Partial Break Even and Parametric Budgets

9 Parametric budget……………………………………………………………………………. 12 List of figures Figure 1 shows parametric charts…………………………………………………………. 13 List of tables Table 1. Partial Budget for incorporating young cattle production……………………………. 6 Table 2. 40/kg • 170 ha @ 460 p/ha Variable costs: • NLIS tags for animals sold $718. 75 • 5-in-1 vaccine $151. 75 • Pregnancy test $1. 260 • Replacements heifers $76. 25 • Miscellaneous cost $1,635. 5% a. 100 steers bought as weaners @240 @2. 90/kg Total price = 100*240*$2. 90 = $69,600 Interest rate = $69,600*0. 095 = $6,612 (additional cost) b. 00 Cost of seeds for 30ha @ $85/ha 2,400. 00 Pregnancy test for 38 cows @ 4. 00 Cost of land preparation and sowing 30 ha @ $60/ha 1,800. 00 5-in-1 vaccine @0. 25 40p/hd 10. 00 Drench cost for 100 steers @ $3. 75/hd 375. 5% selling cost 4,306. 56 Revenue Forgone Additional Revenue 40 ha ($460/ha) 18,400. 00 Sales of 97 steers @430kg @ $2. variability of weight and price Discussion From the partial budget formulated, the change in profit is positive. The new proposed project is highly recommended to be started as the Howard will make extra earning from the project.

The gains supersede the losses and leave a good margin in between them. This substantial difference is enough to cater for errors and any changes in the market such that the rewards for the new proposed business are almost guaranteed. Purchases of new young cattle and fattening them is the most lucrative business the Howard’s should focus on in order to optimize the returns from the farm. That said, it will be paramount to incorporate accompanying labor costs per animal in order to come up with optimal business outs. Another none monetary aspect worth consideration is the variability of market conditions in particular in regard to prices and animal weight. In most cases the weight of animals and the prevailing market prices determine the income a farmer accrues.

Ironically, the market prices have no direct link to prevailing farm conditions. For example, high costs of feeds given to raise the animals do not directly relate to heavier animals and hence higher prices. 00 Pregnancy test for 38 cows @ 4. 00 Cost of land preparation and sowing 30 ha @ $60/ha 1,800. 00 5-in-1 vaccine @0. 25 40p/hd 10. 00 Herbicide application for 30 @2. 75/hd 375. 5% selling cost 4,306. 56 Revenue Forgone Additional Revenue 40 ha ($460/ha) 18,400. 00 Sales of 97 steers @430kg @ $2. 95/kg 123,044. 61-2,280X At break-even change in profit = 0 Then 0 = 82,710. 61-2,280X 2,280X = 82,710. 61 X = 82,710. 61/2,280 X = 36. 28 However, X is given as a percentage i. Therefore, $3. 45 should be used as a critical purchase price beyond which the purchase of new animals should be reconsidered as it might place the new project in doubt. In addition, a purchase price of higher than $3.

45 would likely mean that more animals would have to be sold to cover for the costs. Given that the market, price, and none monetary factors determine the success or failure of the new project, higher purchase price exceeding $3. 00 Pregnancy test for 38 cows @ 4. 00 Cost of land preparation and sowing 30 ha @ $60/ha 1,800. 00 5-in-1 vaccine @0. 25 40p/hd 10. 00 Herbicide application for 30 @2. 75/hd 375. 5% selling cost 4,306. 56 Revenue Forgone Additional Revenue 40 ha ($460/ha) 18,400. 00 Sales of 97 steers @430kg @ $2. 95/kg 41,710y Depreciation +interest 397. 44-2,280X = 41710 y -2280X - 40,333. 89 If the likely prices of weaners at purchase time range between 2. 90, and 3. 50 and the sale price in the range of 2. 95 and 3. References Islam, N. , Xayavong, V. , & Kingwell, R. Broadacre farm productivity and profitability in south‐western Australia.  Australian journal of agricultural and resource economics, 58(2), 147-170.