Machinery purchasing decision support for broadacre growers

Page last updated: Thursday, 1 March 2018 - 2:01pm

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Machinery expansion

Expanding machinery capacity needs careful consideration.

Is the reason for needing to upgrade capacity profit driven, lifestyle driven or event driven?

The cost, efficiency and potential bottlenecks of across each farm business’s logistics set-up in season and at seeding and harvest needs to be analysed before and after a potential investment in expansion.

For instance, efficiencies of a second header may not be generated unless investment is also made in freight, storage and handling to avoid bottlenecks and delays in logistics.

Hence, the cost of further investment needs to be included if the assumption is for high utilisation of the second harvester.

If not, lower utilisation and costs of delays/waiting time and additional labour needs to be factored in when calculating the true benefit of the potential purchase.

If timing is critical, such as the seeding window, the cost of not meeting the critical window needs to be quantified (that is, yield penalty x price x hectares in late) and compared to additional cost of investing in upgraded or additional machinery.

Furthermore, assessment of the likelihood of a range of seasons needs to be considered.

For example, expanding capacity for a one-in-ten year event may lead to an over-investment of capital that may have generated higher returns if invested in another part of the farm business.

Every farm business has different risk exposure, enterprise mix, market options and harvest arrangements.

Variations include distance to port, distance to domestic buyers, area cropped and livestock mix will impact economics of storage and risk of quality downgrades, experience of labour, agreements with local contractors, scale of operation and weather conditions etcetera.

The investment in a new harvester is significant and can cost up to $80 000pa in fixed costs.

By comparison, operating costs are relatively minor on new equipment.

Often a new purchase cannot be justified for smaller cropping programs or a farm that has expanded the crop area but not by enough to justify purchasing another harvester or seeder.

Other options are available, such as buying second hand, buying a chaser bin, equipment hire, share-farming, contracting or if larger machinery is purchased, then contracting it out, each of these options has its particular advantages and costs.

Purchasing a new harvester is not the only way to invest in harvesting capacity nor is it the only investment consideration at harvest.

Other investment decisions that may be considered at harvest include investment in chaff carts or seed destructors, haulage trucks, chaser bins, field bins, silos, sheds, sausage bags, labour etcetera.

refer to accessible excel document
Figure 4 Contract versus owned harvest costs by hectares harvested (assuming 12ha/hr)

Another issue at harvest is the consequence of bottlenecks in the regional supply chain, particularly in seasons with above average yields.

When regional grain production is very large, contractor harvesters, rental equipment and transport trucks can be in short supply and the turnaround time at the grain bins is often significantly longer.

If it appears the season will result in delays in turnaround time and there is a risk of an adverse weather event and possible downgrade, it is recommended growers consider investing in additional on-farm storage.

Similar to the supplementary contracting scenario, a downgrade in quality can cost a lot more than the investment in additional storage such as silos, sausage bags or sheds.

In summary, when considering machinery options, growers should not only consider the capital cost of the equipment but also consider their seasons, the risk of delays to seeding, spraying or harvest and the associated penalties and then assess the overall financial impact of each machinery option.

In general, be aware of the often high fixed costs of buying a new machine, match it with the ability of the farm enterprise to absorb this overhead and also consider the opportunity cost of alternative uses of the capital.