Enterprise Analysis

Farm and Agribusiness Management Curriculum

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Lesson 6.1�Essentials of Enterprise Analysis

Learning Targets

1. Explain the purpose and importance of enterprise analysis in farm and agribusiness management.
2. Identify the core budget items that make up enterprise budgets.

Essential Question

Why is enterprise analysis crucial in managing farms and agribusinesses?

Engage

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If you were to own or operate a farm/agribusiness, what “tools” would you need to be financially successful?

Lesson 6.1 Vocabulary Terms

Breakeven Point: The level at which total revenues equal total costs, resulting in neither profit nor loss.

Enterprise: A specific agricultural production operation, such as a specific crop or livestock. Individual budgets are created to assess each enterprise’s profitability and later combined to assess whole farm projected (proforma) net income.

Enterprise Budget: A budget that estimates the costs and revenues associated with a particular enterprise, such as specific crop or livestock production.

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Lesson 6.1 Vocabulary Terms

Explicit Costs: Cash costs; money outflow that occurs to pay directly for resources used in production (i.e., seed, wages, fuel, etc.).

Fixed Costs: Costs that do not change regardless of the level of production, such as insurance, rent, and depreciation.

Implicit Costs: Non-cash costs; measured in units of money but not paid for directly during the period. These represent the opportunity cost of using resources already owned in the agribusiness (i.e., depreciation).

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Lesson 6.1 Vocabulary Terms

Opportunity Costs: Potential benefits/income foregone by choosing one alternative over another, such as the income lost from not selling or renting out land (i.e., real estate opportunity).

Overhead: Indirect costs required for an operation, such as accounting, liability insurance, vehicle costs, and office expenses.

Profit Margin: A measure of the degree to which a business activity makes money. It is shown as a percentage, representing the portion of a farm or agribusiness’s sales revenue that keeps as a profit after subtracting all costs.

Variable Costs: Costs that change with the level of output, such as seeds, fertilizers, and labor.

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Explore Activity Instructions

1. Examine the Example Enterprise Budget.
2. Determine which information is considered a core budget item.

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Title of Enterprise Budget

Labor

Fuel

Repairs (Power Equipment & Implements)

Ownership (Power Equipment & Implements) 

Overhead

Opportunity Costs (Land)

Interest

Materials & Services

Real Estate Taxes

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Total Field Operations

Labor

Fuel

Repairs (Power Equipment & Implements)

Ownership (Power Equipment & Implements)

Total Materials & Services

Total Costs 

Purposes of Enterprise Budgets

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Use to make pricing and program decisions

Determine production practices and inputs used

Compare profitability of various enterprises

What data and information are used?

• Cropping system information (acres and yield)
• Livestock system information (number of head)
• Annual rates and prices
• Field operations (machinery and implement costs)
• Material inputs and service costs
• Irrigation system costs
• Yield and revenue projections
• General farm overhead costs

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Costs

• Costs change over time
• Enterprise budgets must be accurate and kept up to date

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Core Budget Items of Enterprise Budgets

Field Operations

Interest, Overhead, Opportunity Costs

Materials & Services

Total Costs per unit (bushels)

Evaluate

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1. Receive the Assessment Enterprise Budget handout.

2. Complete the Enterprise Budget Assessment in your Student Workbook.

Lesson 6.2�Designing Dollars: Creating Enterprise Budgets

Learning Targets

1. Outline the steps involved in developing an enterprise budget.
2. Analyze an enterprise budget to determine its effectiveness in decision-making.
3. Construct an enterprise budget by calculating key components of an enterprise budget, including costs, returns, and profit margins.

Essential Question

How do you construct an effective enterprise budget for a farm or agribusiness?

Engage

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Items included in an Enterprise Budget

Explore Activity Instructions

1. Explore the 6.2 Corn Budget Example and identify any terms or language you are not familiar with.
2. Share your findings.

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Lesson 6.2 Vocabulary Terms

Gross Revenue: The total income generated from all sales produced by a farm or agribusiness before any expenses are subtracted.

Net Farm Income (Profit): The income left over after all expenses have been subtracted from gross revenue; represents profit.

Total Economic Cost: The total costs associated with production, including operating costs (cash and non-cash), and opportunity costs.

Total Operating Costs: All expenses incurred during the production process and day-to-day operations of the farm or agribusiness (e.g., seed, fertilizer, labor, utilities).

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Agricultural Budget Calculator

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Editing an Enterprise

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Editing an Enterprise

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Field Operations

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Field Operations

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Field Operations: Labor

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Field Operations: Power Unit

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Field Operations: Implement

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Field Operations: Materials

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Inputs

• All inputs can be customized under “Manage Inputs.”

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Revenue

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Generating Enterprise Budget Reports

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Breakeven Analysis

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Whole Farm Analysis

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Expand/Elaborate Activity Instructions

1. Go to the Agricultural Budget Calculator webpage. (https://go.unl.edu/registerabc)
2. Register for an account.
3. Record your account information in your Student Workbook.

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Evaluate

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1. Receive the 6.2 Wheat Budget Information document.

2. Complete the Enterprise Budget Assessment in your Student Workbook.

Lesson 6.3�Making Decisions with Budgets

Learning Targets

1. Apply principles of strategic planning in managing farms and agribusinesses.
2. Synthesize financial information from enterprise analyses to make management decisions.

Essential Question

How does strategic planning, along with enterprise whole farm analyses drive long-term profitability for farms and agribusinesses?

Engage

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Identify some concerns with the following budget.

Explore Activity Instructions

1. Join your assigned group.
2. Review the 6.3 Enterprise Budget Decisions article.
3. Read your corresponding numbered question and then come up with an explanation of the question and answer in your own words.
4. Share aloud with the class.

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Lesson 6.3 Vocabulary Terms

Risk Analysis: Evaluating potential risks and uncertainties associated with farming or agribusiness operations and assessing their impacts.

Sensitivity Analysis: An analysis that determines how changes in variables such as price or yield affect profit and loss.

Strategic Planning: The process of defining a farm or agribusiness operation’s strategy or direction and making decisions on allocating resources to pursue this strategy.

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Lesson 6.3 Vocabulary Terms

Whole Farm Analysis: A comprehensive assessment that evaluates the overall viability of all enterprises within a farm, considering both individual and collective impacts on revenue, costs, and profitability.

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Making Decisions

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Strategic Planning

Using Data to Analyze Market Trends

Allocating Resources Efficiently

Setting Goals for Profitability

Analyzing Enterprise Budgets

• Occasional losses in the short term may be absorbed
• Losses in the long term are not sustainable
• Consistent profitability ensures long-term success

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Making Decisions with Enterprise Budgets

Questions to ask:

• What costs could be reduced?
• Can yield be increased?
• Are there alternative revenue streams to explore?

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Whole Farm Analysis

• Analyzes all enterprises part of a farm or agribusiness
• May include analyzing risks

Attribution: Taylor Siebert on Unsplash https://unsplash.com/photos/green-car-on-brown-field-during-sunset-XuGmpWwt3xc

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Considerations for the Whole Farm

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Profitability

Diversification

Resource Allocation

Expand/Elaborate Activity Instructions

1. Visit the “Enterprise Budget Reports” page on the Agricultural Budget Calculator.
2. Respond to these questions:
• What costs could be changed?
• Is it possible to increase yield?
• What recommendations might you have for a farm or agribusiness manager with this enterprise budget?

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Evaluate

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1. Add the #15 Corn budget and adjust yield and sales price.

2. Add the #060 Soybean budget and adjust yield and sales price.

3. Complete the Analyzing Budgets Assessment in your Student Workbook.

Resources

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McClure, G. (2020). Farm & ranch enterprise budgets: NRCS training [PowerPoint Slides]. Agricultural Economics Department, University of Nebraska-Lincoln Extension.

McClure, G. (2021). 2021 Crop budgets & cost of production updates [PowerPoint Slides]. Agricultural Economics Department, University of Nebraska-Lincoln Extension.

Parsons, J. (2024). Enterprise budgets: Introduction to costs [PowerPoint Slides]. In AECN 401: Advanced Farm Management and Linear Programming. University of Nebraska-Lincoln.

Siebert, T. (2020, October 6). Nebraska farm [Photograph]. Unsplash. https://unsplash.com/photos/green-car-on-brown-field-during-sunset-XuGmpWwt3xc

Van Tassell, L., McClure, G., & Parsons, J. (2022). 11 Key management decisions made easier using the Agricultural Budget Calculator (ABC). Center for Agricultural Profitability. University of Nebraska Lincoln.

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This material is based upon work supported by USDA/NIFA under Award Number 2021-70027-34694.

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Donavan Phoenix, Jenna Knake, Emily Samuelson, Glennis McClure, Jay Parsons, & Elliott Dennis

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