Economics 230 Name______Lab #6 Section: 9:00 _____ or 10:00 _____ Spring 2010 Swine Investment Analysis (Due Fri., February 26, 2010) Make a copy for your records before you hand in.
The purposes of this lab exercise are to (1) compare the profitability of the three types of swine facilities, and (2) analyze the cash flow requirements of the initial investment.
Enterprise Budget for Farrow-Finish Swine.
Your Farmsim hog facilities will wear out after Year 5. To continue producing hogs in Year 6 and beyond you will need to invest in some new facilities in Year 5. You can also wait until a later year, if you prefer. You will need to decide whether or not you want to continue to engage in hog production, and if so, under which production system and for how many litters per year. You will need your Farmsim printouts from Years 1- 4 and the Farmsim Information handout which describes the three systems you can invest in. You have system (1) presently.
Unit: 1 sow Period: 1 year System (1) System (2) System (3)
Revenue (All values are for one sow for one (round values to the nearest $) year.)
Average pigs weaned/litter*______x 2.2 litters/sow per year Add 1.0 pig per sow for systems (2) and (3).
- Number of gilts retained .54 .54 .54
= Number of pigs sold per sow
X Selling weight of 2.6 cwt.
= Cwt. of market hogs sold per sow x Average hog sale price, $ per cwt.*
= Projected income from market hog sales
+ Projected income from cull sow sales (.48 sows sold per year @ $165)
= Gross income per sow unit (market hogs + cull sows)
* From Farmsim Farm Business Yearly Report. Use average of years 1, 2, 3, 4.
1 Expenses System (1) System (2) System (3) (round values to the nearest $) per sow per sow per sow Corn cost (bushels x corn sale price $______per bushel*) Use 265 bu. for system (1), 275 bu. for (2) and (3)
Supplement cost @ $.26 per lb. Use 3,590 lb. for system (1), 3,770 lb. for (2) and (3)
Livestock expense (health, supplies, etc.) $68 $50 $50
Utilities, building repairs and marketing $160 $160 $160
Labor cost @ $12 per hour (hours needed per sow = 24 for (1), 18 for (2), 12 for (3))
Total Operating Costs
Depreciation on initial investment (use 15 years life, zero salvage value) Investment is $1,400 for (1), $2,000 for (2), $2,800 for (3)
Interest (7.0%) on average value invested per sow (average of initial investment and zero salvage value)
Property taxes and insurance: use 2 % of average value
Total Ownership Costs
Total of all costs (operating & ownership)
Profit per sow per year (Income – Costs)
Breakeven selling price per cwt. sold to pay total costs (remember to subtract cull sow sales income first)
* From Farmsim Farm Business Analysis Yearly Report. Use average of years 1, 2, 3, 4.
2 II. Resources Available
Labor. Since hired labor is available, assume the maximum total farm labor supply is 6,000 hours (3,000 operator hours, 3,000 hired hours). Subtract the labor needed for your present enterprises. As a guide, use labor hours from your Year 4 Farm Business Analysis Report. If you plan to change the acres of crops raised or number of cattle fed, use the labor requirements provided at the end of this lab.
1. Labor available 6,000 hours
2. Labor needed for crops: ______hours
3. Labor needed for cattle: ______head x ______hr./head ______hours
4. General labor requirement 800 hours
5. Labor available for hogs (1 - 2 - 3 - 4) ______hours
System 1 System 2 System 3
Labor required per sow 24 18 12
Maximum sows possible (round off) ______(hrs. available divided by hrs. required) hours hours hours
Projected total profit from sows (profit per sow from previous page ______x no. sows possible) hours hours hours
Which system has the largest profit per sow? ______
Which system has the largest total profit per year, considering the number of sows possible? ______
This shows the maximum sows possible with current labor. You may want to save some labor capacity for expanding crop or cattle production later, however.
Farmsim
In Year 5 of Farmsim you started with 60 sows, as always. You will be asked to answer the following questions:
1) Do you want to invest in new hog facilities? (if you answer "no", you will have no hogs in Year 6; you will have a chance to invest in following years, however)
2) Which system do you want, 1, 2, or 3?
3) How many sows do you want to invest in? (you can expand more in later years, with the same system).
Remember, there’s always a half-year lag between investing in facilities and having more pigs to sell. III. Cash Flow Required in the first year
Even though an investment may look profitable in an average year, there may be additional cash requirements in the first year before additional income is available.
1. Which system do you want to choose, (1), (2), or (3)? ______
2. How many sow units do you want to invest in? ______
3. What will your total initial investment be (investment per sow unit x no. $______units)?
4. How much of this can you borrow (up to 90 %)? $______
5. How much will your down payment be (the remainder)? $______
6. How much will your first principal payment be? $______(loan is payable over 10 years, equal principal payments)
7. How much will your first interest payment be (7.0 % on original loan)? $______
8. How much will your first year property tax and insurance cost be? $______(2 % of initial investment)
How much will your total cash flow requirement be in the first year, in addition $______to cash operating costs? (5 + 6 + 7 + 8)
You will have to obtain these funds from: Net cash flow from existing enterprises Savings Borrowing against your land
4 Labor Requirements
Crops (Hours/acre) Spring work Machinery Set 1 Machinery Set 2 Machinery Set 3 Machinery Set 4 Corn Soybeans Corn Soybeans Corn Soybeans Corn Soybeans 1.5 1.1 1.3 .9 1.1 .7 .8 .6
Harvesting Combine 1 Combine 2 Combine 3 Combine 4 Custom Hire Corn Soybeans Corn Soybeans Corn Soybeans Corn Soybeans Corn SB Silage 1.1 .75 .75 .6 .6 .45 .45 .35 .4 .3 .7
Hogs Cattle System (1) 24 hours per sow unit Calves 3 hours per head System (2) 18 hours per sow unit Yearlings 2 hours per head System (3) 12 hours per sow unit
General Labor 800 hours per year
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