Use an enterprise budget for marketing purposes (Grain Marketing)
(Editor’s note: John Hall is a professional commodities analyst.)
Do any of you use a budgeted cash flow as a management tool for your operation?
If not, I highly recommend that you learn the principals.
There are three basic budgets used in farm management: the enterprise budget, the partial budget, and the cash flow budget.
I am recommending using an enterprise budget for marketing purposes.
Crop budgets allow you to project profitability.
Most users use historical yields and then google CMEgroup to get the futures prices for next year.
Adding the historical basis to the futures will provide the cash price the industry to projecting. Budgets are the road map.
They allow the manager to project which combination of enterprises will be best for the business in the coming year.
With slim margins ahead, I suggest using this method rather than simply using crop rotation to select your crop mix.
The enterprise budget will seldom be exact but it provides an educated guess for the coming year.
I thought enterprise budgets were the best until I started teaching ag business at Chesapeake College and was forced to understand the cash flow budget.
Now I am convinced this tool is essential in today’s environment.
The cash flow budget combines the data from all the enterprise budgets and puts the income and expenses into a monthly cash flow system. By doing this, every month has an income and expense or cash balance for the month. When this is complete, other sources of income are added to the cash flow in the month it is deposited.
Other cash expenditures are also included. This would include loan payments, income and property taxes, rent payments, insurance payments and so on. You also want to include family living expenses in this budget. When complete, the cash flow budget will show when there will be a cash surplus and when there is a need for an operating loan. The cash flow budget provides an excellent road map for the coming year and should eliminate most surprises. During the year, the manger should update the cash flow budget monthly as actual information becomes available.
In teaching this, I had the students select how many acres of each enterprise, crop they chose to plant. The cash flow for their farm looked positive until they added all the additional cash outflows. Developing, utilizing and updating a cash flow budget will take some time, but when properly done it will provide a great management tool for the coming year and it sure helps eliminate most surprises.
The USDA Crop Progress Report released Monday, November 5 had corn harvest at 76 percent complete — right at the five-year average and up 13 percent from last week. Soybean harvest was estimated at 83 percent, up from 72 reported last week but behind the five-year average of 89 percent. Winter wheat planting was reported at 84 percent complete.
Grain prices remained relatively flat this past week as the markets waited for direction from the USDA Supply and Demand report released Nov. 8.
On Nov. 7, December corn closed at $3.72 and has been trading in the $3.64 – $3.76 range. March corn closed at $3.84 and May at $3.91.
December 2019 corn closed at $4.02 and has traded in a tight $3.96 – $4.05 range. November beans closed at $8.68 on the seventh and was trading in the $8.67-$8.80 range. January bean futures were $8.79. November 2019 beans are currently trading in the $9.27-$9.40 range. July 2019 wheat has been trading in the $5.35-$5.47 range.
Just in, the November 2018 USDA and WASDE report had the corn yield lowered from 180.7 to 178.9 bushels.
Fortunately in corn, usage stayed strong which helped reduced ending stocks estimates from 1.813 billion bushels estimated last month to 1.736 billion bushels.
In soybeans, USDA also reduced yield from 53.1 bushels last month to 52.1 bushels. Problem in beans, exports were cut which reduced usage pushing ending stocks estimate from 885 million bushels reported last month up to 955 million bushels.
In wheat, ending stocks were reduced from 1,099 million bushels last month to 949 million bushels.
(Note: I research material from Allendale, DTN, USDA, University Land Grants and other credible sources in compiling this article. It is not merely my opinion, but rather a consensus of experts in the trade. Looking for a marketing coach or someone to discuss strategies with? Contact me at firstname.lastname@example.org, or call 410-708-8781.)
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