Budget analysis starts with simple gross margins that provide a way of comparing the profitability of enterprises that have similar requirements for capital and labour.

A gross margin refers to the total income derived from an enterprise, less the variable costs incurred in the enterprise.

Overhhead costs are excluded from gross margins. These include costs such as rates, fixed water charges, electricity and fuel.

The question the farm manager wants to answer is which combination of activities will generate the greatest return for my business given my resources and desired lifestyle.

In using gross margins for cropping it is important to identify the agronomic benefits that one crop can provide to another crop.

This can be difficult to do, given the complex interactions that exist.

One way to address this issue is to estimate gross margins for entire crop rotations over a number of seasons.

Comparing gross margins for a range of possible rotations can assist in formulating a final choice of rotation to use.

With less summer crop being grown due to water availability irrigated cropping rotations have become too tight and cereal diseases are impacting on our cereal yields.

A balanced rotation using break crops should be the first priority for longer term weed and disease management.

Gross margins are essentially the first step in calculating total farm business profit. Farm business profit (before tax) is arrived at by adding gross margins from all enterprises and taking away overhead costs, interest, lease charges and owners salary.

A sensible marketing plan for crops has become more important in recent years.

A key step in developing a grain marketing plan is knowing what price will produce a profit for your business.

To do this you need to know what your grain is worth, or having a target price. The target price for your grain must cover all costs of the business which consist of variable cost per tonne, overhead cost per tonne and a margin for profit per tonne.