When diesel fuel prices in California jumped from 75¢/gallon to more than $1.80 for on-farm use last fall, the increase hit everyone hard. But perhaps no group was hit harder than custom harvesters.
For those in the business of cutting, raking and baling, chopping or cubing alfalfa, the cost of fuel is a significant chunk of their operating expenses. The choice of what to do came down to three options — absorb the hit, pass it along to their customers, or get out of the custom harvesting business.
Two of California's longtime custom harvesters went different ways in dealing with this dilemma.
Tom Ellis of Grimes decided to get out of the custom field cubing business. Ellis says he knew the growers wouldn't be able to absorb the added fuel costs associated with field cubing and still come out with an acceptable return. It would be better for them to turn to other custom harvesters who provide the standard cutting, raking and baling.
Stan Azevedo of Hanford, in the heart of the San Joaquin Valley, decided “to roll with the punches” when diesel prices jumped last year. He reasoned that farmers who contract with him wouldn't get higher prices for their alfalfa to compensate for the added fuel cost.
This year, Azevedo told his customers he would be forced to raise his fees. With his son and partner, Greg, Azevedo custom harvests 2,000 acres of alfalfa a month.
“For each operation of cutting and raking, I increased my fees by 25¢/acre,” he says. “That does not come close to covering the additional fuel costs, but it does take the edge off of it for me.”
Ellis had been field cubing about 700 acres of his neighbors' alfalfa, as well as 750 acres of his own. Cubing is fuel-intensive, requiring about three gallons of fuel per ton, and he knew that his clients would be better off financially to go to more traditional harvesters.
“The majority of guys we work for feel they're getting the expertise they're paying for.”
— Stan Azevedo
“These people are my neighbors, so it was a real gut-wrenching decision,” he says. “I told them I couldn't cube their hay and send them a bill that would cover the costs. They wouldn't have been able to come out on it.”
He's not sure where the future will lead, but at this point he's out of the custom harvesting business and will only do cubing in his own fields.
Part of the problem for alfalfa cubers is the downward spiral that has been occurring in the lucrative Japanese market in recent years. Ellis notes that out of 9,000 tons produced, “we used to export 6,500 tons to Japan. Three years ago, we dropped from 5,500 tons to 1,000 tons, two years ago it was 900 tons and last year, 950 tons. I think the Japanese buyers went to Canada, where producers are willing to sell their product a little cheaper than we are.”
Most of the cubed alfalfa now goes to California dairies, as does the high-quality hay baled by Azevedo and other custom harvesters.
Both Ellis and Azevedo are optimistic that hay prices will improve over last year. As Ellis points out, “stocks on hand at farms and on the dairies are at an all-time low, so if we can get our first cuttings off in reasonable fashion with the weather, I think the market is there.”
Azevedo notes that central California alfalfa growers typically get six or seven cuttings a year — last year they got eight.
“This year the hay is a little bit cleaner, so it looks like the quality will be up,” he says. “And it doesn't look like we'll be getting any rain, so there probably won't be any rain-damaged hay. I already baled some hay (in late March) that sold for $150/ton, and last year at the same time it went for $130-135/ton.”
“These people are my neighbors, so it was a real gut-wrenching decision.”
— Tom Ellis
The Hanford harvester doesn't expect very many farmers to shift from custom harvesters to doing the work themselves for a couple of reasons. First, the cost of equipment is much greater now, and second, an experienced custom harvester puts out a very good product.
“Twenty years ago, I could buy a baler for about $8,000, and now that same baler is $40,000. That's an increase of five times,” Azevedo points out. “My fees have only gone up 2½ times over the same period. Another thing is that it takes a certain skill. I feel that part of what I'm getting paid for is the ability to put out a good product. The majority of guys we work for feel they're getting the expertise they're paying for.”
“Custom harvesters have been trying to hold their costs down for the past two or three years,” adds Ellis. “But at this point they can't do anything other than pass some of these costs on to their customers. They'll swallow as much as they can, but they just can't keep on doing it. We're all in this thing together, and I think everyone understands this. I just don't know what's going to happen. It's so unbearable.”