Know your per-acre machinery costs
Do you know what your per-acre or even per-bushel machinery costs are? Many producers think they know, but they are surprised when they punch in the numbers, says Chris Barron, director of operations and president of Carson and Barron Farms Inc. in Rowley, Iowa. "As farmers, we tend to underestimate true equipment costs," he says.
In the last five years, machinery costs have increased by about 60%. "If you’ve got a combine that’s worth $300,000 or $500,000 and it goes up 4% to 5% each year, those numbers get really big quick," Barron says.
Machinery costs are substantial, and control of them is important, says Bill Lazarus, University of Minnesota Extension ag economist. Tracking machinery costs and improving efficiency and utilization is one area that Barron believes many farmers can improve. Most grain farmers have had several good years and haven’t had to be as disciplined in their decision-making, he says.
When tracking per-bushel and per-acre machinery costs, measure the number of acres you can cover in an hour, time spent during pit stops and time spent in idle and transport. Recognize the difference between expenses that cost the farm and expenses that add value.
Livestock producers have not been afforded that luxury. They track and work to thoroughly analyze everything, Barron says. Pork producers would turn inside-out if they didn’t know their pigs per sow per year or average weaning weights. Like pork producers, Barron says grain farmers should challenge themselves to be more precise in their projections. "We usually look at farm costs in our accounting system, which is essentially looking in the rear-view mirror," Barron says. "By that time, it’s too late. By looking at this information ahead of time and tracking the data, you can look ahead and do some managerial accounting."
Track Time. Before you can make improvements, you have to know where you are and establish a baseline, Barron says. Whether you’re running 12 hours a day or 24 hours, you need to know how many acres you cover per hour for planting and harvest. "Knowing this might put you in a position to take on another 500 acres without having to spend more money on machinery," he says.
Another area to focus on is your pit stops. "Jimmie Johnson won the Daytona 500 by having the fastest pit stops," Barron says, and suggests implementing standard operating procedures for pit stops.
"When you stop the planter, does it take 10 minutes or an hour to get it refilled, serviced and rolling again?" Barron asks. "If you stop the planter three times a day and your stops are 10 minutes instead of an hour, you get an extra 2.5 hours of planting time. With a 24-row planter, you might be able to move across an extra 100 acres per day, depending on how your stops are structured."
Additionally, you should try to get an accurate measure of idle time and transportation time for each piece of machinery.
"You might not be able to control either of these, but that’s costing you money," Barron says, adding that the same thing goes for fuel consumption. "You can’t necessarily change how much fuel a tractor consumes when it’s hooked up to the grain cart, but if it’s idling excessively, you can change the behavior of the operator," he says. Tracking the amount of time equipment spends in idle and in transport gives you a better picture of your true work time, which means "planter down and seeds being put in the soil," Barron explains.
For factors that you cannot change, your cost of production should be increased, Barron explains. This way, you know your true margin opportunity.
Furthermore, producers need to factor in logistical expenses and overhead costs associated with equipment ownership, which includes insurance, tech subscriptions and labor as it relates to your machinery.
Once you account for all of these, you can calculate your per-bushel and per-acre machinery costs, Barron says. In doing so, he says it’s important to recognize the difference between expenses that cost the farm money and those that add value.
Minnesota’s Lazarus says that once farmers know their true machinery costs, they can factor that into their margin calculation. "It’s difficult to market for a margin if you don’t know your costs," he says.
Download a spreadsheet to help you calculate per-bushel machinery costs at www.TopProducer-Online.com/Machinery_Costs.
- Mid-November 2013