By-the-ton costs show more horsepower may not bring higher profits
Custom harvesters who charge by the hour rather than by the ton may be shortchanging themselves, especially when they buy self-propelled forage harvesters with a bit more oomph.
So concluded Tim Meister, John Deere division marketing manager for self-propelled forage harvesters, at the annual Wisconsin Custom Operators meeting in January.
“Certainly, charging by the ton is a lot more fun in corn than it is in hay, because there is a lot more crop there. If you don't have a merger for hay, you are probably going to have a hard time making a lot of money charging by the ton in hay,” he added.
Meister compared horsepower and profit potential between 500- and 600-hp harvesters using what he called “rough” dollar figures and assuming that custom operators pay fuel costs. In his example, a 500-hp forage harvester will chop 200 tons/hour at a $400/hour rate, plus fuel costs of $40/hour (based on a $2/gallon price) averaging $2.20/ton. The 600-hp machine can cut 250 tons/hour for $475/hour plus $50/hour for fuel, totaling $525/hour but making only $2.10/ton.
“That's a 10¢/ton loss, which is about $5,000 for 2,000 acres (at 25 tons/acre). And he's losing $2.50/acre compared to a smaller machine.
“The guy who bought the bigger machine is getting less per hour because of the rate he is charging. Does that seem right? Did you buy bigger and get less per ton? That's what happens in a lot of cases,” said Meister.
A harvester who has or will increase his chopper horsepower should take the hourly rate charged for his previous machine and multiply that times the productivity increase in tonnage per hour, he stated.
In the case just cited, the increase in productivity was 50 tons/hour. That figure can then be divided by a ballpark figure of 10 tons of crop per gallon of fuel.
“If you are chopping 50 tons more, it's going to burn five more gallons of fuel times the price of the fuel. In this case, the fuel was $2.64/gallon. The rate increases 126.4%, times the productivity increase, which is 50, times your current rate of $2.20/ton (126.4% × 50 tons/hour × $2.20/hour).”
The rate for using the 600-hp machine should have been $138.60 more per hour than the 500-hp machine's.
“You needed $578.60 to make the same money per ton. How many people are getting $578.60/hour? But that is what you are looking at when you make those switches in price per hour with a bigger machine or a smaller machine. Make sure you don't short yourself when you are looking at making the next purchase and going up in size. Or even down in size.”
Other considerations come into play, Meister said. The 500-hp chopper may cost $7,500 more in depreciation and wages to get the same acreage harvested as the larger-horsepower machine. The larger chopper could also have gained another 50 hours of work elsewhere by finishing that much sooner than the smaller machine.
But the larger chopper's owner “paid roughly $25,000 more for the machine so he had to carry that particular cost and pay the interest on it,” he added.
The trade-in value on larger machines could also be a problem down the road. “A 1,000- or 1,200-hp machine is going to be hard to find a second user. Know what the approximate trade-in value might be before you make the deal. Don't get yourself into a situation where you have to take $30,000 less on trade-in simply because the dealer doesn't have a home for it, or you are the fifth person to trade that year.”
Also look at what Meister calls “logistical capacity.”
“If somebody wants to haul his own crop or pack his own crop, you need to take that into consideration because if you aren't controlling the output to the pit, and how fast that take-away is, that could hurt your productivity in tons per hour. You might take it on the chin simply because the farmer is not prepared to keep up with your chopping abilities.”
He also suggests the option of renting pack tractors if packing rate is slowing the harvest.
Chopping at the right moisture content — around 68% — and accurate yield tracking are also important.