A spreadsheet helps show if - or how - you'll make a profit
John Lentz, Dallas, WI, does not feel pressure to match his custom rates to those of his competitors.
"I don't get into a big price war; I set my rate and the customer decides whether I work for him or somebody else does," says Lentz. He custom bales 5,000 hay acres and another 1,000 acres of cornstalks, straw and soybean residue.
He realistically pencils in a number of cost factors when determining rates. But his biggest factor is what it costs him to own and operate his equipment.
"I keep updated equipment to keep my breakdowns to a minimum." Because that costs him extra - but also benefits customers - he charges extra.
Bale wrapping, which improves feed quality for his dairy customers, also justifies a little higher price than what some competitors charge.
"If my rates are close to what the other fellows are charging, it seems like customers are willing to pay a little more for a more timely service."
Like many custom harvesters, Lentz has his own way of determining what he'll charge each year. But harvesters with access to the Internet can make use of an electronic spreadsheet built especially for them.
Gary Frank, a farm management specialist, built the spreadsheet, which he also calls a "decision tool." It helps custom operators determine their rates - and find out if they'll make money or not.
Custom operators enter their costs for management and labor, investments, repairs and fuel, plus equipment rental information and loan terms. (See spreadsheet example on page 55.)
"Then they enter what they want to receive for managing their operations and the number of acres they plan to harvest of hay, haylage or corn silage. It just sort of spits the spreadsheet out and says, 'Yeah, you made money,' or 'No, you didn't.' "
You can also use the spreadsheet by plugging in your area's going custom rates.
"Say the rates are $43/acre on haylage and $85/acre on corn silage, and I'm not going to get any customers if I charge more than that. Custom operators can set those rates, put in their costs and see if they're making any money or not."
Frank, with the University of Wisconsin-Madison's Center for Dairy Profitability, says the spreadsheet is easy to use. It can be found on the Internet at www.wisc.edu/dairy-profit. Just click on decision-making tools, then OWNVSCUST.XLS to download the spreadsheet. Click on example and instructions before or after downloading to get more information.
It operates in Excel 5 and can be accessed at most libraries or county extension offices, Frank says.
The spreadsheet was made for a group of northeastern Wisconsin custom harvesters. "It's something I've been working on to help them make decisions for the past number of years and has worked well."
New this year to the decision-making tool is what Frank calls a "sensitivity analysis." It allows harvesters to play with the numbers - figure out, for example, how their bottom line is affected if they end up harvesting only 2,500 acres of haylage or corn silage rather than 3,000.
"You can easily see where your breakevens are. You look at these numbers and say, 'Gee, ifI don't get 2,600 acres, I'm going to be losing money.' "
Also, Frank says, some harvesters are passing fuel costs on to their customers.
"People are all of a sudden thinking, 'Instead of me having to take the risk of what fuel is going to cost, I'm going to pass that risk right over to the farmer,' " he says.
Lentz may be an example.
"On my haylage bales, my cost for fuel is going to go up by 30 cents/bale. I need to pass that on to the customer. But I don't know as if I'm going to get them to pay that this year," Lentz adds.
Frank seems to be skeptical of the same thing.
He also sees logistics problems if harvesters expect farmers to fill up their equipment. Growers aren't likely to be able to accommodate a harvester's immediate fuel needs, since they usually have small storage tanks.
Frank's program, which has an entry for fuel costs, can still be used if a harvester wants to pass those costs on to a grower. Just put in zero fuel costs.