The annual expected return the average producer might 

 receive from capital invested in machinery and other 

 nonland production assets used in the production process 

 is estimated from data pubUshed in Economic Indicators of 

 the Farm Sector: National Financial Summary (6). A 

 single real rate of return to production assets reflects the 

 annual earnings of owner-supplied or owned assets for all 

 commodities in all regions. Data are not available to 

 estimate rates of return specific to various commodities 

 and regions. ERS analysts calculate a return to land for 

 crops by using rental value as a proxy for land returns 

 rather than by using the real rate of return to production 

 assets; for livestock, they estimate land charges by using 

 the real rate of return and the current land price. 



Any additional return reflecting the operator's 

 entrepreneurial skill appears in the residual return to 

 management and risk. Returns to management and risk 

 are the residual amount after all other resources are 

 valued. The returns to management and risk can be 



evaluated only in light of the given allocation of residual 

 returns; they are directly comparable only when analysts 

 use the same procedure (same rates of return to each 

 item) for those commodities. The longrun return to risk is 

 expected to average near zero, although in any particular 

 year it could be positive or negative, depending on weather 

 and on supply and demand. The return to management 

 should be positive in the long run, but the level is unknown 

 and, therefore, speculative. Thus, the residual returns to 

 both management and risk are expected to average above 

 zero over time. 



Although an enterprise budget provides a cost estimate for 

 producing a particular product, it does not provide 

 information about farm income or returns to resources for 

 the whole farm. 



The remainder of this volume will emphasize procedures 

 and data sources associated with preparing and updating 

 enterprise budgets. 



