Gross margin analysis can be used to evaluate the financial performance of various enterprises of a farm business within the short term. This analysis can assist in allocating limited resources (like land) to their existing enterprises to find which combination optimizes profit.
If a beef cattle producer has land allocated to specific uses (e.g., pasture, crops), the reallocation of this land has implications for the farm’s net income. For example, cow-calf producers must choose between maintaining pasture and hay land or converting it into cash crop production. These decisions are driven by ecological considerations (e.g., risk of erosion, too rocky), personal preference and the potential profitability of each land use.
Gross margin is the total revenue derived from an enterprise less the variable (direct) costs incurred in that enterprise (e.g., feed, fuel, seed). This can be reported for the whole enterprise or per unit of output. For example, land allocation can be considered on a per-acre basis to allow for comparison of gross margin between different land uses.
Boost profitability with the new BCRC tool for gross margin analysis
The BCRC’s new Gross Margins Calculator is an interactive decision tool to assist beef cattle producers when allocating limited resources (like land) to determine which combination of enterprises optimizes profit.