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Agriculture

Home > Agriculture > Electives > Agribusiness > Assessing the financial situation of a farm

Agribusiness - Elective 1

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Evaluating risk

There are two important areas of risk: the ability to produce goods and obtaining adequate income to make a profit. In this activity you will evaluate the effect of changing yield, commodity prices and rising prices on the profitability of a farm enterprise.

Evaluating the effect of disease

For this activity you should visit the NSW Agriculture web site and look at the gross margin for beef cattle. It is recommended that you choose one of the Grow out steers gross margins , in order to answer the questions in this activity. It will not matter which gross margin you choose to use, as they should all provide you with the necessary information to answer the questions in the activity. The questions are designed to help you analyse the effect of natural risk on the financial situation of a farm and are not designed to test your knowledge about steers.

Questions

1. What is the assumed mortality rate of the enterprise?
   
   
2. If the mortality rate increased to 10%, describe the effect on the following areas of the gross margin.
   1. Number of animals presented for sale.
   2. Veterinary and health costs.
      
      
3. What is the budgeted number of animals sold and their value?
   
   
4. If the effects of disease meant that 10 and not 2 animals died, calculate the new Total income.
   
   
5. What are the budgeted health and veterinary cost?
   
   
6. If the veterinary and health costs increased conservatively to $1100, how much extra money would the farmer need to pay?
   
   
7. Using your answers to questions 4 and 6, calculate the decrease in gross margin caused by the increased disease problem.
   
   
8. Compare the loss of almost $6 000 from farm enterprise in the following situations:
   1. A farmer who has an annual farm income of $35 000
   2. A farmer who leases a neighbour's paddock in order to test the inclusion of growing steers into an already profitable farm.

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Evaluating the effect of changeable markets

In order to complete this activity you will need to visit the NSW Agriculture web site and use the same Grow out steers gross margin, as you used to complete the above activity in the section Evaluating the effect of disease.

You should familiarise yourself with the gross margin, remembering that this exercise is about how to analyse the effect of changeable markets on the financial situation of a farm, not about steers.

The following questions ask you to find information from the gross margin and examine the effect which various market changes could have on the profitability of the enterprise and farm.

Questions

1. At the bottom of the gross margin there is a table showing the effect of three variables on the gross margin. What are the three variables?
   
   
2. Identify and discuss the likely return per steer for the following scenarios:
   1. Spring rains and warm temperatures combine to provide better than average pasture growth.
   2. Market sale prices rise in response to new export markets to Asia.
   3. Over-supply of young animals at the beginning of the year combined with the closure of several Asian markets.
   4. Drought conditions increase towards the end of the year.

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Evaluating the effect of drought on profit

Drought is a fact of life for Australian farmers. The Bureau of Meteorology gives a forecast of expected rainfall for the next 3 months.

Questions

1. What is the current likelihood of the rainfall being above the median rainfall in your area in the next three months?
   
   
2. List three actions which a farmer could put in place now in order to moderate the severity of the effects of a drought in the future.

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