Transcript Economics of Custom Forage Harvesting Decisions

Economics of Custom Forage
Harvesting Decisions
Sarah Roth
Penn State University
Dairy Alliance
Farm Business Management
Penn State is committed to
affirmative action, equal opportunity,
and the diversity of its workforce
We know forage quality is
important…
…so is cost of production.
So… Can Custom Forage
Harvesting Benefit You
Economically?
Custom Harvesting Goal
Acquire quality forage
(same or better) for
lower cost of harvest
Presentation Overview
Factors that influence
forage quality
Producer issues
Custom operator issues
Factors that influence
forage quality
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Maturity
Crop species
Harvest and storage
Environment
Soil fertility
Variety
Factors that influence
forage quality
 Maturity
 Crop species
 Harvest and storage
 Environment
 Soil fertility
 Variety
A USDA-ARS study found
that delaying a single
alfalfa harvest 5 days cost
the whole farming
operation $37/acre
Source: J. Prod. Agric., 1989
Rate of silage fill
 Essential for appropriate silage
fermentation
 Slow filling encourages fungal growth
 Filling too fast however could
compromise packing quality
 Need to balance storage procedures with
harvest efficiency
Producer issues
Should I Have My Forage
Custom Harvested?
 Is labor availability/experience an issue?
 Is timeliness a problem with your current
equipment?
 Are your repair costs high?
 How many acres of forages do you
harvest?
Solutions to Labor Scarcity
and Poor Harvest Timeliness
 Purchase higher capacity forage
harvester
 Change crop rotation
 Custom hire
Solutions to Labor Scarcity
and Poor Harvest Timeliness
 Purchase higher capacity forage
harvester
 Change crop rotation
 Custom hire
Labor inexperience can be
costly
 Machinery could get broken
 Harvest efficiency can be compromised
 Field efficiency
 Overall timeliness
 Storage quality
Are your repair costs high?
 Current forage harvesters are designed to be
more reliable and have fewer repairs over their
lifetimes than older models
 Newer models of pull-type forage harvesters
have an expected life of 2,500 hours compared
to 2,000 for older models
 Newer models of SP forage harvesters have
an expected life of 4,000 hours compared to
2,500 for older models
Accumulated Repair Costs for
Newer vs. Older Forage Harvesters
$800
$700
$600
new pull-type
$500
new SP
$400
old pull-type
old SP
$300
$200
$100
Harvester age (hours)
4000
3800
3600
3400
3200
3000
2800
2600
2400
2200
2000
1800
1600
1400
1200
1000
800
600
400
200
$0
0
Total repair cost per $1,000 of
purchase price
$900
Hourly Repair Costs for
Newer vs. Older Forage Harvesters
$0.70
$0.60
$0.50
new pull-type
new SP
$0.40
old pull-type
old SP
$0.30
$0.20
$0.10
Harvester age (hours)
4000
3800
3600
3400
3200
3000
2800
2600
2400
2200
2000
1800
1600
1400
1200
1000
800
600
400
200
$0.00
0
Hourly repair cost per
$1,000 of purchase price
$0.80
Managing Machinery
Costs
Variable costs are
those which occur
from operating the
machinery
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repairs
labor
fuel & oil
lubrication
materials
Managing Machinery
Costs
Fixed costs are those
which result from
owning the
machinery
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
depreciation
interest
insurance
housing
Forage Harvester
Comparisons:
 2-row towed
($25,900)
 2-row self-propelled
($159,900)
 3-row self-propelled
($165,600)
 6-row self-propelled
($236,600)
Prices from Univ. of MN, “Minnesota Farm Machinery Economic Cost Estimates for 2001”
Hourly Repair Costs for Four Forage Harvesters
$60
$40
2-row pull-type
2-row SP
$30
3-row SP
6-row SP
$20
$10
Harvester age (hours)
4000
3800
3600
3400
3200
3000
2800
2600
2400
2200
2000
1800
1600
1400
1200
1000
800
600
400
200
$0
0
Hourly repair cost
$50
Accumulated Repair Costs for Four Forage Harvesters
$120,000
$80,000
2-row pull-type
2-row SP
$60,000
3-row SP
6-row SP
$40,000
$20,000
Harvester age (hours)
4000
3800
3600
3400
3200
3000
2800
2600
2400
2200
2000
1800
1600
1400
1200
1000
800
600
400
200
$0
0
Total repair cost
$100,000
Hourly Repair, Fuel, and Labor Costs
for Four Forage Harvesters
$90
$80
$60
2-row pull-type
$50
2-row SP
$40
3-row SP
6-row SP
$30
$20
$10
Harvester Age (hours)
4000
3800
3600
3400
3200
3000
2800
2600
2400
2200
2000
1800
1600
1400
1200
1000
800
600
400
200
$0
0
Hourly cost
$70
Field Capacity (acres/hour)
Harvester
2-row pull type
2-row SP
3-row SP
6-row SP
Width
Speed
Field Efficiency
5 ft.
3.0 mph
70%
(Range: 1.0 - 5.0)
(Range: 65 - 80%)
3.5 mph
70%
(Range: 1.5 - 6.0)
(Range: 65 - 80%)
3.5 mph
70%
(Range: 1.5 - 6.0)
(Range: 65 - 80%)
3.5 mph
70%
(Range: 1.5 - 6.0)
(Range: 65 - 80%)
5 ft
7.5 ft
15 ft
Field Capacity
1.27
1.48
2.23
4.45
Repair, Fuel, and Labor Costs per Acre
for Four Forage Harvesters
$40
$35
$25
2-row pull-type
2-row SP
$20
3-row SP
6-row SP
$15
$10
$5
Harvester age (hours)
4000
3800
3600
3400
3200
3000
2800
2600
2400
2200
2000
1800
1600
1400
1200
1000
800
600
400
200
$0
0
Cost per acre
$30
Total Cost per Acre for Four Forage
Harvesters, 10-year life
400
300
250
2-row pull-type
2-row SP
200
3-row SP
6-row SP
150
100
50
$54
$47
$42
$30
Acres/year
1800
1700
1600
1500
1400
1300
1200
1100
1000
900
800
700
600
500
450
400
350
300
250
200
175
150
125
0
100
Total Cost per Acre
350
Why acreage is important
 Spreading fixed costs over more acres
lowers cost of production
 Increases return on investment
How to make the decision
 Gather information
 Your costs & custom operator charges
 Perform economic analysis
 Partial budgeting
 Spreadsheets
 Enterprise accounting
 Choose best option for your business
Custom operator
issues
How to price
services?
Considerations
 Machinery costs (covered earlier)
 Must balance repair costs with
efficiency factors when choosing
machinery
 Extent of services offered
 Number of clients
 Basis for fees
Machinery cost review
 Fixed costs
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Depreciation
Interest
Insurance
Housing
 Variable costs
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Repairs
Labor
Fuel
Lubrication
Extent of services offered
Will you be offering services beyond
basic harvesting?
 Transport to silo
 Ensiling (upright or bags) or packing
(bunker)
 Application of silage additives?
Number of clients
 Spread out fixed costs
 ↑ # of clients…↓ fixed costs per unit
 Location
 Machinery & equipment transportation costs
 Acreage
 More clients w/ fewer acreage
 Fewer clients w/ greater acreage
Fee basis
Will fees be charged on a per ton or per
acres basis?
 Per ton basis will make revenue more
variable
 Increased yield…increased revenue
 Poor yield…lesser revenue
 Per acre basis will result in a more
stable, predictable income
Resources
 Penn State
 http://www.das.psu.edu/dcn/catforg/
 http://farmmanagement.aers.psu.edu
 University of Wisconsin
 http://www.uwex.edu/ces/crops/uwforage/de
c_soft.htm
Thank You!
Sarah Roth
Penn State University
Farm Business Management
Dairy Alliance
Visit us online:
http://farmmanagement.aers.psu.edu
or
http://dairyalliance.org
Penn State is committed to affirmative action, equal opportunity, and the diversity of its workforce