Partial budget is simple, useful financial tool

As a farm operator, how do you decide whether or not to try a new crop or variety, new herbicide, piece of equipment/technology, or a new cultural practice?

Do you do it because your neighbor does it, or because it feels right?

Just because your neighbor bought a new combine does not mean it is profitable for your operation. With the volatility of crop and livestock prices — not to mention input costs — it probably makes sense to analyze the decision in an organized logical method.

To do this you should use a framework to look at the trade-offs of the decision. A partial budget is a simple useful financial tool to evaluate changes you may make on your farm.

It analyzes net financial return from small changes or refinements to your farm operation. It focuses only on those income and expenses that change with the proposed new alternative.

Basically you consider the benefits and costs of the proposed change by answering four questions.

On the benefit side, you ask:


1.) What will be the new or added revenues?

2.) What costs will be reduced or eliminated?

On the cost side, you ask: 

3.) What will be the new or added costs?


4.) What revenues will be reduced or lost? 

Then calculate the net benefit or income by subtracting the costs from benefits.

To download a useful partial budget spreadsheet to assist you with your lists and calculation visit https://www.msu.edu/user/betz/financialmgt/index.htm.

For example, you could use a partial budget to consider alternative enterprises such as growing 100 acres of corn instead of 100 acres of dry beans. If you already have the equipment to produce and harvest either crop, then you only need to consider those costs and revenues that change.