PARTIAL BUDGET #1 I. You're going to add 250 beef cows on 300 acres newly rented land. You will need to convert 40 acres of cropland to feed production. Here is your data to work with: 10 cull cows sold $4,900 Interest paid on cows/bulls $3,750 33 heifer calves sold $16,165 Bull depreciation paid $200 45 steer calves sold $23,935 Pasture rent paid is $40 per acre Cattle production costs paid $33,200 Reduction in Soybean sales, 40 acres is $6,300 Reduction in Soybean production costs, 40 acres $5,060 Set up a partial budget in normal format similar to this: Problem A Total dona Total addonal revenu Change in Prot Partial Budget #2 The decision to participate in a government farm program can be analyzed with a partial budget. Assume a cotton grower wants to know if participation would increase profit. Assume it requires not planting 10% of the normal cotton acreage and in return the grower is guaranteed a price of $0.70 per lb. on 60% of normal acres. The government pays the grower the difference between $0.70 and the average market price on these acres. Use the following information to develop a partial budget (use normal table format) for the decision. A. Acreage. Yield and Price Information Cotton Idle Cotton Yield Estimated No Participation Acres Acres (lb. Per acre) Market Price 500 10 600 With 10% Participation 450 50 600 B. Other Information C. 50.64 $0.64 1) 2) 3) 4) Participating will result in a cash government payment of: 300.0 acres X 600 lb. X (0.70-0.64)=$10,800.00 By not planting the 50 acres the grower will save the following expenses: Seed $6.00 per acre Fertilizer & chemicals $110.00 per acre Machinery expense $17.50 per acre Labor $18.00 per acre Harvesting and hauling $70.00 per acre There will be the following expense on the 50 idled acres: Seed 7.50 per acre Machinery expense $11.00 per acre Labor $ 8.00 per acre Figure opportunity cost on all preharvest variable costs at 8% for 6 months. Work out a partial budget on the form and answer these questions: 1) Would you recommend the cotton grower participate in the Government farm program: WHY? 2) Other than any dollar advantage, which may or may not show on your budget, what other reason(s) would you give for participating in the program? 3) Should a land charge be included in your partial budget? Why or why not? 4) Why were no machinery fixed costs shown any place on your partial budget? Partial Budget - 3 You are a retired landowner whose Conservation Reserve Program (CRP) contract for 100 acres will expire next year. You can renew your contract for another ten years and receive a payment of $85 per acre each year, but you wonder if it would be more profitable to put it into hay production and have it custom farmed. 3 of 4 Provisions: 1. Your expected yield if you grow hay is 5 tons per acre, and the long-run expected selling price is $70 per ton, at the farm. 2. 3. Variable costs of production are about $120 per acre every 4 years to establish a seeding, plus fertilizer costs of $50 per acre each year. You can hire a custom operator to harvest and store the hay crop for you for $25 per ton. 4. If you take the land out of the CRP program, you will no longer have to spend $600 per year to control weeds, but you will give up the $85 per acre annual payment from the USDA. Alternative format to the partial budget: Budget unit 1,000 A A (could be 1 acre) B Increase Change d Reduced Reduced Costs Income Increased Costs Income Sell hay Establish seeding Annual fertilizer Custom harvester Weed control CRP payment Totals Net change = What would the expected yield have to be to make the two choices just equal in potential profit (breakeven yield)? tons per acre