5.
As indicated in column 1 of table 4, land resources have been cat-
egorized as pasture, tillabe, and ponds. Labor periods are based on the
timing of cropping procedures. The first period is a relatively slow
winter period, while soil preparation and first crop planting traditionally
occur during the second period comprising most of February and March.
Because of the farmer's preference, the development of catfish production
was restricted to 2 acres. The amount of each type of land and the amount
of labor (by period) that is available for use on the farm is shown in
column 2.
With the exception of the bottom line in table 4, columns 3-8 show the
resources required for each enterprise by type of land and by labor
period. For example, the cow/calf herd is projected to require 120 acres
-12-
of pasture and 237.5 hours labor in the December to early 
February period.
As would be expected, the heaviest periods of labor for the silage
enterprise occur during the two harvests in June and November. The bottom
line lists net income after variable costs and fixed machinery costs 
for
each enterprise (a return to land, labor, and management). 
Machinery fixed
costs were included in this study because in a large reorganization of the
farm they can be readily changed. The "bottom line" now reflects 
a return
that approximates what the farmer expects at the 
end of the production
period. (Farm plans may also be based on returns after 
variable costs
only.) Because of the greater difficulties in valuing long 
term assets,
there is often less confidence in the estimated 
size of the fixed
(especially when interest expense is included) compared 
to variable
costs.5/
The cow/calf herd was the first enterprise 
selected for the farm plan,
table 5. This decision was based on the following 
steps:
(1) Select the enterprise with the 
highest maximum net income, based
on the total units that can be produced with 
the farm's resource base.
(2) Identify the input that "limits" production 
of the enterprise.
(3) Determine which enterprise provides the 
highest returns to the
limiting input.
(4) If this enterprise is that identified in 
the first step, select
this enterprise in the first step, switch 
the analysis to the newly
identified enterprise and begin anew with 
step 1.
5/Financial leverage issues are particularly 
important for beginning
farmers and expanding farm operations. 
In the farm analyzed, there is the
possibility of financing by the previous 
owner for the beginning farmer.
-13-
The beef herd was selected first in table 5 because its maximum 
income
level of $17,239 was higher than the 
silage enterprise maximum income 
of
$5,965 (i.e., $170.44 per acre times 
35 acres), and the beef herd offered
the highest return to its limiting 
input (pasture land). J
Double crop silage was the 
second enterprise selected. Because 
319
tons of silage remain to be sold or used 
after meeting the feed
requirements of the beed herd, management 
must develop a marketing strategy
for this unused silage (see table 5, footnote 
2). Following inclusion of
the channel catfish enterprise, no remaining 
enterprises entered the farm
plan. Pasture and tillable land had been 
utilized by the beef herd and
silage enterprises. The maximum amount of 
the catfish enterprise had also
been included (subject to the 
2-acre preference limit of 
the farmer).
The stocker enterprise required 250 hours 
in labor period one and 298
hours in labor period 6; respectively, only 128 and 
237 hours remained
available (table 4 vs. table 5). The farmer 
could have hired additional
labor, worked longer hours during the first 
labor-period, or reduced the
size of the stocker enterprise in recognition 
of the time limit. Because
of both personal preference and the intensive 
labor and management required
with the November/December calving period, the 
decision was made to exclude
6
/The maximum enterprise level is determined by dividing 
the resource
available by the amount required for each enterprise unit, i.e., divide
columns 2 by 3 for each of rows 1-10 in table 
4. The results for the
cow/calf level are I (pasture), 1.6 (first 
labor period), 2.6 (second labor
period), etc. Since the ratio thus obtained 
shows the maximum amount of
the enterprise that can be produced with the 
respective resource, the
smallest ratio is the one that limits the 
total enterprise size. Pasture
proved to be the limiting input, in the case 
of the beef enterprise.
-14-
stockers from the farm plan at this time. 
(It is, however, reassuring to
know that feed can be made available if the farmer 
decides in the future to
stocker the steers.)
The last row in-table 5 indicates that 
200 or more hours of unused
labor remain in each of periods 2, 3 and 5. 
Of the original 2,899 hours of
available annual labor, 1,074 (or 37 percent) 
remain unused. This time can
be employed in work for the father-in-law, other farmers, 
or off-farm work
to generate additional income for 
family consumption, debt repayment, or
investment purposes. Such an arrangement 
would reduce business and
financial risk by diversifying family income 
into a farm component
(traditionally with high variability) and 
a nonfarm component (less var-
iable). The level of accumulated 
net income shown in the last row 
of
column 11, $23,606, is quite substantial 
for the size of farm considered.
This income amount is before fixed costs 
for land ownership, own labor, and
management have been charged.
INCOME PROJECTIONS UNDER ALTERNATIVE 
FINANCIAL CONDITIONS
The reasonableness of the income projection 
developed in column 11 of
the farm plan, table 5, depends on 
several critical planning assumptions
made by management. A statement 
of projected cash and noncash income 
and
expense provides financial analysis 
of the proposed farm organization,
table 6.
Total gross receipts, primarily 
due to strong sales from the cow/calf
enterprise, are estimated to be $65,746. 
Cash variable expenses of $26,998
-15-
include $7,620 for three annual applications of nitrogen (plus additional
amounts of potash, phosphate, and mixed fertilizer) and outlays of
approximately $2,000 each for crop fertilization, custom machinery expense,
protein supplement, and floating fish feed. Custom machinery expense
reflects primarily planting and harvesting costs. It is assumed the farmer
will assist with cultivation, spraying, and harvest. Custom hauling and
commissions on sales of beef cattle were also substantial. Cash variable
expenses do not include the silage feed costs of $9,922, table 2, since
silage was produced on the farm. Fixed costs include interest costs
associated with machinery, equipment, and buildings ($2,050), the breeding
herd investment ($9,150), and land and improvements ($10,600). Total fixed
costs are projected to be $25,907.
FACTORS AFFECTING PROFITABILITY
Several factors affecting projected profitability are analyzed in
table 7. Column 3 shows farm income after interest charges for all per-
manent assets with the exception of case 7 (the 25 percent equity case).
The rates of return shown in column (4) are before interest on breeding
livestock, machinery, and real estate to permit consistent comparison among
cases. Return to management (column 5) indicates the residual remaining
after interest expense and a charge of $7,301 for operator labor opportuni-
ty costs. Because labor charges reflect counting and checking cows by
family members as well as more skilled beef husbandry tasks, a $4.00 labor
cost was utilized rather than the $4.25 shown in the enterprise budgets.
The first case in table 7 is based on the income and expense pro-
jections in table 
6. Note that factors 
in sections B and 
C tend to be
-16-
unique rather than offsetting. For example, there is no opposite price
movement in section C, to illustrate the effects of a 15 percent cattle
price increase compared to the 15 percent price decline shown in case 2 of
section B. The interested reader can estimate the impact of an opposite
case effect by reversing the sign of changes between the base case and the
alternative case.
7
/
The net farm income of $12,841 in the base case is lower than the
amount shown in the farm plan, table 5, because of inclusion 
of all fixed
interest costs on land and breeding livestock. The factor most adversely
affecting returns was a projected 15 percent decline in beef prices, 
case
(2); no management costs were covered, and the shortfall in own labor costs
was a negative $2,923. The heifer price and silage price declines 
indi-
cated in cases (3) and (4) resulted in positive returns to management of,
respectively, $1,659 and $3,151. These results are encouraging since the
farmer would receive a payment for own labor as well as some payment for
the management input. Low conception rates result in net 
farm income of
$8,219, less than a 14 percent return on assets before interest 
charges,
and a minimal $918 return to management. A 2 percentage point 
increase in
interest rates on fixed assets resulted in income above interest 
of $8,481
and returns to management of $1,180, 
case (6).
In general, the adverse effects of the conditions in Section B do not
critically affect performance since interest and own labor 
costs are
7L/For example, if 15 percent lower beef prices reduce income 
by $8,463
(case 2 vs. 1, $12,841-$4,378), a 15 percent increase would 
result in
income of $21,304, $8,463 above the base case (other things 
equal).
-17-
covered. However, family income is relatively low, and the joint 
occurrence
of two or more of the downside factors would result in 
an inability to
generate income for family consumption needs. 
Payment of loan principal
would not be feasible with the income levels 
shown in Section B. In this
context, the generation of additional farm or off-farm 
income by the
operator and/or spouse would be 
very helpful.
Traditionally, very few farms have had financial 
leverage approaching
the situation in cases (2) through (6), where there 
is no owner equity in
permanent assets. A position of one-fourth 
equity in the farm assets shown
in table 1 increases net farm income from $12,841, 
the base case, to
$18,291, case (7). If the approximately 
$55,000 equity position in this
case is not feasible for the operator, 
which would be a typical situation
for the beginning farmer, case (8) shows that an 
8 percent interest rate
with a "land contract" on the real estate 
assets would provide income only
about $3,300 less than in the 25 percent 
equity case.
Another alternative to increase family 
income would be to utilize
remaining labor available in the farm plan (table 
5) to supplement income
from the beef herd. For example, provision 
of skilled farm labor services
to neighboring farmers improved income to 
$18,211, case (9).
The farmer believed that the feed rations 
in the beef budget were
generous. It is possible that good management 
in combination with an
excellent breeding and feeding program may 
result in increased gain rates.
Case (10) indicates the positive effect 
of higher gains. The last case
achieves similar income to the high 
gain rate case by obtaining cost
savings of 15 percent on the non-financial 
inputs. While income in case
-18-
(11) is less than two other cases in section C, returns to management are
the second highest, $9,590. This is because savings due to cost control in
case (11) were credited to management, while the addition of off-farm
income in case (9) was not credited to the farm management input.
The return levels shown in table 7 would appear 
to adequately cover
all farm related costs and, in most cases, a large share of family 
living
expenses even when there is very little equity in the farm and market 
rates
of interest are charged. However, these results are based 
on intensive
management and cost control. Farmers may not automatically assume 
their
management level will measure up to the standards set 
in the enterprise
budgets. It is also clear that under varying economic conditions 
the pro-
visions of some level of off-farm income is a key to the success of 
this
plan. This is particularly true if both prices and production 
yields are
lower than anticipated in the farm plan. Preliminary 
validation of the
farm plan is discussed in Appendix C.
SUMMARY AND CONCLUSIONS
This study illustrates the farm planning 
process for an ongoing opera-
tion in the south Alabama-Florida 
panhandle, and points out the projected
viability of an intensive management beef herd 
based on abundant,
home-grown feed supplies. Most of the 
silage, the most profitable pro-
duction unit, is marketed through a high quality beef herd enterprise.
The primary strengths of the proposed farm plan are 
considered to be
its profitability and flexibility. The net income 
level in table 6 and the
positive returns to capital, labor, 
and management shown for most cases 
in
table 7, indicate 
considerable earnings 
strength. The presence 
of sub-
-19-
stantial equity capital and/or off-farm income from the remaining (unused)
labor hours would increase the operation's long run viability.
The operation is quite flexible because of very limited machinery and
facilities investment, use of custom machinery services for the 35 acres of
double-cropped silage, and the presence of large quantities of unused labor
and feed (if the remaining silage is not sold). In addition, family
members could readily assist with the feeding, moving and "checking"
requirements of the herd. The relatively low returns to the catfish
enterprise suggest that there would be few adverse effects associated with
terminating this enterprise and utilizing the added 315 hours formerly used
to raise fish, to expand beef production or off-farm income. Finally,
there exists flexibility to use gun irrigation for crop production, should
this become necessary.
The primary weaknesses of the farm plan are its vulnerability to low
beef prices and low beef or feed yields due to management difficulties. A
15 percent decline in all cattle prices would result in a negative return
to management. The most important issue, however, is the ability of
management "to deliver" on production objectives. In this regard, it is
recognized that management on the "home" farm has been successful with
livestock and crop enterprises. The returns in this plan are based pri-
marily on cost estimates and production objectives developed by experienced
management. It is also reassuring that the importance of high conception
rates, good daily gain rates, and effective cost control is recognized in
the planning process. A "near-miss" on a difficult goal is preferred to
attaining an "easy" objective.
-20-
Each farm situation is unique to the resources available and the
abilities and preferences of the farmer. The reader is encouraged to
recognize the importance of tailoring Cooperative Extension Service
enterprise budgets to the individual costs and yields of each operation.
The usefulness of developing sound price and yield projections and ensuring
effective cost control for each enterprise cannot be overemphasized. The
cost control issue is especially critical given the price/cost squeeze
prevalent in current agricultural production.
The planning exercise focuses on efficiency, advanced production
methods, sound enterprise combinations, flexibility to react to changing
economic conditions, and overall excellence in the management of
resources. The challenge for the Alabama farmer is to provide efficient
cost control, marketing, and production techniques with the aid of
effective farm planning.
-21-
FOOTNOTES
1
/Continuing past production traditions has seldom provided a guarantee of
success. In addition to accelerating technological changes in
agriculture, farmers currently must contend with widely fluctuating
dollar exchange rates, export policies, and interest rates. Future
Federal farm programs may be less supportive of income levels. Should
this policy change occur, management responsibilities will increase as
program controls and government income "buffering" measures in
agriculture diminish.
2
/The least acceptable planning method 
is not to develop and compare
projected enterprise costs and sales receipts. It is of critical
importance to know which crop and livestock enterprises are responsible
for both profits and losses on the farm.
3/The success of expansion through land purchase often critically depends
on the timing of the land acquisition. During the late 1970's and early
1980's, aggressive land expansion proved to be less successful than in
the early 1970's. Expansion with rented crop or winter grazing land may
be currently feasible, however, the preference is to wait until the farm
has become better established financially, the transition to the
beginning farmer has been made, and the management tools of the beginning
farmer have been proven. Also, observe in table 1 that the importance of
determining the resource base is readily evident in the planning
context. One must know what assets are available in order to decide on
their optimal use.
-22-
4
/State Cooperative Extension Service budgets are developed to provide
general guidelines to the farmer based on above average mangement
practices. While every attempt is made to ensure that the cost and price
projections are representative, there exists no farmer with costs that
exactly coincide with the Extension budgets. This is why farmers are
strongly encouraged to individualize budget costs 
and returns to more
accurately represent their own farm operations.
5
/Financial leverage issues are particularly important 
for beginning
farmers and expanding farm operations. In the farm analyzed, there is
the possibility of financing by the previous owner for the beginning
farmer.
6
/The maximum enterprise level is determined by dividing the resource
available by the amount required for each enterprise 
unit, i.e., divide
columns 2 by 3 for each of rows 1-10 in table 
4. The results for the
cow/calf level are I (pasture), 1.6 (first labor 
period), 2.6 (second
labor period), etc. Since the ratio thus 
obtained shows the maximum
amount of the enterprise that can be produced 
with the respective
resource, the smallest ratio is the one that 
limits the total enterprise
size. Pasture proved to be the limiting 
input, in the case of the beef
enterprise.
7
/For example, if 15 percent lower beef prices reduce income by $8,463
(case 2 vs. 1, $12,841-$4,378), a 15 percent increase 
would result in
income of $21,304, $8,463 above the base case (other 
things equal).
-23-
BIBLIOGRAPHY
Bobst, B. W. and J. T. Davis. 1984. Prospects for Beef Cattle Supply in
the United states and the South. Kentucky Agr. Exp. Sta., So. Coop. Series
Bull. 304, Univ. of Kentucky, Lexington.
Nowak, C., R. Milligan, W. Knowblauch, and D. Fox. 1983. Profitability
and Investment Potential of the Part-Time Beef Cow-Calf Enterprise. Dept.
of Agr. Econ., A. E. Res. 83-15, Cornell Univ., Ithaca, NY.
Schwab, G. and E. Gerst. 1976. A Description of Beef Cow/Calf Producers
in Six States: Their Enterprise, Motivation, and Sources of Information.
Beef Production Reference Manual Foot Sheet 001, Cornell Univ., Ithaca, NY.
U.S. Department of Agriculture. 1984. Economic Indicators of the Farm
Sector: Costs of Production, 1983. Economic Research Service, USDA, ECIFS
2-1.
Wise, J. 0., A. R. Schupp, and J. R. Conner. 1983. Optimum Beef Cattle
and Forage Alternatives for the South. Louisiana Agr. Exp. Sta., So.
Coop. Series Bull. 284, Louisiana State Univ.
-24-
APPENDIX A
Simplified Programming
Simplified programming is a resource and enterprise allocation 
process
for the farmer to use in selecting the optimal enterprise combination for
the specific farm situation. The selected combination of enterprises
maximizes the net farm income by allocating limited resources to
enterprises with the greatest net return for each unit of that resource.
Enterprises initially chosen to be included in the simplified programming
process should be limited to no more than seven or eight unless a
microcomputer is available to apply the programming routine. Any farmer
can apply the simplified programming process to the farm with little
expense.
Enterprise budgets are the "heart" or basis of the simplified
programming process. These budgets consist of estimated prices, yields,
and costs. The more accurate these estimates are, the better the planning
will be since all simplified programming tables and the final farm plan
depend on enterprise budget accuracy. Fine-tuning the enterprise budgets
by the individual farmer for the specific farm situation is necessary to
obtain the best farm plan solution to resource use. Comparing actual
year-end performance to projected performance permits farmers to learn from
their errors in projecting costs, yields, and prices. The next year's
projections will substantially benefit from this learning process.
The simplified programming process includes the following steps:
(1) Making a complete inventory of available resources on the farm;
-25-
(2) determining the long range plans of the farmer; (3) selecting
desirable and appropriate enterprises; (4) preparing accurate enterprise
budgets for each enterprise to be considered; (5) preparing tables using
information gathered on resources, budgets, etc.; and (6) examining the
completed farm plan for any evident errors or any unacceptable results.
If the farm plan does not look right to the farmer who will be
implementing the plan, then adjustments to the enterprise budgets or
imposed restrictions that limit the dominance of a particular enterprise or
to the available resource base may be necessary to obtain a new, more
suitable plan solution. A detailed description and example of the
simplified programming process may be found in Circular 232, "Simplified
Programming as a Farm Management Tool," written by J. L. Boutwell and E.
W. McCoy and published in 1977 by the Agricultural Experiment Station,
Auburn University, Alabama 36849.
-26-
APPENDIX B
Enterprise Budget Tables
Table I. Potential Enterprises, Projected Permanent
Assets and Major Management Objectives
Projected permanent assets
Potential 1.kiit Unkit Total Major management objectives
enterprise item number value value
I. Cow/calf Acres bahiagrass pasture
Cows : Bratrana/Angus cross
Bulls: exotic breed
Heifers: replacement
Feed wagon (used)
Feeding facilities, storage
2. Stockers Feeding facilities
3. Channel
catfish
4. Corn/sorghum
silIage
(double-
cropped)
5. Drryl and corn
6. Irrigated
corn for
grain
General
Pond acres
Tillable acres
1
'
Tillable acres!/
Tillable ac res /
Barns (utility)
Tractor/loader (used)
Pick-up truck (used)
Bush hog (used)
Scraper blade (used)
Acres hcmstead site
?0 $500 $60,000 2 percent max iun death loss
40 550 77,000 95 percent conception rate
3 1,500 4,500 November/December calving
20 500 10,000 Sell heifers as high quality
breeding stock
1 1,500 1,500 625 lb. steer weights
1 10,000 10,000 at 300 days
10000 1,000 2.08 lb. daily gain rate
To percent maximum death
loss
2 400 800 3,500 lbs. fish yield per
acre
35 1,200 42,000 16 tons corn silage yield
12 tons sorghum silage yield
Custom machinery expense not
to exceed $65 per acre,
110 bu. yield
150 bu. yield
1,000
3, 000
2,000
800.
200
400
21,000
3,000
2,000
800
200
1,200
Machinery and buildings
repair expense minimized
while providing quality
maintenance.
Total value farm assets 2180003
Value farm house 35,000
Total value permanent assets 253, 003
l/Only 35 acres tillable land were available; thus crop enterprises are substitutes for each crops to be
produced and harvested with the custom of machinery services.
12
IL
Table 2. Cow-Calf Budget for 140 Cow Herd, Coastat Plains Region of Alabama
Wetght Price or Total
i ter each Unit Quantt cost/unit amount
1. Gross receipts
Steer calves 6.25 cwt, 65.00 $66.00 $26,812,50
BreedIng stock heifers 5.75 cwt, 45.00 75.00 19,406.25
Cull cows 11.5 cwt. 20,00 40.00 9,200.00
Cult bulls 20 cwt,1.00 50.00 1,00000
Total 56,418.75
2, Variable costs
Bahtagrass pasture acre 120.00 63.50 7,620.00
Corn/grain sorghum silage ton 661.50 15,00 9,922,50
Protein supplement cwt. 157050 11065 1,834.88
Vet, and med. head 147.00 4.25 624.75
Salt and mInerals cwt, 67.20 8.00 537,60
Custom haulIng head 131.00 2050 327,50
Sales commission dol. 56,418.75 0.03 1,692.56
Bull (replacement) head 1.00 1,500.00 1,500.00
tnt. on oper, cap, dot. 12,029.89 0.13 1,563989
Total variable costs 25,623.67
3. Income above var. costs 27,379058
4. FIxed costs
General overhead unit 1.00 750.00 750.00
Bahlagrass pasture acre 120,00 18950 2,220,00
Oppor. Int. on llvestk. cap, dot, 91,500.00 0,10 9,150,00
Oppor. Int. on bid, and equip, dot. 13,500.00 0.10 1,350.00
Depr. on bld.. and equip. dol, 70.77
Other fixed costs
on bid, and equip, dot, 15.17
Total fixed costs 13,555.94
5. Total costs 39,179.61
6. Net returns to land
labor and management 17,239.14
15%cf . crop wrw wwr
Table 3. Silage Enterprise Budget, Corn/sorghum Silage, Double Cropped,
Following Recommended Management Practices, Estimated Costs and Returns Per
Acre Using 6-Row Equipment, Lower Coastal Plains Region of Alabama
Price or Total
Item Unit Quantity cost/unit amount
1. Gross receipts
Corn silage tons 16,00 $15.00 $240.00
Sorghum silage tons 12.00 15.00 180.00
Total 420.00
2. Variable costs
Corn seed lbs. 18.67 1.10 20.54
Sorghum seed lbs. 8.00 0.70 5.60
Fertt zer
NItrogen lbs. 250,00 0.13 32.50
Phosphate lbs. 80.00 0.24 19.20
Potash lbs. 80.00 0.14 11.20
Lime (Prorated) tons 0.66 23.00 15.18
Herbicide acre 2.00 8,00 16.00
Insecticide acre 3.00 5.75 17.25
Custom machInery
expense dol. 1,00 51.02 51.02
Fuel, oil, lubricants acre 2.00 10.73 21.46
Int. on oper. cap. dol. 104.97 0.13 13.65
Total variable costs 223.59
3. Income above var. costs 196.41
4. Fixed costs
General overhead acre 190.00 0.07 13.30
5. Machinery labor costs
Preharvest hour 2.29 4.25 9.73
Harvest hour 0.69 4.25 2.93
Total machinery and
labor costs 12.67
6. Total costs 249.56
7. Net returns to land
Labor and management 170.44
Table 4. Enterprise Resource Situation, Requirements, and Net Income
Corn! Corn i rr fg.
Resource Cowl sorghum: for corn for
enterprise Amount calf Stockers silage grain grain Catfis
units available (140 head) (63 head) (1 acre') (1 acre) (1 acre) (1 ace
(1) (2) (3) (4) (5) (6) (7) (8)
LAND
1. Pasture
2. T IllablIe
3. Ponds
LABOR
1. 12/1-2/10
2. 2/11-31/31
3. 4/1-4/30
4. 5/1-6/30
5. 7/1-8/31
6. 9/1-11/30
7. Catfitsh
(2 acres)
120.00
35.00
2.00
380.00
407.00
420.00
520.00
540.00
632.00
acres
acres
acres
hours
hours
hours
hours
hours
hours
120.00
1.00
237.50
158.37
97.90
196.23
205.32
303.85
250,00
153.01
1,*80
17,10
30.59
298,11
0.41
0,86
1.16
3.53
0.33
2.60
1.00
0.60
0.70
1.00
2.30
1.20
1.00
0.60
0.70
1.24
2.50
1.20
1.00
18.00
36,00
61.43
42,00
1.*00
Net returns to
land, labor, and
management 116.10 
96.49 200.83
1,2.1 704
17,239.14
Table 5. The Farm Plan
Land acres Labor hours Accumu
Resources Pasture Crop Ponds 1 2 3 4 5 6 inc
(1) (2) (3) (4) (5) (6) (7) (8) (9) 
(10) )
Total available 120.00 35,00 2.00 380.00 407.00 420.00 520.00 540.00 632.00
Cow/calf 120.00 0.00 0.00 237.50 158.37 97.90 196.23 205.32 303.85 17,
Unused 0000 35.00 2,00 142.50 248.63 322.10 323.77 334.68 328.15
Corn/sorghum
silage 0.00 35.00 0.00 14.35 30.10 40.60 123.55 11.55 91.00 5,
Unused 0.00 0.00 2.00. 128.15 218.53 281.50 .200.22 323.13 237.15
Catfish 0.00 0.00 2.00 0.00 0.00 36.00 72.00 122.86 84.00 
416
Unused 0.00 0.00 0.00 128.15 218.53 24 5.50 128.22 200.27 153.15 
23,662
Net income after payment of silage feed costs to the corn/grain sorghum enterprise.
A total of 980 tons of silage is produced of which 661.5 fed in cow/calf budget, and the remaining 318.5 tons 
aesl
off the farm. The cash sales of silage depends on the continued availability of .a local 
market for silage. Usl
silage may alternatively be fed to stockers or an expanded beef herd. Anothe option would be to sell grain 
andrdc
silage production.
Table 6. Projected Income Statement 
for Year Ending December 31, 1986,
Custom Mach tnery Services and F txed 
Assets Interest Costs Included
I ncome
Expen ses
Cash
Catftsh (7,000 lb.)
Steer calves (65 head)
Het fer calves (45 head)
Cull cows .(20 head)
Cull bulls (1 head)
Sl'lage (318.5 tons)
Total Cash Income
$4, 550.00
26,812.50
19,406.25
9,200.00
1, 000.00
4,777.50
65,746.25
Non-cash Income
000
Total Cash & Non-cash Income 65,746.25
Variable costs
Seed
Ferti li zer
Lime
Herbicide
Insecttctde
Custom mach tnery ser.
Fuel, oIl, lube, rep.
Bah agrass pasture
Protein suppIement
Vet. & Med.
Salt and mtnerals
Custom hauling
Sales commission
Replacement bull
Fingerl ings
Floating feed
Chemicals, catf tsh
Mtscel laneous & utt 1.
Interest on op. costs
Total variable costs 1
F xed costs
General overhead
Baht agrass pasture
Interest payments (@10%)
Machinery, eq utp,
but ldtngs
Breeding herd
Land & Improvements
DeprecIatIon: mach tnery
butldtngs, equip.
Total f txed costs
Total expenses
TOTAL INCOME
TOTAL EXPENSES
NET INCOME
_ . . .. v v .
91499
2,201.5
531.
560. 0
603.7
1,078597
884.3
7, 620.0
1,834.8
624,*7
537,6
327.5
1,69:2,5
1, 500. 0
593.6
2,157o7
130,.0
850.0
1,647.7
26997,8
1,225,5
2,220.0
2, 050.3
9,150.0
10,.600,0
450.3
21.1,0
25, 907,1
52, 904.9
65,74692
52, 904.9
12, 841.*2
Table 7. Effects of Business and Finance Factors on Incane 
and Profitability
Case
Ne t
fam
ncane
Factors analyzed
(2)
Section A: base case
I. Base projections Income and expense projections in table 
6
Section B: factors negatively
affecting incane
3
/
2. Los cattle price Fifteen percent decline in all 
cattle prices
3. Los heifer price Heifer price projection 
of $0.80 per pound
4. Los silage price Fifty percent decline in local 
silage price
5. Los conception rate Ten percent decline 
in conception rates
6. High interest rates Two 
percent increase in interest rates on
fixed assets
(3)
12,841
4,378
8,980
10,452
8,219
8,481
Rate of return
before-interest on
fixed assets -/
(4)
z
15.8
12
14.1
1 4.8
13.8
15.9
Section C: factors positively
affecting incane
3
/
7. One fourth equi ty
8. Eight percent land
contract
9. 0ff farm income
10. High gain rates
Twenty five percent equity position in fixed
farm assets
Interest of 8 percent charged on real estate
assets
1,074 hours available (surplus) labor earning
$5.00 per hour
Additional 50 pounds gain for steers and
heifers at no additional cost
11. Los production costs Fifteen percent savings 
on variable expense 16,891
l/For the base case, this
$9,150 + $0,600 in table
return is calculated by adding fixed cash interest 
costs of $21,800.30 (i.e, $2,050.30 +
8 to net incone of $12,841. This sun, $34,641.30 is then 
divided by farm asset value in
table I, $218,003, to yield a return of 15.89 
percent. 
2
/Net farm incone (column 3) less opportunity 
labor costs of
$7,301 ($4.00 per hour on 1,825 hours of operator labor 
used in the farm plan, table 5).
3
/Other assutpi ons are derived f ran the base 
case,
(1)
Return to
farm
masnagement-'
(5)
5,540
(2,923)
1,659
3,151
918
1, 180
18,291
14,961
18, 211
16,674
15.9
15.9
15.9
17.6
17,.7
10,990
7, 660
5,540
9,373
9, 590
. ..
J
Selected Sales and Fitnancita l C haracteritstitcs of Southeastern Farms witth
Beef Sales Greater Than $1,000, 1984
Characteristi(c
Farmers _repor tn
1. Beef sales ($), Percenttl e range
2. Total farm sales ($)
3.. Net farm cashf l ow ($)
4. Total farm and non-
farm net cashf low ($)
5. Rate of return to
farm assets
6. Farm debt ($)
5
1,2 00
1, 450
-57,582
--22.4
10
1, 550
1,600
-27,873
-10.7
0
25
2, 000
50
4 ,076
3,900 10,867
--7, 709 -1,686
5.2 -.o7
75
79,667
72,750
7,353
1.9
0 38,000
90
180,000
95
30,102
218, 000 344,150
41,233 80,634
11 14
125,000 305,000
Source: Farm Costs and Returns Survey., 1984, Economic Research USDA. Survey date from Alabama, Georgia, Nort
Carolina, and South Carolina. Sample farmers were selected on a probablistic basis and table percentiles are
a survey expansion to represent approximately 24 thousand farms meeting the minimum beef sale requirement. 
T
was conducted with personal tnterviews in the spring of 1985.
, ~r~' 4U13 UI IUIV~l IWU ~ l ~ l u v