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Measuring Expected Changes in Profit Using a Partial Budget

John Hanchar, Farm Business Management
Northwest New York Dairy, Livestock & Field Crops

Last Modified: July 5, 2013

In the October 2009 issue of AgFocus, a common theme among Jerry's and Collin's articles was the value of measuring outcomes or expected outcomes when managing a farm business. The words of wisdom "If you can't measure it, then you can't manage it" are used many times in articles and presentations to make a case for the value of measuring financial condition and performance of a farm business, especially during planning efforts as the farm owner tries to answer the following questions like, Where is the business now? Where do you want it to be? and How will you get it there?

Answering the last question requires measuring expected effects of possible changes -- for example, the expected change in profit -- and selecting the best or set of changes for implementation. Jerry talks about improving results via "better feed efficiency, better forages, tightening up reproductive programs and reducing transition cow metabolic problems and culls." Collin mentions "tweaking feed rations, calving procedures, and training or retraining employees" as means to achieving improved results. Which possible change or set of changes makes the most sense given financial and personal objectives that direct the business, and given the resources available? The producer can use a partial budget to measure the expected financial effects associated with possible changes to the farm business to help answer the question.

THE PARTIAL BUDGET

Definition

A projection of the expected change in some financial measure - profit and cash available among others -- associated with a proposed change in the farm business.

Characteristics
  • Analyzes a proposed change compared to the present farm business.
  • Includes only the changes in income and costs not the total values - a type of marginal analysis.
  • Provides an estimate of the increase or decrease in profit or cash available.
  • Says nothing about the change relative to alternative uses of resources.
  • Analyzes changes such as, enterprise substitution, input substitution or level, changes in practices and changes in the size or scale of operation
Partial Budget Format
A format for a partial budget that estimates the expected change in profit as the change in the total value of production minus the change in costs follows.

See PDF table 1: Partial Budge Format

An Example
To install mattresses in 50 tie stalls would cost $3,250. The mattresses cost $65 each, including installation labor and additional labor to manage cows while mattresses are being installed. The dairy wants a 5 percent rate of return on the average investment before inflation and taxes annually. Assume the mattresses last five years with zero salvage value. Bedding costs are projected to drop 50 percent. Due to improved cow comfort and lower stress, milk production increases 1 pound per cow per day. The milk, in this example, has a value of $7 per hundredweight after deducting milk marketing and feed costs. All other costs remain the same. If the assumptions hold true, then installing mattresses on this dairy can be expected to increase profit by $2,046.25 annually. Here’s how the owner of a 50 cow dairy developed a profit partial budget to determine whether stall mattresses would be a good investment.

See PDF table 2 example


Measuring Expected Changes in Profit Using a Partial Budget (pdf; 323KB)


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calendar of events

Upcoming Events

Forage Congress

February 27, 2019
10:00 am - 3:30 pm
Mt. Morris, NY

  • Climate Smart Farming Decision Tools
  • Forage Quality to Reduce Purchase Concentrate Cost.  N Management, Guidelines for Grass, Low Lignin Alfalfa, Harvest Schedule
  • Fiber Digestibility & Corn Silage Hybrid Evaluation Using Fiber & Starch Yields
  • Silage Fermentation
  • Inventory & Shrink
  • Producer Panel

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MANURE APPLICATOR TRAINING - DEC Approved Training for CAFO Farms, register by 2/22/2019!

February 28, 2019
9 a.m. - 11 a.m. - Wyo Co Ag Bus Center, Warsaw and 1 p.m. - 3 p. m. Civil Def Bldg., Bath NY

This informational meeting is for all farm owners, family members, and employees who manage their farm's manure. All farms, regardless of size are encouraged to attend. This is a DEC approved Manure Applicator Training that is required for CAFO farms. A certificate will be provided to each farm that participates in the meeting. 
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Raising Healthy Livestock: The Basics of Feeding, Health, and Quality Care

March 2, 2019
10 am - 1 pm
Lockport, NY

Raising livestock can be a rewarding enterprise. There are many things to consider, including what to feed, how to keep them healthy and how to handle them. Cornell Cooperative Extension NWNY Dairy, Livestock & Field Crops Team is holding a workshop for livestock farmers to help address these topics. 
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Announcements

CDL Training Program For Agricultural Producers and their Employees ONLY

Cornell Cooperative Extension of Wyoming County, in collaboration with Genesee Valley BOCES, will be offering a CDL Training Program for both Class A and Class B licenses. This course is offered to Farm Owners, Operators, and their Employees ONLY.

Thursday, February 28, 2019, 7:00 PM - 9:00 PM (Informational Meeting)
Wednesday, March 6, 2019, 7:00 PM - 9:00 PM (Classroom)
Thursday, March 7, 2019, 7:00 PM - 9:00 PM (Classroom)
Cost:
Class A CDL=$ 750.00 (Enrolled in Ag Program)
Class A CDL =$ 800.00 (not enrolled in Ag Program).
Class B CDL=$ 600.00 (Enrolled in Ag Program)
Class B CDL =$ 650.00 (Not enrolled in Ag Program)
Checks payable to Cornell Cooperative Extension of Wyoming County
Held at CCE-Wyoming County., 36 Center Street, Warsaw, NY 14569

The informational meeting will be held the week before the CDL training session begins, to answer any questions you may have regarding this program and to pick up the required training materials and medical forms. To register, please contact Debra Welch at 585-786-2251 or email djw275@cornell.edu


Wyoming County Pride of Ag Dinner - N Java Fire hall, March 2nd

For more information about the event or to purchase tickets, please contact the Wyoming County Chamber of Commerce, 585.786.0307.

USDA to Host 2018 Farm Bill Implementation Listening Session

The listening session will be held Feb. 26, 2019 at 9:00 a.m. in the Jefferson Auditorium in the South Building located at 14th Street and Independence Ave. S.W. in Washington, D.C.

The listening session is open to the public. Participants must register at farmers.gov/farmbill by February 22, 2019, to attend the listening session and are encouraged to provide written comments prior to the listening session. For those orally presenting comments at the listening session, written comments are encouraged to be submitted to regulations.gov by February 22, 2019. Additional written comments will be accepted through March 1, 2019. Comments received will be publicly available on www.regulations.gov.


Three Free Digester Workshops offered through CCE St. Lawrence Co.

CCE of St. Lawrence County is offering three FREE workshops showcasing the research results from our feasibility study of anaerobic digester technology on small farms. The research was conducted by our partners at Clarkson University using the anaerobic digester at the Extension Learning Farm, which is fed both manure from a dairy operation and vegetable waste from our commercial kitchen. The digester heats a small green house that starts our seedling plants. We have a small scale vegetable-only digester as well. The research and program targets small dairies under 200 head, livestock producers, horticulture producers and anyone interested in alternative energy.

Program will be held on December 5, January 7, and March 6. A catered meal is provided at each program. Participants within the North Country Region will be given a $25 stipend to help cover travel costs, those from outside the region will be given $50. To receive the stipend, participants will need to complete a pre/post-test survey.

More information and registration information can be found here: http://stlawrence.cce.cornell.edu/events/2018/12/05/exploring-digester-technology


New Guidance for Mortality Disposal Issued

NYS Department of Ag and Markets has posted guidelines on disposal of livestock carcasses, in response to reports that some rendering companies have halted pickups from farms.

https://nwnyteam.cce.cornell.edu/submission.php?id=761&crumb=dairy|1

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