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AG BIZZ
2
The Four Parts of Every Business
Four Parts
Concept
Main Financial Reports
Assets
What is owned
1.
2.
Balance Sheet
Statements of Cash Flows
Liabilities
What is owed
1.
2.
Balance Sheet
Statements of Cash Flows
Equity
Owner(s) portion 1.
of the business
2.
3.
Balance Sheet
Statement of Cash Flows
Changes in Owner Equity
Operations
Production part
of the business
Income Statement
Statement of Cash Flows
1.
2.
3
Assets
Liabilites
Current Assets
-Cash
-Accounts Receivable
-Inventories (e.g. crops)
Current Liabilities
-Notes Payable
-Accounts Payable
-$ Due this YR on LT Debt
Non-current Assets
-Breeding Livestock
-Land
-Buildings & Improvements
-Machinery & Equipment
-Investments
Non-current Liabilities
-Real Estate Debt
Total Assets
Owners’ Equity
-Stock
-Retained Earnings
Total Liabilities & OE
4
The Balance Sheet identifies and
accounts for the financial status of
the Assets, Liabilities and Equity
(Net Worth) parts of the business.
5
Assets = Liabilities + Owners’ Equity



Assets: something of value firm owns or uses. It
can be sold to generate cash, or it can be used to
produce other goods that in turn can be sold for
cash in the future.
Current assets: either cash now or will turn into
cash within accounting period (liquid assets)
Non-current assets: something firm owns or uses
that will not turn into cash within accounting
period.
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Four Parts of the Business
Concept and Example Accounts
Liabilities



Liabilities: obligation to pay debt
Current liabilities: debt must be paid within
next accounting period
Non-current liabilities: debt where payment
or repayment of obligation will be made after
next accounting period
7
Liquidity measures the ability of the business
to meet financial obligations as they come due
without disrupting the normal operations of
the business. Liquidity measures the ability
to generate cash needed to pay obligations.
Liquidity is generally measured over the next
accounting period and is a short-run concept.
Current ratio and Working capital
8
Current asset value
Current ratio =
Current liability value
$117,500
Current ratio =
= 1.32 (market value)
$88,850
To have enough cash, the ratio
needs to be above 1.0.
9
Working capital =
Current assets  current liability
Working capital = $117,500  $88,850 = $28,650 (surplus)
(market value)
Positive working capital is a good sign for leveraging
(power of borrowing) the farm enterprise.
10
Solvency measures the liabilities of the business
relative to the amount of owner equity invested
in the business. It provides an indication of the
ability to pay off all financial obligations or
liabilities if all assets were sold. If assets are
not greater than liabilities, the business is
insolvent.
Debt/asset ratio,
Equity/asset ratio, and
Debt/equity ratio
11
Total liabilities
Debt/asset ratio =
Total assets
$400,000
Debt/asset ratio =
= 0.40
$1,000,000
(market value)
Total debt-to-asset ratios tend to be higher for larger farms and for
farms that specialize in livestock feeding. Ratios of 30 to 40 percent
are common among South Carolina farms.
12
Owner equity
Equity/asset ratio =
Total assets
$600,000
Equity/asset ratio =
= 0.60
$1,000,000
(market value)
Greater than 40 percent is acceptable. If you add the debt-toasset ratio and the equity-to-asset ratio you must get 100%.
13
Total liabilities
Debt/equity ratio =
Owner equity
$400,000
Debt/equity ratio =
= 0.67
$600,000
(market value)
This is a measurement of how much suppliers, lenders, and
creditors have committed to the company versus what the
shareholders have committed. For every $1 from Equity, another
$0.67 is commited by the creditors.
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Liquidity
Current ratio
Working capital
Solvency:
Debt/asset ratio
Equity/asset ratio
Debt/equity ratio
1.32
$28,650
0.40
0.60
0.67
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Two types of Balance Sheets are:
1.
2.
Cost Basis: lists asset values at their original
cost, less amortization/depreciation, plus actual
money spent for improvements to those assets.
Market Value Basis: the most probable price in
cash or terms equivalent to cash, for which the
appraised asset will sell in a competitive
market. Most used in agriculture.
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








Accounts Payable: These are the debts that your business owes to suppliers. It is
also called 'A/P' for short or 'Creditors'.
Accounts Receivable: These are the outstanding debts that your customers owe to
your business. It is also called 'A/R' for short or Debtors.
Double Entry Accounting: In this method every transaction has two entries: a debit
and a credit (also called a journal entry). Debits must always equal credits. Most if
not all accounting software use double entry accounting.
General Ledger: This is a collection of different types of accounts (balance sheet,
income, expense) that are used to keep the accounting records of a business. A
general ledger works with double entry accounting and journal entries for each
transaction.
Accrued Interest: Interest expenses that may be incurred in one year but not paid
until the following year.
Notes Payable: This is a note promising to pay a certain amount of money at a
certain time (within 12 months).
Deferred Tax: Income tax expenses that may be incurred in one year but not paid
until the following year.
Current Portion of Term Debt: A portion of the balance sheet that represents the
total amount of long-term debt that must be paid within the next year.
Retained Earnings: A portion of the balance sheet that shows the amount of net
income that has accumulated in a farm or ranch business since it began. This is
part of Equity that increases from a positive net profit from operations.
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•An Income Statement reports the profitability of
Operations for a specific period of time, for example,
January 1, 19XX through July 31, 19XX.
• This report provides management information about
the Operations part of the business, which except
for the profit or loss line in Equity, is not included in
the Statement of Financial Condition.
•Similar to 1040 Schedule F (IRS).
•Fiscal year Example: July 1, 2010 to June 30, 2011
•Calendar year Example: January 1, 2011 to
December 31, 2011
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Operating Income and Expense
accounts contain only the financial
activity for the current year and do
not accumulate from year to
year. Asset purchase does not
show here, only its depreciation.
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Cash Basis Accounting recognizes revenue
when actually received (cash) and expenses
when actually paid.
Accrual Basis Accounting recognizes revenue
when produced (not received yet) and expenses
when they are incurred (not paid). It provides the
most accurate income statement for the farm
business.
◦ The Statement of Cash Flows shows the actual
flow of cash (no accrual entries) through all four
parts (Assets, Liability, Equity and Operations) of
the business for a specified period.
◦ The Statement of Cash Flows also identifies if
there has been adequate capacity (Cash) within
the business to pay its debt in time.
◦ Principal payments must be made to avoid new
borrowing.
Cash Inflow
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Cash Outflow and Cash Available (Cash Inflow minus Cash Outflow)
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•The Statement of Change to Owner Equity
reports activity in the Equity part of the business
Contributed Capital
Retained Earnings
Market Value Adjustments
• It quantifies the amount of change to owner
equity for the current year and identifies where
changes have occurred.
• General Ledger Equity account balances and
account activity are used to prepare this report.
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Depreciation, which is the allocation of the expense that
reflects the “using up” of capital assets employed by the
entity, is subject to a number of different calculation
approaches. No depreciation method is perfect, and it
is important to note that depreciation is a method of
allocation, not of valuation.
•Any difference between the net book value (original cost or
other basis less the total of depreciation charged) and the actual
value of the asset is not recognized until the asset is sold, and
then it is shown as a gain or loss on disposal. A perfect
depreciation method would result in the net book value of the
asset being exactly equal to the market value of the asset at any
time during its useful life.
Straight line methods result in an equal amount being
charged each period. Depreciation allows for the build-up
of working capital to replace the asset at the inflated price.
Straight Line:
For example, if a tractor costing $50,000 was determined
to have a seven-year useful life and an $8,000 salvage
value at the end of the seven-year period, a straight line
depreciation method would result in a depreciation charge
on the tractor of $6,000 per year ([$50,000 minus $8,000
equals $42,000], divided by seven years).
The Modified Accelerated Cost Recovery System
(MACRS) is a depreciation method that is used only for
income tax, that results in more being charged in the early
part of the asset’s useful life. Salvage value is not taken
into consideration. A determinable useful life, but not an
unlimited life is broken down by categories. Land is not
depreciable, but some improvements to land (e.g. drains)
are depreciable.
Cash and loans make the bulk of the capital to operate a
farm business.



Cash: comes from retained earnings (profits), outside
investors who seek above-average earnings, credit in
the form of farm debt (borrowing).
Loans: either cash, or in the form of assets (livestock,
land, etc) and inputs (fertilizer, seed, etc.)
Types of Loans: short-term operating loans for inputs;
intermediate-term production capital for machinery,
buildings and livestock; and long-term fixed capital for
land and processing facilities.
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



Single Payment: Borrow $20,000 at 12% per year, a
single payment (short-term: notes payable within one
year)  Interest = $20,000 x .12 x 1 = $2,400
Line of Credit: payment is made when farm income is
received, and no fixed repayment schedule.
Interest= $20,000 x 0.12 x 4/12 = $800 (4 months)
Interest= $60,000 x 0.12 x 2/12 = $1,200 (2 months)
Amortized Payments: debt where payment or
repayment made in the form of installments. You pay
interest and the principal on the same monthly or
yearly installment.
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Amortization Schedule
AMORTIZATON SCHEDULE
Amount of Loan
Annual Interest Rate
Term of Loan (in months)
Month
1
2
3
4
5
6
7
8
9
10
Monthly
Payment
$5,232.02
5,232.02
5,232.02
5,232.02
5,232.02
5,232.02
5,232.02
5,232.02
5,232.02
5,232.02
Principal
4,815.35
4,855.48
4,895.94
4,936.74
4,977.88
5,019.36
5,061.19
5,103.37
5,145.90
5,188.78
Equal Principal Payment: same amount
of principal due every payment.
50,000
10.0%
10
Interest
416.67
376.54
336.08
295.28
254.14
212.66
170.83
128.65
86.12
43.24
Outstanding
Balance
50,000.00
45,184.65
40,329.17
35,433.22
30,496.48
25,518.60
20,499.24
15,438.04
10,334.68
5,188.78
(0.00)
 Equal Total Payment: same amount of
total payment with a declining balance
and declining interest:
$50,000 at 10%
 1st Year = Principal
 1st Year = Interest
$416.67
$4,815.35
 2nd Year = Principal
$376.54
nd
 2 Year = Interest $4,855.48
…
10th Year = Principal $5,188.78
10th Year = Interest
$43.24
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An enterprise budget provides an estimate of
potential revenue, expenses, and profit for a
single enterprise
Each type of crop or livestock is an enterprise
The base unit for crops is usually one acre
The base unit for livestock may be one head
or some other convenient size
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Item
Value per acre
Revenue
250 cwt @ $5.50 per cwt
Variable Costs
Seed
Fertilizer
Chemicals
Machinery expense
Custom Spray
Harvesting and Hauling
Labor
Interest @ 10% for 6 months
Total variable cost
Income above variable cost
Fixed Costs
Machinery depreciation, interest, taxes, and insurance
Land charge
Total fixed costs
Total costs
Estimated Profit (return to management)
$1,375.00
$80.00
95.50
97.75
35.15
8.00
500.00
320.00
56.82
$1,193.22
$181.78
$62.00
100.00
$162.00
$1,355.22
$19.78
Fixed Costs
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
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Revenue: all cash and noncash revenue
from the crop
Operating or variable expenses: all costs
that would be incurred only if the crop is
produced
Ownership or fixed expenses: costs that
must be paid even if no crop is produced
Profit: represents a return to all resources
that were not charged in the budget
(usually management)
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35
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The unit may be one head, one cow unit for
cattle, one litter for swine, or 100 birds for
poultry
Several enterprise budgets can be
constructed for different sizes of the same
enterprise, such as 30 head, 50 head, and so
on to reflect economies of size
The time period is usually one year but may
be longer in some cases
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(1 cow unit = 1 cow, 0.04 bull, 0.9 calf, 0.12 replacement heifer)
Item
Unit
Quantity
Price
Revenue
Cull cow (0.10 head)
Heifer calves (0.33 head)
Steer calves (0.45 head)
Total revenue
Operating expenses
Hay
Grain & supplement
Salt, minerals
Pasture maintenance
Veterinary & health expense
Livestock facilities
Machinery & equipment
Breeding expenses
Labor
Miscellaneous
Interest (on half of operating expenses)
cwt
cwt
cwt
ton
cwt
cwt
acre
head
head
head
head
hours
head
$
Amount
10.00
5.20
5.50
50.00
80.00
88.00
$50.00
137.28
217.80
$405.08
1.50
8.00
0.40
3.00
1.00
1.00
1.00
1.00
5.00
1.00
119.45
60.00
7.00
6.00
7.50
10.00
8.00
5.00
5.00
6.00
10.00
10%
90.00
56.00
2.40
22.50
10.00
8.00
5.00
5.00
30.00
10.00
11.95
Total operating expense
$250.85
Fixed: Ownership expenses
Interest on breeding herd
$
Fixed: Livestock facilities
Depreciation & interest
750.00
10%
75.00
head
1.00
10.00
10.00
Fixed: Machinery & equipment
Depreciation & interest
head
1.00
6.50
6.50
Others: Land charge
acre
3.00
35.00
105.00
Total ownership/fixed expenses
Total expenses
Profit (return to management)
$196.50
$447.35
($42.27)
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An economic enterprise budget includes
information on opportunity costs of
labor, capital, land and perhaps management.
The profit (or loss) is what remains after
covering all expenses, including opportunity
costs. A projected economic profit of zero
means labor, land, and capital are earning
exactly their opportunity costs.
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Whole Farm Budget: A management tool that shows the
physical and financial plan for the entire farm or ranch
business for a specific period of time.
Competitive Enterprises: When an increase in the level of
production of one enterprise causes a reduction
in the level of production of another enterprise.
Break-even: The output required for revenue to equal the
total of fixed and variable costs.
Partial Farm Budget: A management tool that shows
projected costs and net returns associated with
some changes in the farm business.
Depreciation: A fixed cost that accounts for the wear and
tear of fixed assets.
39
total cost
$159
=
Break-even yield =
output price
Price per bushel ($)
2.50
2.75
3.00
3.25
3.50
= 63.6 bu
$2.50
Break-even yield (bu)
63.6
57.8
53.0
48.9
45.4
Break-even yield is the minimum yield necessary to make the
farm business feasible at different prices (Net Profit >= 0).
40
total cost
$159
=
Break-even price =
= $4.42 (bu)
expected yield
Yield (bu)
36.0
42.0
48.0
54.0
60.0
36
Break-even price ($)
4.42
3.79
3.31
2.94
2.65
Break-even price is the minimum price necessary to make the
farm business feasible at different yields (Net Profit >= 0).
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
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
Additional Costs: costs that do not exist at
current time but will be incurred if the change
is made
Reduced Revenue: revenue that is currently
received but which will be lost or reduced if the
change is made
Additional Revenue: revenue to be received
only if the alternative is adopted
Reduced Costs: costs that are now incurred
which would be eliminated if the change is
made
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Problem:
Additional Costs:
Additional Revenue:
Reduced Revenue:
Reduced Costs:
A. Total additional costs
and reduced revenue
B. Total additional revenue
and reduced costs
$
Net Change in Profit (B-A)
$
$
$
43
PARTIAL BUDGET
Problem: Purchase combine to replace custom hiring (1,000 acres wheat)
Additional Costs:
Fixed costs
Depreciation
Interest
Taxes
Insurance
Variable costs
Repairs
Fuel and oil
Labor
Additional Revenue:
None
$10,000
8,000
100
300
2,500
1,300
550
Reduced Revenue:
Reduced Costs:
None
Custom combining charge
1,000 acres @ $20 per acre
A. Total additional costs
and reduced revenue
$22,750
B. Total additional revenue
with reduced costs
Net Change in Profit (B-A)
$20,000
$20,000
$22,750
($2,750)
44
PARTIAL BUDGET
Problem: Add 50 beef cows and convert 100 acres from grain to forage
Additional Costs:
Fixed costs
Interest on cows/bulls
Bull depreciation
Taxes
Variable costs
Labor
Vet and health
Feed and hay
Hauling
Miscellaneous
Pasture fertilizer
Interest on variable costs
Additional Revenue:
$2,500
200
100
5 cull cows
23 steer calves
500 lbs @ $.85
18 heifer calves
460 lbs @ $.78
$2,500
9,775
6,458
600
500
2,000
300
200
1,500
320
Reduced Revenue:
Reduced Costs:
Grain Productin
5,000 bu @ $3.00
$15,000
A. Total additional costs
and reduced revenue
$23,220
Fertilizer
Seed
Chemicals
Labor
Machinery
Interest on variable costs
B. Total additional revenue
with reduced costs
Net Change in Profit (B-A)
2,750
1,400
1,200
1,500
1,000
470
$27,053
$23,220
$3,833
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46
A cash flow budget is a summary of the
projected cash inflows and outflows for
a business over a period of time. The time
period is usually a future accounting period
and is divided into quarters or months. As
a forward planning tool, its primary purpose
is to estimate the amount and timing of
future borrowing needs and the ability of
the business to repay loans.
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1 Beginning cash balance
Time Period 1
Time Period 2
$1,000
$500
2,000
0
0
3,000
12,000
5,000
500
18,000
3,500
10,000
500
14,000
-11,000
1,800
0
200
2,000
16,000
11,500
0
0
11,700
500
4,300
$11,500
$0
Cash inflow:
2
3
4
5
Farm product sales
Capital sales
Miscellaneous cash income
Total cash inflow
Cash outflow:
6
7
8
9
10
Farm operating expenses
Capital purchases
Miscellaneous expenses
Total cash outflow
Cash balance
(line 5 - line 9)
11 Borrowed funds needed
12 Loan repayments
(principal and interest)
13 Ending cash balance
(line 10 + line 11 - line 12)
14 Debt outstanding
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Projected Cash Flows: Includes Projected cash income, cash
expenses, and debt payments.
Cash problems: When expenses are more than income you
should use savings, delay expenses, move sales, or borrow
money.
A Term-Debt Coverage Ratio: Measures if there is sufficient
cash to cover all current term (farm and non-farm) debt
payments. The ratio (1.60:1) indicates the farm business has
$1.60 for each $1 of debt payment.
Capital Replacement and Term Debt Repayment Margin:
Amount of cash remaining after all expenses, family living,
income taxes, and scheduled debt payments have been made.
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Term Debt Coverage Ratio
Net farm income from operations
+ Total non-farm income
+ Depreciation/amortization expense
+ Interest on term debt
+ Interest on capital leases
- Total income tax expense
- Withdrawals for unpaid labor and management (family living))
/ (Annual scheduled principal and interest payments on term debt
+ Annual scheduled principal and interest payments on capital leases) *
Interpretation:
The ratio provides a measure of the ability of the borrower to cover all term debt and capital lease
payments. The greater the ratio, over 1:1, the greater the margin to cover the payments.
A strategy to improve the term-debt coverage ratio is to reduce farm business operating expenses.
50
Capital Replacement and
Term Debt Repayment Margin
Net farm income from operations
+ Total non-farm income *
+ Depreciation/amortization expense
- Total income tax expense
- Withdrawals for unpaid labor and management (family living)
= Capital replacement and term debt repayment capacity
(loss carryover)
- Payment on unpaid operating debt from a prior period
- Principal payments on current portions of term debt
- Principal payments on current portions of capital leases
- Total annual payments on personal liabilities
(if not included in withdrawals) *
= Capital replacement and term debt repayment margin *
This measure enables borrowers and lenders to evaluate the ability of the farm proprietor to generate
funds necessary to repay debts with maturity dates longer than one year and to replace capital assets.
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1.
2.
3.
4.
5.
6.
7.
Plan borrowing and debt repayment
Suggest ways to minimize borrowing
Combine business and personal financial
affairs into one complete plan
Help establish realistic line of credit
Plan purchases to obtain discounts
Aid tax planning
Find imbalances between current and
noncurrent debt
52
Interest Payment Due in August
Principal
Interest
March (5 months of Interest = 5/12)
borrowing
$36,800 x 9% x 5/12 of a year =
$1,380
April
borrowing
$16,400 x 9% x 4/12 of a year =
$492
May
borrowing
$6,900 x 9% x 3/12 of a year =
$155
June
borrowing
$7,300 x 9% x 2/12 of a year =
$110
Total
$67,400
$2,137
53
Cash inflow:
Increase in crop income
Cash Outflow
Additional crop expenses
Irrigation expenses
Principal payments
Interest payments
Total cash outflow
Net cash flow
1
2
Year
3
$16,800
$16,800
$16,800
$16,800
$16,800
3,600
3,000
14,000
5,040
3,600
3,000
14,000
3,360
3,600
3,000
14,000
1,680
3,600
3,000
0
0
3,600
3,000
0
0
25,640
23,960
22,280
6,600
6,600
-8,840
-7,160
-5,480
10,200
10,200
4
5
54

Cash generated to pay operating loans as a percentage of total cash inflows:

Operating Loans ÷ Total Cash Inflow x 100
Cash generated to pay operating loans as a percentage of total operating
expenses:

Loan Interest and Principal ÷ Total Operating Expenses x 100
Interest paid as a percentage of cash farm operating receipts:
Loan Interest ÷ Total Cash Inflow x 100

Ending net cash value as a percentage of total cash inflows:
Ending Cash Available ÷ Total Cash Inflow x 100

Term loan interest as a percentage of total expenses:

Loan Interest ÷ Total Expenses x 100
Operating sales total as a percentage of total cash inflows:
Total Operating Sales ÷ Total Cash Inflow x 100
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
Agribusiness firms possess majority of power
in most marketing channels
Two types of marketing
◦ Commodity handling: moving commodities through
marketing channel to consumers (e.g., eggs, milk)
◦ Product marketing: transforming raw commodities
into differentiated products to be sold in the
market.

Most firms engage in both.
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
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Transportation
Storage
Processing
Procurement and merchandising
Standardization and market intelligence
Financing and risk bearing
58


Marketing mix: attention to a set of activities
including product design promotion, channel
organization, and pricing.
These activities designated “Four Ps”:
◦ Product
◦ Promotion
◦ Place
◦ Price
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
Law of supply:
◦ Sellers will offer more at higher prices than at
lower prices, other factors holding constant

Law of demand:
◦ Quantity of a good purchased will increase as its
price is reduced
60
61
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

Price discovery: process of buyers and sellers
arriving at prices for a commodity when
market conditions do not permit either group
to set prices.
All market participants are individually price
takers or price negotiaters.
Usually associated with fairly equal numbers
of buyers and sellers.
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

A marketplace for persons interested in
buying or selling commodities—based on
today’s information and the perception of
where prices will be in the future.
Grew out of:
◦ The need for certain parties to guard against
undesired price movements over time
◦ The desire by certain parties to assume the risk of
price movements in return for profit
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





Chicago Board of Trade
Chicago Mercantile Exchange
New York Board of Trade
Kansas City Board of Trade
Minneapolis Grain Exchange
Also Tokyo, China, Brazil
64
You think Price will increase in the future
You will be long (or a buyer) in the
market. Since the price is expected to
increase, you would sell a commodity
for profit. You will long the market. The
options term “call” is synonymous with
being a buyer.
You think Price will decrease in the future
You will be short (or a seller) in the
market. Since the price is expected to
decrease, you would buy a commodity
later for profit. You will short the
market. The options term “buy” is
synonymous with being a seller.
65

Futures contract:
◦ A regulated market mechanism in which sellers and
buyers agree to sell/buy a commodity at an explicit
price and date in the future.

Arbitrage:
◦ Process whereby a commodity is simultaneously
bought and sold in two different markets to take
advantage of a price discrepancy.

Hedging:
◦ Process whereby a person who owns a commodity
uses the futures markets to transfer the price risk
or to establish a price.
66

Put option:
◦ Gives an individual the right but not the obligation to
sell a futures contract at a specified price during a
specific time period

Call option:
◦ Gives an individual the right but not the obligation to
buy a futures contract at a specified price during a
specific time period

Strike price:
◦ The price at which the futures market can be entered
under an option
67






“Strike Price” Specific price owner has right to buy or sell
“Premium” Cost of buying an option at a particular strike price
“In the Money” Put—futures is below strike price
“In the Money” Call—futures is above strike price
“Intrinsic Value” Difference between the underlying futures
and an in the money put or call
“Time Value” Difference between options premium and
intrinsic value
68


Option contracts offer a range of strike
prices so purchasers can choose the level
at which they may eventually want to
take a futures position
Terms describe where the strike price is
relative to the underlying futures contract
price:
◦ In-the-money
◦ At-the-money
◦ Out-of-the-money
69



Intrinsic value: value relative to the
underlying futures price
Time value: reflects time between the option
premium quote and contract expiration
Option premium: value that a hedger or
speculator pays for the right to take a
futures position later
70



Difference between a local cash price and
the relevant futures contract price for a
specific time period
Basis = Cash price – Futures price
Positive basis:
◦ Cash market is above futures market.
◦ Basis is narrowing or strengthning.

Negative basis:
◦ Cash market is below futures market.
◦ Basis is widening or weakening.
71
Futures Market
Sell $7.00 Futures and Price Falls to $6.50
Gain of $.50 in Futures Loss $.50 in Cash
Net selling price $7.00
Options Market: Put
Buy $7.00 put for $.15 premium and price falls
to $6.50. Offset put for $.60 premium
Loss of $.50 in cash, gain of $.45 on options
Net selling price $6.95
72
Futures Market
Sell $7.00 Futures and Price Rises to $7.50
Gain of $.50 in Cash Loss of $.50 in Futures
Net selling price $7.00
Options Market: Put
Buy $7.00 put for $.15 premium and price rises
to $7.50. Let put expire
Gain of $.50 in cash market Less $.15 premium
Net selling price $7.35
73
74
75
76
77
78
79
80
81
82
83
84
85
86


A tax is a financial charge upon an individual by a
state or functional equivalent such that failure to
pay is punishable by law.
Expenditures for military, the enforcement of law
and public order, protection of property, economic
infrastructure (roads, legal tender, enforcement of
contracts, etc.), public works, social engineering,
and the operation of government itself.
Governments also use taxes to fund welfare and
public services. These services can include
education systems, health care systems, pensions
for the elderly, unemployment benefits, and public
transportation. Energy, water and waste
management systems are also common public
utilities.
87

Sales tax: a tax charged at the point of purchase for certain

Income tax: tax levied on the income of individuals or

Property tax: a tax that an owner is required to pay on the
goods and services. The tax amount is usually calculated by
applying a percentage rate to the taxable price of a sale. The
tax amount is usually calculated by applying a percentage
rate to the taxable price of a sale. Usually assessed by
individual states, but some counties may raise tax rates.
business.
value of the property being taxed. Controlled by local
government at the municipal or county level. The assessment
is made up of two components—the improvement or building
value, and the land or site value.
88

Federal Insurance Contributions Act (FICA) tax - payroll (or

Social Security tax: tax collected to fund Social Security

Medicare tax: tax collected to fund the Medicare program.
employment) tax imposed by the federal government on both
employees and employers to fund Social Security and
Medicare: federal programs that provide benefits for retirees,
the disabled, and children of deceased workers. Considered a
regressive tax (a tax imposed in such a manner that the tax
rate decreases as the amount subject to taxation increases)
on income.
program. This contribution or tax is 6.2% of an employees'
income paid by the employer, and 6.2% paid by the employee
(12.4% total). Has a maximum cap limit amount.
Health insurance program for the elderly and disabled.
89

Good Income Tax Management should help maximize the aftertax income.




Proper income tax management should result in level income
from year to year.
Real estate held at the death of the owner gets a new basis of fair
market value.
Commodity credit (CCC) grain transactions can be considered
loan or sales income.
The report given to each employee and the IRS on wages paid is
W2.

Farm income and expenses are reported to the IRS on Schedule F.

The sale of the cull cows will be reported on Form 4797.
90




Self-employed individuals can deduct 100% of health insurance
premiums.
The maximum deduction for Section 179 expensing in 2012 and
2013 is $500,000.
A net operating loss of a farm or ranch can be carried back to 5
years.
In a low-income year, a farmer should:
◦ (1) Collect money due from custom work done, (2) Use straight line
depreciation, (3) Delay all possible expenditures, or (4) Take the option of
reporting sealed grain as income.

In a high-income year, a farmer should:
◦ (1) Borrow money at bank to pay outstanding debt, (2) Delay livestock or crop
sales, (3) Buy feed and other supplies for future use, (4) Pay wages to family
members, (5) Buy needed equipment for increased depreciation, or (6) Use 179
expensing rule.
91







Sale of raised products
Sale of items purchased for resale
Government Program Payments
Patronage Refunds
Crop Insurance proceeds
Custom Hire
Money received from the sale of raised beef
cows (assets) is a Capital Gain, NOT Farm
Income.
92
93
94
Non-Farm Income
95
96
97
98
99
100
101
102
103
104
105




Depreciation is the annual deduction taken
on capital assets.
It can be deducted as an expense to reduce
Taxes. It spreads out the cost of capital
assets over their useful life.
Assets with a useful life of more than one
year, may not be deducted as an expense in
the year of purchase.
Part of the cost of the asset will be deducted
in each year of that asset’s productive life
until the value is zero.
106



Useful life of more than one year
Used in the business
Must be purchased
107


General Depreciation System (GDS)
Modified Accelerated Cost Recovery System
(MACRS)
 recovers cost quicker

GDS & MACRS can use Straight Line or
Declining Balance options
108

3 Year Property

5 Year Property

7 Year Property

10 Year Property

20 Year Property

27.5 Year Property

31.5 Year Property
◦
Breeding Swine
◦
◦
Breeding Sheep, Cattle
Trucks, Computers
◦
Machinery, Equipment, Fence
◦
Single purpose lvstk/hort struct.
◦
Farm Buildings
◦
Residential Property
◦
Office buildings, motels, stores
109


Purchase price of asset divided by the years
of service
Ex: $140,000 combine depreciated over 7
years = $20,000 per year
110


Gives largest depreciation deductions at the
beginning, then smaller each year
More accurately represents the wear and tear
of the asset
111




Allows you to take up to $17,500 of the
purchase price of an asset the first year,
then depreciate the rest
Ex: $140,000 combine, Sec. 179 of
$17,500 first year = new basis of
$122,500
Depreciate $122,500 over 7 years =
$17,500 per year
Why use Section 179?
112



The IRS does NOT allow you to take a full
year’s depreciation for the first year that
an asset is placed in service
May use the month, quarter, or year the
asset is placed into service
Mid-Month, Mid-Quarter, Mid-Year
113






Mid-month convention etc. only affects the
first and last year of a depreciation schedule
Ex: If you purchase a $140,000 combine in
August
Depreciated over 7 years = $20,000 per
year
Year #1 dep. = 5/12 $20,000
Year #2-7 dep. = $20,000
Year #8 dep. = 7/12 of $20,000
114






Item purchased: Tractor
Date purchased: May 5
Cost: $70,000
Years of Service: 7
Straight Line Depreciation
Convention: Mid-Month
115








Year
Year
Year
Year
Year
Year
Year
Year
1
2
3
4
5
6
7
8
=
=
=
=
=
=
=
=
$6,667
$10,000
$10,000
$10,000
$10,000
$10,000
$10,000
$3,333
116







Item purchased: Tractor
Date purchased: Dec 5
Cost: $70,000
Years of Service: 7
Straight Line Depreciation
Section 179 Deduction: $17,000
Convention: Mid-Quarter
117








Year
Year
Year
Year
Year
Year
Year
Year
1
2
3
4
5
6
7
8
=
=
=
=
=
=
=
=
$
$
$
$
$
$
$
$
1,893
7,571
7,571
7,571
7,571
7,571
7,571
5,678
118






Item purchased: 10 Heifers
Date purchased: Sept. 10
Cost: $800
Years of Service: 5
Straight Line Depreciation
Convention: Mid-Month
119





Year
Year
Year
Year
Year
1
2
3
4
5
=
=
=
=
=
$
$
$
$
$
400
1,600
1,600
1,600
800
120





Sell marketable grain/livestock
Off Farm Income
Postpone expenditures until beginning of
next year
Pay bills beginning of Of next year
Don’t use Section 179
121






Postpone sales until next year
Use deferred sales contracts
Buy machinery, supplies etc before end of
year
Use Section 179
Make advanced purchases
Pay wages to family members
122
123
A dollar today is preferred to a dollar in the
future:

1.
2.
3.
4.
The dollar could be invested to earn interest.
If dollar is spent on consumption, we’d prefer
to get the enjoyment now.
Risk is also a factor as unforeseen
circumstances could prevent us from getting
the dollar.
Inflation may diminish the value of the dollar
over time.
124


Present Value (PV) : the number of dollars
available or invested at the current time or
the current value of some amount to be
received in the future
Future Value (FV) : the amount to be received
at some future time or the amount a present
value will be worth at some future date when
invested at a given interest rate
125




Payment (PMT) : number of dollars to be
paid or received in a time period
Interest Rate ( i ) : also called the discount
rate  the interest rate used to find present
and future values, often equal to
opportunity cost of capital
Time Periods ( n ) : the number of time
periods used to compute present and future
values
Annuity : a term used to describe a series
of periodic payments
126
Future Value of $1,000 at 8% Interest Rate
FV = PV ( 1 + i )
n
FV = $1,000 ( 1 + 0.08 ) 3
Compound Factor 1.2597
FV = $1,259.71
127
Future Value of $2,000 at 5% Interest Rate
FV = PV ( 1 + i )
n
FV = $2,000 ( 1 + 0.05 ) 3
Compound Factor 1.1576
FV = $2,315.25
128
Present Value of $1,000 at 8% Interest Rate
PV =
FV
(1 + i ) n
PV =
$1000
= $793.83
(1+0.08 ) 3
Discount Factor 0.7938
129
Present Value of $2,000 at 5% Interest Rate
PV =
FV
(1 + i ) n
PV =
$2000
= $1727.68
(1+0.05 ) 3
Discount Factor 0.8638
130
Annual Payment of PV of $1,000 at 8% Interest Rate
PMT = PV
PMT = $1000
i
1  ( 1 + i ) -n
0.08
= $388.03
1- (1+0.08 ) -3
Annual Payment Factor 0.388
131
Annual Payment of PV of $2,000 at 5% Interest Rate
PMT = PV
PMT = $2000
i
1  ( 1 + i ) -n
0.05
= $734.42
1- (1+0.05 ) -3
Annual Payment Factor 0.367
132


Searching for profitable investments is an important
managerial function that needs systematic and
thorough attention.
Four methods are used for investment analysis:







Simple rate-of-return (SSR = Profits / Investment)
SSR = $2,000 / $10,000 = 20%
Payback period (PB = Investment / Cash Flows)
PB = $10,000 / $2,000 = 5 years
Net present value (NPV)
Internal rate-of-return (IRR)
Only the NPV and IRR methods directly account for
the time value of money.
13
3
Net Present Value (NPV) is the sum of the present values of each year’s
net cash flow minus the initial investment. Bob $1000 received every
year, after a $2000 investment at 8% per year.
NPV =
P1
+
(1 + i )1
NPV =
$1000
(1 + i )2
+
(1+0.08 ) 1
NPV =
$1000
(1.08)
P2
$1000
+ +
Pn
..
(1 + i )n
+
(1+0.08 ) 2
+
$1000
(1.1664)
C
$1000
- $2000
(1+0.08 ) 3
+
$1000
(1.2597)
- $2000
Discount Factors
NPV = $925.93 + 857.34 + 793.83 – 2000 = $577.10
134
135
Risk management terminology:
• Uncertainty: Where the probability of an event occurring cannot be
empirically determined.
• Risk: Unexpected circumstances where the probability of an event
occurring can be empirically determined.
• Insurance: Device used by firms to protect against uncertainties
and possible financial loss.
• Insurance Premiums: The payment to an insurance company by a
policyholder to purchase and maintain an insurance policy.
• Risk Management: The act of managing or controlling exposures
to risk in order to meet preset objectives or risk exposure guidelines.
136
The types of farm business risks have been classified into five
categories: production, marketing,financial, legal and human resource.
There are various ways that each of the risk categories can be
managed:
• Production Risk: Purchase crop insurance, install irrigation system.
• Financial Risk: Rent machinery rather than purchase machinery, Shift
from a variable interest rate loan to a fixed interest, Increase cash
reserves, Reduce the amount of borrowed money.
• Legal Risk: Purchase liability insurance, develop a limited liability
company (LLC).
• Marketing Risk: Forward contract, Futures contract or Options
contract.
• Human Resource Risk: Purchase health insurance, Provide training
opportunities to employees.
137
The increase in input prices is an indication of production risks.
• Price of seed goes up by 10%.
Seed price: $30/bag + 10% = $33/bag)
• Cost of Production ($10/acre) goes up by 3%.
Additional seed price $3/bag ÷ $10 x 100 = 3%
• Break-even price to cover total operating expenses:
0 = Price x Q – Total Operating Cost
P = Total Operating Cost ÷ Q
P = $10 ÷ 100 bu./acre = $0.1 per bu.
• Insurance payment at 75% of revenue.
Insurance Floor = Revenue x 0.75 (payment is triggered)
Insurance Floor = ($0.1 per bu. x 100 bu/acre) * 0.75 = $7.50/acre
Revenue less than $7.50 per acre would trigger insurance.
138
139
Historically, the term “family living withdrawals” has been widely
used in connection with farming operations that were organized
other than as a corporation. These withdrawals are typically
shown in the statement of owner equity and not on the income
statement.
However, to distinguish when these withdrawals are for “family living”
versus other legitimate withdrawals of capital from the business
seems to be a time-consuming task of limited usefulness for
purposes of analysis. Therefore, the FFSC recommends that the
term “family living withdrawals” no longer be utilized.
140
Operations


Expense accounts record expenses incurred by
the business during the production of revenue.
Fertilizer, seed, chemicals, rent, supplies,
repairs, veterinary and utilities are examples of
expense accounts.
Post a debit to the General Ledger when
expenses (+) increase and a credit when they
(-) decrease.
141
1.
Sole Proprietorship: No special legal procedures
(you and your business are the same), permits,
or licenses. Owner(s), family, can hire
management and employees, lease buildings
and land, own assets, and growth as much as
they want. Owners are fully liable for any legal
difficulties, debts, assume all risks (including
personal assets, business continuity), and
receive all profits and losses (Form 1040,
Schedule C).
142
2.
Partnership: Simple to establish and does not
require the same amount of record keeping as a
corporation. Income is taxed only once. Each
partner pays federal, state, and local taxes on
income. The owners are fully liable for any all
risks (a bank may request any assets for
defaulting). Limited partnership can be oral or
written (depending on each state) and does not
allow for managerial activities, but it does limit
debt/profit to its share. Easy to dissolve.
143
3.
Corporations: not so simple to establish and
does require record keeping as a corporation
(Limited Liability Company, LLC; C or SCorporation). Each partner is considered a
separate entity. The owners are not fully liable
for any all risks and they control how much
profit to share. Not easy to dissolve. An LLC
with only a single shareholder, a so-called
single-member LLC, is taxed as a sole
proprietor.
144


Why an S-Corporations: profits and losses are
not taxed at the corporate/business level like
they would be if the corporation remained as a
C Corporation.
C-Corporations: these are taxable entities,
which means profit/dividends at the corporation
level is taxed and shareholders are also taxed
upon dividends/income received, “double
taxation.”
145
Real estate can be held in several different ways:






Tenancy in common: Provides owners with undivided interest
with no rights of survivorship but with rights to convey, mortgage
and otherwise care for as is available through fee simple ownership.
Fee simple: Gives the owner the unrestricted right to sell, mortgage
or dispose of real estate.
Co-ownership: Property is owned by two or more owners with
undivided interests.
Life estate: Entitles a person to receive income from or use of
property for his/her life only.
Joint tenancy: Provides owners with undivided interests and with
rights of survivorship.
Tenancy by entirety: Provides owners with undivided interest
and with rights of survivorship but does not allow for conveyance
without consent of the other party involved.
146
147

Asset turnover ratio:
gross revenue market value of total farm
assets
Operating expense ratio:

Depreciation expense ratio:

Interest expense ratio:

total operating expenses
total depreciation expense
total farm interest expense
gross revenue
gross revenue
gross revenue
148






Net farm income from operations ratio:
net farm income
gross revenue
Livestock production per $100 feed fed
Feed cost per 100 pounds of gain
Crop value per acre
Gross revenue per person
Machinery cost per crop acre
149
Financial Health: it measures the ability to borrow and repay its commitments.
Solvency: the firm’s ability to repay all debts with its assets. The increase in
liabilities as a proportion of assets (or equity) makes the firm less solvent.
Liquidity: less liquid (it has less cash on hand) and that has more of its money
tied up in its receivables. This lack of cash has lowered the firm’s ability to
pay its bills on time as reflected in the rise in accounts payable.
150
The Debt-to-Asset ratio is calculated by dividing total liabilities by total assets.
This ratio indicates how much the operation is leveraged. Generally, the higher
the ratio, the higher the risk of insolvency.
Debt-to-Equity is calculated by dividing total liabilities by total equity. This ratio
indicates how the farm is financed. Lower ratios are preferred. A higher ratio
indicates that there is greater long term risk and less flexibility.
151
Working capital is calculated as current assets minus current liabilities. This
ratio indicates the amount of capital that is available for current operations.
Current ratio is calculated as current assets divided by current liabilities. This
ratio reflects the ability to pay expenses, as they occur, with current assets. A
ratio of greater than one is preferable, but aim for greater than two.
The acid test ratio tells you whether you could pay your bills if you had to do so
on short notice since it uses just cash as it numerator.
152
153
Return on Investment (ROI) measures the return on capital invested in the farm business
(shows good management skills) and is calculated by dividing the farm’s return to assets
(return to investment on both debt and equity) by the average farm assets for the year.
Return on equity (ROE) measures how much a company earns within a specific period in
relation to the amount the owners have invested in it. It is calculated by dividing the farm’s
return on equity (return to equity without the management contribution to profits) by the
average equity for the year.
If the ROE is higher than the company's ROI, it may be a sign that
management is using leverage to increase profits and profit margins.
154
Asset Turnover Ratio measures the how efficiently capital invested in farm
assets is been used. It measures ability to use assets to generate sales. It is
calculated by dividing the farm’s sales by the average farm assets for the year.
Inventory Turnover Ratio measures the number of times the inventory is used
and replaced each year. It is calculated by dividing the farm’s CGOS by the
ending inventory level. Higher ratios are preferable since products can
deteriorate as they sit in a warehouse or on the field.
155
Economic Efficiency measures how efficiently managers are able to generate
more production in terms of operating profits with the use of fewer resources in
terms of operating costs. It is calculated by dividing the farm’s operating profits
by its operating cost for the year.
Labor Productivity measures the efficiency of utilizing labor to generate more
production in terms of operating profits. It is calculated by dividing the farm’s
operating profits by labor cost for the year. Higher ratios are preferable since
additional products can be sold by means of productive operating practices.
156





net farm income from operations
plus total nonfarm income
plus depreciation expense
plus interest paid on term debt and capital
leases
minus withdrawals for family living and
personal income taxes
157
158
159
160

Equilibrium price is the price at which the quantity
demanded by consumers and the quantity that firms are
willing to supply of a good or service are the same.
161

When the own price of a product changes, the outcome is a
movement along the demand curve and when any other
determinants (prices of substitute products, prices of
complementary products, population, advertising, wage changes,
etc) of demand change, there will be a Shift of the Demand
Curve.
162

A Shift in the Supply Curve occurs when firms will tend to supply
more or less of their products at any given price due to changes of
the conditions of supply, such as cost of production, prices of other
products, and changes in profits.
163




Elasticity is a general concept that quantify the percentage
relationship between two variables.
Elasticity determines the percentage change in one variable
relative to a percent change in another variable.
Coefficient of Elasticity =
Percentage change in A .
Percentage change in B
Types of elasticity:
 Elasticity of (quantity) Demand with respect to price.
 Elasticity of (quantity) Supply with respect to price.
 Elasticity of investment with respect to interest rate.
 Elasticity of tax payments with respect to income.
164




The Price Elasticity of Demand PE(D) for a particular
product may differ at different prices. For example, from $9
to $10 and from $10 to $11.
Elastic Demand occurs when 1 percent change in price
causes a change in quantity demanded greater than 1
percent. These products are said to be Price Elastic
(Ed > 1).
Inelastic Demand occurs when 1 percent change in price
causes a change in quantity demanded less than 1
percent. These products are said to be Price Inelastic
( 0 < Ed < 1).
Unitary Elastic Demand occurs when 1 percent change in
price causes the same percentage change in quantity
demanded. These products are said to be Unit Elastic
(Ed = 1).
165
166




The Price Elasticity of Supply PE(S) for a particular product is
computed by dividing the percent change in quantity supplied
by the percent change in price.
Elastic Supply occurs when 1 percent change in price causes a
change in quantity supplied greater than 1 percent.
(Es > 1).
Inelastic Supply occurs when 1 percent change in price causes
a change in quantity supplied less than 1 percent.
( 0 < Es < 1).
Unitary Elastic Supply occurs when 1 percent change in price
causes the same percentage change in quantity supplied.
(Es = 1).
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Production is the process through which inputs are combined
and transformed into outputs.
Specific quantities of inputs are needed to produce any given
service or good.
For example: a loaf of bread requires certain amounts of water,
flour, and yeast, kneading and patting, as well as an oven and
gas or electricity.
The Production Function is a mathematical expression which
relates the quantity of all inputs to the quantity of outputs,
assuming that managers employ all inputs efficiently.
Q = F (I1, I2, I3,…,In)
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The Units Produced will decline because of other
limited resources such as land, machines, buildings.
(Law of Diminishing Returns)
Units Produced
Q
27
25
20
8
1
2
3
4
L
Units of Labor
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Marginal Physical Product (MPP) is the additional output
that can be produced by hiring or using one more unit of a
specific input, holding all other inputs.
MPP = Change in Total Product .
Change in Variable Input
However, at a certain point (maximum), it starts to decline to
a point which another unit of input (labor) causes 0 increase
in output. (Law of Diminishing Returns)
The Law of Diminishing Returns states that when
additional units of a variable input are added to fixed inputs,
after a certain point, the marginal product of the variable input
declines.
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Increasing Marginal Returns (<A): output increases at
an increasing rate.
Decreasing Marginal Returns (A-C): output increases
at a decreasing rate.
Negative Marginal Returns (>C): output decreases.
B
TPP
C
TPP
A
MPP,APP

Stage 1
Stage 2
Labor
Stage 3
APP
MPP
Labor
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Average Physical Product (APP) is the average amount
produced by each unit of a variable factor of production.
APP = Total Units Produced (TPP) _
Total Units of Variable Input (Q)
A
MPP APP
MPP= APP when APP is max
MP above AP
MP below APP
MPP
Stage 1
APP
Stage 2
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Construct a line or XY (scatter) chart showing the Q(B), TPP, MPP and APP
from the data below. Fixed quantity A Q(A) = 40. Use the variable quantity
data Q(B) as the x-axis.
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Is it rational to produce when MPP is in the range of Q(B) from 0 to
25? What happens next (>25)?
No. Increasing returns will not persist. Diminishing marginal returns
will follow and then negative returns.
What should you do about the stage of production for input levels
of 40-45?
Stage 2. TPP increases in a decreasing rate. Good management skills
required !!!!!
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Homogeneous (identical) products: i.e. the presence of perfect
substitutes.
No firm with a cost advantage: i.e. all firms have identical cost
curves.
A very large number of suppliers: thus no single producer by
varying its output can perceptibly affect the total market output
and hence the market price.
Free entry into and exit from the industry: ensuring that
competition is sustained over time.
No transport and distribution costs to distort competition.
Suppliers and consumers who are fully informed about profits,
prices and the characteristics of products in the market.
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The perfect competitive firm is a price taker.
Any increase or decrease in its output will have no
effect on the price of its product.
If it raises its price, it sells nothing.
If it lowers its price, it can sell no more than if it charges
the market price.
Marginal Revenue equals Average Revenue and
equals Price; i.e. MR =AR =P .
Profits are maximized where short-run marginal cost
equates to marginal revenue (and average revenue or
price). MC =MR
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Unit Profit = AR – ATC
Profit maximization occurs when the MC = MR, and the amount of
profit is the difference between Average Revenue and Average Total
Cost.
Revenue
MC
Profit
P
ATC
Cost
MR
Q
D=AR
Quantity
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Pure Monopoly: An industry with a single firm that produces a product for
which there are no close substitutes and in which significant barriers to
entry prevent other firms from entering the industry to compete for profits.
Barriers to entry: Something that prevents new firms from entering and
competing in imperfectly competitive industries:
 Government franchises: electric, gas, telephone firms.
 Patents: exclusive production of a product.
 Economies of Scale: large facilities.
 Ownership of Scarce Input: diamond producing business.
In a monopoly, the firm is the industry. It faces a downward demand
curve because the firm has enough information to predict how households
will react to different prices.
Profits are maximized where short-run marginal cost equates to marginal
revenue (MR = MC).
A Natural Monopoly is a firm in which the most efficient scale is very
large. The single firm is producing nearly the entire amount demanded
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Monopolistic Competition: An industry with a large number of firms, none of
which can influence market price by virtue of size alone. Firms can differentiate
their products and firms can enter and exit such an industry with ease.
The restaurant business in the U.S.: although many restaurants fail, small ones
can compete and survive because there are no economies of scale in the
restaurant business.
Product Differentiation: A strategy that firms pursue to achieve market power.
Accomplished by producing products that have distinct positive identities in
consumer’s minds.
In the short-run, a monopolistically competitive firm is like a monopoly and earn
monopoly profits since it is the only producer of its unique product, but similar.
Example: Cheerios, Oreo cookies.
In the long-run, the firm loses its monopoly power and market share due to the
entry of competitors whose products are equally differentiated and better priced.
Profits are maximized where short-run marginal cost equates to marginal
revenue (MR = MC).
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Market Structure
Perfect
Competition
Monopolistic
Competition
Number of firms
Very large
number
Many
Few
Barriers to entry
None
Low
High
Some
Substantial
Characteristics
Market power
None
(control over price
Type of product
Standardized Differentiate
d
Oligopoly
Standardized
or
differentiated
180
Market Structure
Characteristics
Perfect
Competition
Duopoly
Monopoly
Number of firms
Very large
number
Two
One
Barriers to entry
None
High
High
Substantial
Substantial
Market power
None
(control over price
Type of product
Standardized Standardized Unique
or
differentiated
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Jobes, Steward, Casey and Purcell (2004). Farm and Ranch Business Management (5thedition).
Deere &Company, John Deere Publishing, East Moline, Illinois 61244.
http://www.deere.com/publications
Kay, Edwards and Duffy. Farm Management. McGraw-Hill Book Co., New York, NY. (6th edition,
2008)
CDE NCQ, National FFA Core Catalog, Indianapolis, IN. http://shop.ffa.org/cde-qasc1413.aspx
(Published annually following the CDE.) Good source for examples of enterprise budgets and
financial statements used in the CDE.
Boehlje and Eidman (1984). Farm Management. John Wiley and Sons, New York, NY.
Bowers, Love and Kletke (1994). Machinery Replacement Strategies. Deere &Company, John
Deere Publishing, East Moline, Illinois 1244.Deere &Company. http://www.deere.com
Dicks, Michael (1998). Agricultural Policy and How it Affects You, Deere &Company, John Deere
Publishing, East Moline, Illinois 61244.
Oltmans, Klinefleter, and Frey (2001) Agricultural Financial Reporting and Analysis. Doane
Agricultural Services, St. Louis, MO.
Purcell, Wayne D. (1995). Marketing Agricultural Commodities. Deere & Company, John Deere
Publishing, East Moline, Illinois 61244.
Wilson, Purcell, Burton, and Wahlberg (1994). Managing Livestock Production. Deere &
Company, John Deere Publishing, East Moline, Illinois 61244.
Wilson, Purcell, Burton, and Wahlberg (1994). Managing Agricultural Commodities.Deere &
Company, John Deere Publishing, East Moline, Illinois 61244.
AgriSolutions Inc. www.agrisolutions.com
Ferreira, Wilder (2012). Clemson University Cooperative Extension Service.
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