Management is a process in which information is the input and decisions are the output.
Budgets provide information for farm management decisions. An enterprise budget is an estimate of projected income and expenses associated with the production of a commodity. Once you know your production costs, then you can decide what prices are needed to make a profit.
Most agricultural operations are made up of a combination of several crops and/or livestock. Enterprise budgets break the operation down into segments in order to tell which commodity is contributing to profitability and which commodity is losing money. An enterprise is a distinct part of the farm business that can be analyzed separately and is usually based on some production unit such as an acre of corn or one breeding cow.
Enterprise budgets can be either historical or projected. Historical enterprise budgets are the same as income statements by enterprise and are created using actual income and expense information. Projected enterprise budgets attempt to estimate income and expenses in the future.
A business-minded producer will evaluate each commodity within his operation to determine where he is making money and where he is not. Budgets can help identify this as well as areas where he could cut costs and become more efficient, breakeven prices for marketing, and the operations level of risk exposure within his or her enterprises.
(Editor’s Note: James Hartsfield is an Area Extension Farm Management Agent with the Sampson County Cooperative Extension Office.)