Sheep managment

This assignment is about gross margin analysis and whole-farm budgeting for “Cressbrook”, a fine wool property, and cash flow budgeting for an investment in pasture improvement on the property.

Part 1
a)  Present your gross margin for the current “Cressbrook” wool activity developed in Assignment 1 (updated with any comments given). Using this gross margin, undertake sensitivity analysis. You should discuss why you have chosen to vary particular items in the gross margin budget, and justify the levels of variation you have chosen.
b) Next, prepare a whole farm budget for Cressbrook. You should use your GM for the wool activity along with the following information:
Other gross margins:
? Cattle GM $72,000
? Stud sheep GM $214,000
Costs:
? Accounting $7,400
? Bank charges $800
? Insurance & workers compensation $10,700
? Telephone $4,600
? Stationery, etc. $600
? Permanent labour $120,000
? Fuel and oil $10,000
? Electricity $2,000
? Repairs & maintenance
o Machinery $14,800
o Structures $8,000
? Depreciation
o Machinery $20,000
o Structures $11,000
? Rates & land taxes $21,700
c) 5 marks – Provide a comment on the whole farm budget.

Part 2
a)Using your feed demand and supply results from Assignment 1, discuss options for investing in pasture establishment on Cressbrook.
b) Next, prepare (and provide) cash flow budgets for the following three investment options for pasture improvement on 50 hectares of the property:
1. All pasture is sown in first year
2. All pasture is sown by Year 3
3. All pasture is sown by Year 5
Each cash flow budget should extend 12 years into the future. To construct the cash flow budgets, you will need to prepare and provide a farm plan that indicates the timing of activities. You will need to predict the consequential outputs and inputs and their timing, and predict prices and costs to get cash flows. Make sure you detail your assumptions and provide justification.
Additional assumptions are that:
? The new pasture will be grazed by sheep.
? The current stocking rate for unimproved pasture is 8 DSE/ha.
? Sowing of pasture will be carried out by contractors at a cost of $500/ha, this includes the variable costs of machinery and labour, plus the cost of chemicals, seed, fertiliser and lime.
? Initial capital costs of pasture improvement are assumed to be borrowed at an interest rate of 7% per annum.
? All native and improved pasture is fertilised each year – you need to detail the type and rate of fertiliser applied, and calculate the cost of purchase and application.
? All pastures are assumed to last for 12 years, with the highest stocking rates for the pasture occurring in years 3-8 from sowing.
c) 15 marks – Discuss your results.
Note that the reading by Trapnell et al. (2006) listed under the readings for Module 10 will be a useful reference for this assignment.