When is machinery worth buying?

[Rodjam]

Cowman thinking got me thinking. How much forage land does one need to make it worthwhile to buy a haybine and a baler? Is it cheaper to rent or get a custom guy if you have less then 100 acres 200 acres or 500 acres, where is the line?

[cowman]

I guess it depends on whether you want to run "junk" or you need all the bells and whistles?
My hay dealer told me about ten years ago you need 500 acres to justify owning good equipment.
Not even sure what a new baler or haybine are worth anymore but I suspect over $40,000 each! At $15/acre to cut and $42/acre($7/bale) to bale....100 acres @$57/acre would be $5700 total cost so no way could you justify $80,000 worth of equipment? 500 acres would cost you $28,500 total cost, so that sounds a little better? However that is total cost?
If you owned the equipment you have fuel, repairs, twine costs, depreciation etc. which would have to be added to the cost?
I think it would be hard to justify owning new equipment even on 500 acres?

[redcountry]

How do you put a price on doing your silage at the peak of condition?

If you depend on custom service you are on a list and will get done when your turn comes and if weather is bad this season you can sit and watch the good weather slide past as your crop waits its turn.

If you have good equipment and the weather is good , you can always get some custom work to help with payments.

Lastly when you do your own crop it is done how you want it done ,when you want it done.
Even when you have a co-op agreement with another farmer its second best to owning your own equipment.

[cowman]

Red country: Yes there is that factor too. How much benifit do you get by creating top notch material as compared to having to wait.
Not sure if beef cows need top notch material? Know that horse people seem to think their little darling needs the best...and are willing to pay for it!

[cswilson]

Heck Cowman some of our little darlings still paw out in the winter lol.

[farmers_son]

I checked out the Alberta Ag Custom Rate Survey at: http://www1.agric.gov.ab.ca/$department/deptdocs.nsf/all/inf10420

Haybining was about $12 per acre and baling was about $8 per bale. Assuming 2 bales to the acre for large round bales equals $16 per acre. Total $28 per acre. So if you have 100 acres of forage custom cost is $2800, 200 acres forage $5600, 400 acres forage $11,200.

Some things to consider is if you see prices of equipment rising every year is you can avoid those rising costs by purchasing you own haying equipment now and in effect freezing the cost of your haying for a period of years into the future with your only variable cost being fuel and twine, some repairs. If you are hiring custom you will pay the market rate every year which is probably going to go up. Also if the price of machinery continues to rise then the value of the equipment you purchase could possibly rise also or at least depreciate very slowly.

If we were to assume the price of custom haying increases 7% per year than in 10 years you will be paying double to have your hay put up. You would need to consider that before you committed to going custom. Buy the best equipment you can afford or justify and if need be you can use that equipment for 20 years, I know I am. But you have fixed your cost of haying at a per acre rate that 20 years from now will look very attractive.

Custom haying is not cost effective. I see most people going custom not because it is cheaper than owning your own equipment but it is the only way to hire labour.

[cswilson]

THe sad fact is there are always people with overbought iron who will work for less than the book rate-they bring in cash but their equipment is wore out when the payments are done. The problem with owning is that them pesky repairs tend to rise every year too.

[cowman]

Personally I can't see how anyone can afford equipment to run over land that is only producing slightly better than a ton of hay?...no matter how cheap your equipment is?
I mean if you are producing 2400 lbs. at 2 cents/lb....thats only $48 gross! Sure hope you never used any fertilizer or ever had to break it up???
I don't think that makes any sense.

[PureCountry]

"When is machinery worth buying?" - simple............NEVER. What other investment on the planet continually drops in value, no matter how much money you put into it?

[smcgrath76]

Other considerations some of which have already been pointed out.

Cash flow to buy feed. Risk exposure.
Labour availability to make feed.

A couple of other things that influence our decisions...
Land costs - even rental rates here are getting stupid. Some guys are paying $47 an acre rent. Our discbine/baler has allowed us to double the landbase of our farm as we regularly custom cut/bale and harvest on shares. Operational costs aside, with a relatively small capital investment we have been able to gain access to the product from several hundred additional acres (in effect the same result as renting or buying several million dollars worth of capital in the form of land). Additionally, this has provided the same fertility benefits to our landbase as buying feed in.
Labour is becoming our next challenge, as we target where the best use of our time, and whose time should be spent doing what.

We don't own a lot of machinery, and with cows we don't need it, although we still have some leftovers from long ago when grain farming paid.

I don't believe machinery is an investment in the sense you are talking P/C. While a major capital cost, machinery is not like an investment such as cows or a mutal fund. The return on investment with machinery is in the product it produces. Depreciation is just an operational cost, the same as fuel, twine, etc. The more product the machine can produce for every dollar invested, the more value it has. Another aspect of risk management with equipment is that it does provide the option of generating cash flow through custom work.

[cowman]

Free machinery always works! If you are letting something else pay for it, why not?
My tractor is "free" and so are my trucks!
My haybine and baler are not.
At $8 a bale you can pay for a baler. At $15/acre you can pay for a haybine.
If you have the time and the inclanation you can make some serious money. My neighbor put his haybine over 2500 acres last year.

[PureCountry]

My Dad and I did custom cutting and baling 10 years ago. One cutter, two balers, good equipment - when we started. In our part of the world, hay is not a bumper crop - ever. If you put a cutter over 2500 acres in the Hardisty area, you'd be dealing on a new one every year. Lots of rocks and just having to cover alot of ground to get a damn bale make custom haying a very tough nut to crack.

I can see your point guys about making the equipment pay for itself. I agree with you. But the fact is, it comes back to that same old line - do what works for you; and bouncing equipment over these old hills has never worked for us. Of course there may come a day when so many people are buying in their own feed that it will become very costly for me to buy it in from great distances. If and when that day comes I'll address it like any other problem.

[farmers_son]

“If and when that day comes I'll address it like any other problem.” True, and keep in mind that one of the ways to address problems of buying costly hay is to sell the cows as was seen in 2002.

I try to view my operation a number of different ways. One way I view things is I have the land base which can grow pasture, forage and cash grain crops. The cattle are in effect a harvester for the grass and forages I produce. Just a living machine that adds value to the lands production no different than a baler or cutter. So I have machinery and I have cattle, they are both necessary to harvest my production. Looking at things this way my production would not be cattle, it is grass. Is it any different if I grow grass, harvest it with a baler and sell the bale to someone else or grow grass, harvest it with a cow and sell the calf. And by the way, both cows and machinery depreciate. The cows depreciate faster and do not have the option of running more hours or over more acres to be more profitable.

[cswilson]

Actually there is kind of a business relationship between the haygrowers and ranchers here-it should be symbiotic where the guy who likes cows buys hay from the guys who like machinery but it tends to get parasitic by the ranchers in plentiful hay years and damn predatory by the hay growers in the droughts. It's impossible to make a long term deal so we just take turns taking advantage of each others feast and famine-I suppose it all averages out over time. I can see our country changing more to a feed and pasture supplier-cash grain getting tougher here all the time.

[cowman]

I can certainly understand the desire to not pound the hell out of equipment for little return. When those custom hay boys pull into a field of well fertilized annual rye they must have a big smile on their face! Never seen anything yield like that stuff...if you can get it dry!
Around here the darned moles are so ferocious you are lucky to get four years out of an alfalpha field! Too bad they can't come up with some sort of genetic disease to wipe the little buggers out!
I know what you mean cswilson! I've been on both ends!