Projecting Revenue in an Agriculture Enterprise
As highlighted before revenue estimates are the most difficult part of making realistic projections. Agriculture production and processing make the task especially hard because not only do we have to estimate crop yields, but every product has other quality standards for things like protein, sugar, color, juice, smell, and taste. If we are processors all these issues are present with the added dimension of waste, spoilage, shipping, storage and production efficiency.
If trying to get a good handle on Ag production wasn’t enough, the agribusiness also has to be concerned with current and future prices. With ag producers and processors located all over the world, price stability is hardly assured. A low yield in the northern hemisphere can be countered by a bumper crop in the south. Price swings due to weather, disease and demand can change the price overnight.
Producers and processors can mitigate some of the volatility of prices by purchasing or selling futures contracts. Disasters can be averted with crop insurance and having production facilities in different parts of the country can also lessen the chance of low yields.
In summary a set of spreadsheets means very little unless the designer can honestly articulate how the revenue numbers were generated. Experience is a good teacher and historical yields and trends can greatly support the yield estimates. The Ag Department and local county extension can bring up current planting estimates and estimated yields for each county. While it isn’t a sure thing, estimates for Ag production and all the processes involved, can be made from historical data — with a good dose of common sense thrown in. Estimates are nice, but written contracts are much better. If you can get commitments from suppliers and/or users you alleviate a lot of the guesswork.