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Cash Flow Budgeting -- A Valuable Farm Financial Management Practice

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

Last Modified: July 5, 2013

Introduction
Less favorable input, output price relationships, for example, rising feed prices relative to prices received for milk, livestock and other livestock products, will likely challenge farm business owners' abilities to achieve financial objectives over the next several months. Knowing where the business might be financially given less favorable conditions is a valuable first step in meeting the challenge. Budgets estimate future financial condition or performance.

"Farmers who use written calculations or a computer spreadsheet to make a cash flow budget had a much greater ROA (rate of return on assets with appreciation [a profit measure]) than those who did not use these techniques. ... This provides evidence that there are positive returns to detailed financial analyses." (Gloy, Brent A., Eddy L. LaDue, and Kevin Youngblood. 2002. Financial Management Practices of New York Dairy Farms.)

Budgets
For farm business owners, most budgeting work focuses on estimating expected effects on profit, and on projecting the business' ability to meet cash obligations in a timely manner.

Key characteristics of budgets when facing unfavorable input, output price relationships include the following.

  • Budgeting helps you see what a future period's financial performance will look like for planning purposes. A budget allows one to project cash flow shortages, plan borrowings, and determine the ability to repay borrowings.
  • Budgeting provides the manager with a tool for assessing how well the business is meeting projections, and to identify and correct potential problems.
  • Budgets help the farm business owner communicate to others where the business is headed financially.

Examples of budgets include: partial, enterprise, and whole farm budgets for projecting expected effects on profitability and for projecting expected effects on the business' ability to meet cash obligations; and capital budgets associated with investment analysis. Income statements or cash flow statements that report a past period's performance, for example, an income statement for the 2011 calendar year, are not examples of budgets. They report actual past performance, and do not project or estimate future financial performance.

Whole Farm Budgets
A whole farm budget examining profitability summarizes expected income, expenses, and profit. A cash flow budget for projecting the business' ability to meet cash obligations is a summary of the expected cash inflows (cash farm receipts, money borrowed, capital sales, non farm income) and outflows (cash farm expenses, principal payments, capital purchases, withdrawals for family living and other personal withdrawals).

Characteristics include the following.

  • Whole farm budgets consider all items including those that are not expected to change from the current, base period to the future period. For example, a cash flow budget projects what the cash flow statement will look like in a future period and reports total values for all inflow and outflow items.
  • The most useful, valid projections are obtained when proper procedures are used. LaDue, Schuelke and Mensah-Dartey offer some basic rules to follow to insure useful projections (LaDue, Eddy L., Jacob Schuelke and Virgil Mensah-Dartey. 2000. CASHPRO: A Computer Spreadsheet for Projecting Annual Cash Flows and Pro Forma Income Statements.)

1. Project cash flows from accrual (or accrual adjusted) receipt and expense values.
2. Exclude unusual occurrences from the base year data used for projections.
3. Use causal logic in estimating each receipt and expense item.
4. Be sure to adjust for inflation.
5. Livestock farms that grow forages or concentrates should carefully assess their forage and, or concentrate balance whenever significant changes are expected in the size or composition of the animal herd or cropping program.

  • Conducting sensitivity analysis and seeking critical review of the projections enhance the usefulness and validity of projections.

The CASHPRO electronic spreadsheet with instructions is available at http://agfinancedyson.cornell.edu/tools.html. Monthly, whole farm, cash flow budgeting is also an option. Again, see http://agfinancedyson.cornell.edu/tools.html for a monthly cash flow budgeting tool.


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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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