Transcript Managing your Inputs

Managing your Inputs
AG BM 460
Plan ahead. It wasn't raining
when Noah built the Ark.
“You can't make a silk purse out
of a sow's ear”
Ancient Idiom
Introduction
• Inputs are important to success
• Homogeneity should not be assumed
• If you have special needs, you must
incorporate them in your plans
• Must expect to pay extra for exactly what
you want
• May need to contract
Evaluating Alternatives
• Need to do calculations for all grades of
inputs
• Need to figure ratio of prices that make
one a better deal – if Jersey milk is less
than 12/9 of price of Holstein milk, buy it –
if it is more, buy Holstein
Derived Demand
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How much can you afford to pay?
Calculation is there for each retail price
Prices are tied to quantities
In simple form an input demand curve can
be found
Beef Demand
5
Retail D
4
P
3
Input D
Proc Cost
2
1
0
50 55 60 65 70 75 80 85 90 95
Q
Some Notes on Contracts
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Contracts can ensure input supply
Can also help scheduling of inputs
Can satisfy food safety needs
Must have quality premiums and discounts
Issues for farmers
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Size of sellers – market power
Should I join a cooperative?
Price risk – input and output
Thin markets – not many sellers – not
much volume
• Farmer is a small customer
• Too many decisions – hard to specialize –
don’t have a procurement manager
Processors
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Inputs are farm outputs (milk, hogs, steers)
Issues are quality, quantity, reliability, and control
Traditionally just bought on open market
Some industries integrated, esp. poultry and
vegetable processing
• Reasons for more control include cost, food
safety, and quality management
• Processors big compared to farms
Wholesalers and Chains
• Buy from processors and packers (fresh
fruit & vegetables)
• Large volume buyers
• Some sellers have market power –
branded or monopoly
• Stream of products
• Food safety important
• Milk in Australia!
Restaurants
• Small compared to seller
• Small volume restricts sources of supply
• Quality, reliability, quantity important
For Everyone
• Quality, quantity, reliability key factors
• Market power may be a factor
• Brand identity may be a factor – gives
seller power, but gives buyer confidence
• Choices of source, quality
• Need to know your own needs & tradeoffs
• Need to understand what is variable and
what is fixed
An Example – a dairy farm
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What are the inputs?
Can you make substitutions?
What are they?
Does your choice matter? How?
Heifers
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When should you cull a cow?
Should you raise your own heifers or buy them?
How do you tell a good one from a bad one?
Is it a good investment to buy quality?
Can you justify paying $2,000 for a heifer with
these milk prices?
• Should you contract for raising your heifers?
Semen
• How do you choose semen?
• Should you service the cows yourself or
pay someone to do it?
• Is a “state of the art” bull worth it?
• Should you keep a bull around for those
cows that don’t become pregnant?
Feed
• What is your ration?
• Can you afford to grow corn for grain?
• What substitutions can you make in your
rations?
• Should you hire a feed consultant?
• Will your supplier allow you to forward
contract?
Milk testing and other records
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Are good records worthwhile?
Can you use the information you get?
Do you use the information you get?
Is the record system worth the money?
Do you have the willpower to keep your
records up to date?
How much do you need?
• N = (number of units raw/number of units
finished)
• QR=QFN
How much can you afford to pay?
• PR = (1/N)(PF – CProc)
An Example - Cheese
• For Holstein milk 100 lbs of milk creates 9
pounds of cheese
• For Jersey milk 100 lbs of milk creates 12
pounds of cheese
• Cheese sells for $2.00/lb. And it costs
$0.75 to process
Value of milk
PH  (9 / 1)(2.00  0.75)  (9)(125
. )  1125
.
PJ  (12 / 1)(2.00 .75)  (12((125
. )  15.00
Concluding Comments
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Lots of choices
Deciding requires lots of information
Costs and benefits
Other considerations
Talk with others – quality control, sales,
plant manager
• Find out what is flexible and what is not