Partial Budgeting

You are a crop farmer considering what corn seed to purchase for the coming growing season. You've long had a problem with Tasmanian Devils damaging your corn crop. At a recent AgriLife Extension program, you learned that the research they had done on controlling Tasmanian Devils showed that TD-Away corn seed effectively controlled Tasmanian Devils. Therefore, you are comparing the costs and returns of TD-Away corn seed to the costs and returns of the seed you've purchased for the past several years, Simply Seed. You learned in AGEC 325 that Partial Budgeting is a good tool for such an analysis. So, you've gathered the following information.

Simply Seed

• Seed cost: $105.00/acre
• Expected yield: 189 bu/acre
• Expected variable costs of controlling Tasmanian Devils
  • Pest Scouting: $3.05/acre
  • Pesticide: $17.75/acre
  • Machinery for distributing pesticide: $7.00/acre
  • Labor: $4.75/acre

TD-Away Seed

• Seed cost: $185.00/acre
• Expected yield: 210 bu/acre

Other Factors

• Corn output price: $5.58/bu

Use the format on the next page to analyze this decision. Add a brief description in the cells below the section headings to describe the values placed into the table. Add the corresponding costs/revenues in the cells to the right on the section headings. (You may delete the italicized text in the table. It is there as a guide to completing the table.) Based on your analysis, please answer the questions below.

Problem: Decide whether to replace current seed with TD-Away
Additional Costs		Additional Revenue
Reduced Revenues		Reduced Costs
Total Additional Costs and Reduced Revenues		Total Additional Revenues and Reduced Costs
		Net Change in Profit

1. Which seed do you plan to purchase? Why?

2. What is the new Net Change in Profit if the corn output price was $0.40 above the expected price of $5.58/bu? What if $0.40 below?

3. Going back to the $5.58 price of corn, what is the per-acre seed price (for TD-Away) that would cause you to be indifferent between TD-Away and Simply Seed? (In other words, which price leads to a Net Change in Profit of $0.00?)

4. Your business partner asked you why you didn't include a charge for land rental in the analysis? How do you justify excluding that?

5. An environmental group is protesting the TD-Away technology over animal cruelty concerns. They indicate that the seed's method of killing Tasmanian Devils leads to a slow, painful death. Does this influence your decision in any way?