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Budgeting for Agricultural Decision Making

Budgeting for Agricultural Decision Making

The various types of budgets are used for different purposes and this publication provides information covering the most commonly used budgets in agriculture.

Farm managers must make choices every day. Some decisions have vital consequences for the farm business, while others are not as crucial. Some, such as purchasing capital equipment, occur infrequently. Others are made more often--choosing when to sell crops or livestock, for example. The choices made today may have an immediate impact on the business, or they may take much longer to have an effect. These decisions may involve any facet of the farm business, including such items as production, personnel, or financing.

Because many decisions can have important financial impacts, farm managers need to analyze alternatives in a consistent fashion. Some alternatives are easily analyzed, and a decision can be made quickly. In other cases, farm managers must take more time to recognize and evaluate all potential effects of that decision. To do this, farm managers need decision frameworks to analyze the relevant tradeoffs and determine the viability of enterprises. This publication discusses enterprise and partial budgets, two tools that provide the basis for analyzing a wide range of farm management decisions.

Enterprise Budgets

Enterprise budgets represent estimates of receipts (income), costs, and profits associated with the production of agricultural products. The information contained in enterprise budgets is used by agricultural producers, extension specialists, financial institutions, governmental agencies, and other advisers making decisions in the food and fiber industry.