Profitable rotations need sound business decisions
GroundCover™ Supplement Issue: 115 | 02 Mar 2015 | Author: Gavin Beever
A good farm business decision hinges on three steps: knowing what you are trying to achieve, understanding the implications of the decision, and knowing the cost versus benefit
What is the goal?What are you trying to achieve by including break crops in your cropping sequence?
Is it to (Tick those that apply):
- Improve profitability
- Manage weeds
- Manage diseases
- Manage financial risk
- (reduce operating costs)
- Reduce production risk
- Increase nitrogen available to following crops
- Use in other farm enterprises
- (such as grazing, hay production)
- Improve soil health
Planting a break crop is a tactical decision (Figure 1) because it can have a significant impact on potential farm productivity and profitability. Tactical decisions can be complex and may require some outside input, such as from your accountant or agronomist.
What are the implications?When you are clear on what you are trying to achieve and the significance of the decision, use a SWOT analysis (strengths, weaknesses, opportunities and threats) to assess the pros and cons.
- Strengths – What are the strengths of using break crops in your crop rotation?
- Weaknesses – What are the weaknesses of using break crops in your crop rotation?
- Opportunities – What opportunities are you making the most of if you use break crops?
- Threats – What are the threats to your business if you use break crops?
What will it cost?When it comes to the ‘dollars and cents’ of a decision, gross margin analysis and partial budget analysis are two useful tools to assess the impact of the decision on your cash flow budget. Two GRDC fact sheets provide information on cropping gross margins and cash flow budgets:
A partial budget analysis estimates the financial effect of the decision on inputs and costs – in this case, the effect of using break crops. Partial budgets can be based on a cashflow budget, or by looking at changes in key items that will be affected by the decision (Table 1).
To analyse break crops, consider:
Income: use realistic estimates for yield, quality and price to estimate the effect on income.
Costs: changes to machinery depreciation, capital purchases, labour, principal or interest payments, land rental or share farm arrangements. Include non-cash items such as estimates of your own labour and estimates of any percentage impact on overhead costs.
When these steps are completed, weigh up the facts and decide what is best for your business. Each situation will be different, so consider the opportunity against your own personal situation.
The decision to grow break crops may look profitable. It may reduce profit potential, but also reduce financial or production risk. It may show a reduction in labour, machinery or other capital requirements. It may show potential to expand other enterprises.
Whatever the outcome, these steps can put you in a better position to consider what is best for your business.
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