As the production season on horticulture farms starts to slow later this year, it is a good time to reflect on the growing season. Was I able to sell my crops for the prices I wanted this year? What was my cost of production for each crop? Did I make a profit? What should my farm do in 2025 to be more profitable?
Enterprise budgets are one method of evaluating individual enterprises (or crops) within a farm business. Each enterprise has income and expenses, which can be used to estimate profitability. Budgets are usually framed on a per-unit basis, such as per 100-foot row, per square foot or per acre. Use of budgets can help you evaluate your alternatives and make sound business decisions, both for existing and new crops.
Framework for enterprise budgets is in three parts.
First, income is what you expect to grow (yield or quantity of units) times the average selling price (dollars per unit sold). The result gives you an estimate of the income you can expect for the enterprise. For example, you might plan to grow 30,000 pounds of pumpkins on an acre and sell them for $0.20 per pound (which generates $6,000 in income). Other income streams related to the enterprise, like byproducts or government payments, can be included as well.
Second, variable or operating costs are expenses that change with production. For the most part, these costs tend to be cash costs (such as seed, chemical, fertilizer, hired labor, plastic mulch, etc.). But noncash opportunity costs such as operator labor or operating interest (if you had to finance some inputs) are often shown in enterprise budgets and can be added or removed, depending on your situation. Variable costs tend to detail out the activities associated with planting, growing, harvesting and marketing and their respective expenses for that specific enterprise.
Third, fixed or ownership costs are expenses that do not vary with level of production and result from farm asset ownership. These costs would include land, machinery, equipment and overhead expenses (taxes, insurance, etc.), and are often referred to as sunk costs into the business. Fixed costs may be cash or noncash. Depreciation (noncash) is used to allocate machinery and equipment costs evenly over the useful life of the asset. Interest (average investment times interest rate) is also included to factor in if you would have invested in something else (opportunity cost) or had debt financing for your farm assets. If machinery or equipment are used on multiple enterprises or cover multiple acres, you can allocate or adjust the fixed cost amounts by percentage of use. For example, if you own a mulch lifter and you use it on five different enterprises, adjust the depreciation number down to 20% for the enterprise budget scale (per acre, etc.) you are looking at. The other 80% will be allocated to the other enterprises using that piece of machinery.
Sometimes, it is debatable whether an expense is variable or fixed (for example, do repairs fit into variable or fixed costs?). The key is to make sure the expense is placed in one category or the other so that it is factored into your cost of production. Careful accounting over the course of the year is important for successfully recording and understanding costs and income. If expenses and income are tracked accurately from year to year, operators can set benchmarks for an enterprise to evaluate its performance over time.
University of Missouri Extension is adding more enterprise budget templates that growers can use as a starting point to customize for their own operation. You can download these budgets from MU Extension (http://muext.us/MissouriAgBudgets) or connect with your local MU Extension horticulture or ag business specialist, who can help you find the budget templates you need. Recent additions include high tunnel tomatoes, beekeeping, hydroponic lettuce, microgreens and cut flowers. Enterprise budgets for other fruit, tree nuts and vegetable crops are expected later in 2024 and into 2025. If MU Extension does not have a template, look to nearby state universities for examples.
Below is an example of high tunnel tomato budget recently developed by MU Extension. It is based on a 2,000-square-foot high tunnel system with 226 plants yielding 11 pounds per plant. The budget assumes selling tomatoes in retail market channels but can be easily adjusted to look at wholesale or a combination of both channels. All MU Extension budgets have a spreadsheet available for you to customize in Excel or to print and pencil in your own estimates.
Source: MU Extension Tomato (High Tunnel) Planning Budget (https://extension.missouri.edu/publications/g704)