What Should You Know About Pork Enterprise Accounting?

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Pork enterprise accounting is a topic that is relevant regardless of the size of your pork operation, but it is especially important for operations that are larger and have multiple production stages and locations.  Implementing pork enterprise (managerial) accounting into your farm accounting system is generally dependent on two primary considerations:

  • Does your current accounting system allow you to implement managerial reporting?
  • Is your pork operation one of the major revenue sources (i.e. >25% of total farm revenue) for your farm? 

There are various accounting software programs available that meet the minimum requirement of financial reporting for compliance (tax reporting – income and payroll), but is your current system designed specifically for agricultural accounting and customizable to provide you with managerial reporting?  This capability could provide you with valuable financial reporting metrics such as cost of production and profitability per head sold and per CWT sold.

Pork operations, regardless of size, may utilize similar production and managerial accounting principles, but could differ in how you choose to customize the reporting of various enterprises or production segments.  This customization would be dependent on the structure of your pork operation, including processes like farrow-to-finish, farrow-to-wean, farrow-to-feeder pig, purchased wean-to-finish, and purchased feeder-to-finish.

 

Potential Segments (Centers) in Pork Managerial Accounting

Pork Profit Center

Records pork revenues, cull breeding stock sales, government program payments, hedge gains/losses or other risk management revenues.  All other centers either directly or indirectly allocate to the pork profit center to reflect the profitability of the pork operation.

 

Breeding Herd (Gestation & Lactation) Center

Records all direct production expenses including feed for the breeding herd.  If your operation raises its own replacement gilts, you could include those costs here or select to have a separate gilt developer center.

 

Nursery Center

Records all direct production expenses including feed for the nursery stage.

 

Finisher Center

Records all direct production expenses including feed for the finisher stage.

 

Wean-to-Finish Center

Records all direct production expenses including feed for the wean-to-finish stage.

You may select to utilize additional support operations centers (i.e. raised feeds, equipment, labor, facilities, etc.) depending on your farm’s available resources.  If your farm also raises crops that are used in your pork rations, you have the option of “charging” the various pork operation production stages for each crop’s cost of production (determined by managerial reporting) or at a fair market price (opportunity cost) of using the crops as feed.  Feed, whether raised or purchased, will be the single largest cost factor in producing pork. 

There is a myriad of additional expenses involved that, with good managerial reporting, can be recorded, reported, and analyzed with the goal of improving efficiencies and profitability.  Depending on the farm’s capital resources, there will most likely be capital costs involved for land, equipment, breeding stock, and buildings that should be included in your managerial accounting reporting.  This will correctly assess your cost of production and evaluate whether there are adequate profits to fund the replacement of those various capital assets. 

 

Recording and Reporting

As previously indicated, properly structured pork enterprise accounting can also be instrumental in providing financial reporting for operations that have multiple locations and perhaps locations with different managers.  This beneficial reporting is available to assist management and owners in decisions regarding factors like personnel, equipment replacement, and animal health status, based on production efficiency variations between locations. 

Accounting records what has already happened and is similar to looking into the rearview mirror as you are driving your business. However, these same pork managerial accounting principles should also be considered when preparing a budget cash flow projection for the coming year(s).  By incorporating a managerial budget and capital budget, you can more accurately and confidently make decisions regarding the replacement and purchase of capital assets or the expansion of your pork operation.

A lot goes into running your pork enterprise, but we’re here to help simplify the process. To get ongoing business tips and industry updates, subscribe to our blog! 

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Written By

Brian Bennett

Brian Bennett

Consultant

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