Economics of Custom Forage Harvesting Decisions

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Economics of Custom Forage Harvesting Decisions

• Sarah Roth
• Penn State University
• Dairy Alliance
• Farm Business Management

Penn State is committed to affirmative action, e
qual opportunity, and the diversity of its workf
orce
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We know forage quality is important
so is cost of production.
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So Can Custom Forage Harvesting Benefit You
Economically?
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Custom Harvesting Goal

• Acquire quality forage (same or better) for lower
  cost of harvest

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Presentation Overview

• Factors that influence forage quality

Producer issues
Custom operator issues
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Factors that influence forage quality

• Maturity
• Crop species
• Harvest and storage
• Environment
• Soil fertility
• Variety

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Factors that influence forage quality

• Maturity
• Crop species
• Harvest and storage
• Environment
• Soil fertility
• Variety

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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
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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

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Producer issues
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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?

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Solutions to Labor Scarcity and Poor Harvest
Timeliness

• Purchase higher capacity forage harvester
• Change crop rotation
• Custom hire

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Solutions to Labor Scarcity and Poor Harvest
Timeliness

• Purchase higher capacity forage harvester
• Change crop rotation
• Custom hire

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Labor inexperience can be costly

• Machinery could get broken
• Harvest efficiency can be compromised
• Field efficiency
• Overall timeliness
• Storage quality

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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

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Managing Machinery Costs

• Variable costs are those which occur from
  operating the machinery
  
• repairs
• labor
• fuel oil
• lubrication
• materials

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Managing Machinery Costs

• Fixed costs are those which result from owning
  the machinery
  
• depreciation
• interest
• insurance
• housing

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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
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Field Capacity (acres/hour)
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Why acreage is important

• Spreading fixed costs over more acres lowers cost
  of production
  
• Increases return on investment

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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

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Custom operator issues
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How to price services?
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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

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Machinery cost review

• Fixed costs
• Depreciation
• Interest
• Insurance
• Housing
• Variable costs
• Repairs
• Labor
• Fuel
• Lubrication

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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?

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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

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Fee basis

• Will fees be charged on a per ton or per acres
  basis?
  
• Per ton basis will make revenue more variable
• Increased yieldincreased revenue
• Poor yieldlesser revenue
• Per acre basis will result in a more stable,
  predictable income

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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/dec_soft.ht
  m
  

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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