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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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Upcoming Events

Pasture Walk - Wild Geese Farm - Franklinville, NY

August 21, 2019
5:30pm - 8:30pm
Fanklinville, NY

Topics to include: Tools for Managing Rotational Grazed Pasture, Weed ID and Management and Calculating Cost of Production. 
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Bovine Reproduction and AI Training Course

September 24 - September 25, 2019
9:30am - 3:30pm
Shortsville, NY

This two-day AI workshop will be held on September 24 and 25. 

Topics covered will include:

• Reproductive Physiology
• Synchronization Protocols
• Heat Detection
• Artificial Insemination
• Proper Thawing of Semen
• Loading A.I. guns
• Practice Breeding Cows

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Corn Congress - Batavia Location

Event Offers DEC Credits

January 8, 2020
10:00 a.m. - 3:00 p.m.
Batavia, NY

Please join the NWNY Dairy, Livestock and Field Crop Program's team for our annual Corn Congress.  DEC re-certification points and Certified Crop Adviser credits available, so bring your picture ID.  Lunch is included.  Hear from program-related professionals and visit with our sponsoring vendors.  
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Announcements

2019 NY Corn & Soybean Yield Contests - Entries Due 8/30/19

The annual corn and soybean yield contests sponsored by the New York Corn & Soybean Growers Association are underway. Click Here for the 2019 yield contest entry form.  This form and contest rules can also be found on the NY Corn & Soybean Growers Association web page at: https://nycornsoy.org/ 

Entry forms must be postmarked by Friday, August 30 and mailed or emailed to Mike Stanyard. Cost is $30 per entry. Good Luck! 


Preventing Sexual Harassment on Farms

If you're wondering how to get your farm business in compliance with NYS Sexual Harassment Regulations, you've come to the right place.  This is a recording of the presentations given at the live training on July 30 and July 31, 2019 across New York State, which provides updates and farm-specific resources developed by CCE. View the recording here: https://youtu.be/_1IjmAj1Nb8.

RMA Announces Additional One-time Changes to Prevented Planting Provisions

June 29, 2019

RMA Announces Additional One-time Changes to Prevented Planting Provisions
for 2019 Crop Year

In response to delayed and prevented planting resulting from above average rainfall and wetness, the USDA Risk Management Agency has made a one-time change to the 2019 crop year prevented planting rules that effectively allows silage corn, if planted as a cover crop following local agricultural expert guidelines, to be acceptable as a post-prevented planting cover crop. Under this one-time rule change, producers are allowed to produce this crop while retaining their prevented planting payment. This change couples with previously announced one-time changes to the prevented planting rules - including expanded acceptable uses for post-prevented planting cover crops and a change in the cover crop haying and grazing start date rule - serve to help those struggling to meet their forage needs due to the weather.

Read the full article from the New York Crop Insurance Education Program.

The USDA-RMA states that "For crop insurance purposes, a cover crop is a crop generally recognized by agricultural experts as agronomically sound for the area for erosion control or other purposes related to conservation or soil improvement." PRO-DAIRY specialists Joe Lawrence and Karl Czymmek and Dr. Quirine Ketterings, Professor and Director of Cornell Nutrient Management Spear Program have released a letter stating "Corn on Prevented Planting acres meets these objectives."


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