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Find the sweet spot

Quiz time: What is it worth to keep that $500,000 tool working when it can be used only 30 to 40 days in a year? More than a few farmers have pondered that as they watched the rain. At seeding, and at harvest, it is an understatement to say than an hour of field time is precious to a Prairie grain farm.


February 25, 2010
By John Dietz
sweet  
 Finding the right match between equipment capacity and land base is the sweet spot. Photo by Bruce Barker.


 

Quiz time: What is it worth to keep that $500,000 tool working when it can be used only 30 to 40 days in a year? More than a few farmers have pondered that as they watched the rain. At seeding, and at harvest, it is an understatement to say than an hour of field time is precious to a Prairie grain farm.

Producers can do a rough calculation for the value of that missed prime-time hour, says Dick Schoney, University of Saskatchewan agricultural economist, from Saskatoon. “If my machine does 50 acres an hour and if I lose five bushels an acre due to delay, then five times 50 equals 250 bushels each hour, times whatever the price is. That gets really high in a hurry,” Schoney says. “So I’ve identified a bottleneck. What do I do then?”

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The traditional answer, for the past 30 years, is to ‘stretch’ the hours by hiring some help or just working longer hours. And new technology is making more hours available. Autosteer makes it possible for the system to keep going; a 22-hour day does not wear out that system.

High capacity drying equipment is expensive up front, but it is possible to add hours at each end of the harvest day if it is available. “The ability to work around the clock now changes things enormously,” Schoney says. “My own observation is that farmers undervalue or are not willing to pay enough for good labour. Top farm managers in Saskatchewan are paying on the order of $20 an hour now. They’ve got to, because of the oil patch option.”

Sharp farm managers can hire helpers at well below the oil patch rate (about $30 an hour) with a number of incentives. The big incentive is guaranteed hours. Others include a lower cost of living, lower taxes, nearby friends and family, and work they can enjoy doing. “In the short run, labour is always critical. Look at that rig out there. It’s a half million dollars. You’ve got to keep that thing working. You’re trying to make sure you can stay in the sweet spot,” he says.

The ‘sweet spot’
The “sweet spot” is that place where things match up to produce maximum efficiency: capacity of the machinery, number of acres to farm, the prime windows for maximum yield potential at seeding and harvesting, and the supply of labour.

However, Schoney says, that raises another issue. Most growing farms reach a place where the best way to get maximum efficiency off that $500,000 system is to get off the tractor or combine, and let someone else operate it. “The big question is, do I want to get paid as a manager or as a labourer? That’s the heart of it,” he says. “My own definition of running an effective farm is that at some point you have to step off the tractor and become a manager.”

A manager needs specialized support. A manager puts all the resources together. A manager manages the workers, the landlords, the creditors and the suppliers. When the farm gets large enough, like it or not, there has to be a qualitative change in management, he says.

Lumpy growth
Like the value of an hour at seeding time, the location of that first “sweet spot” has changed with the years. Schoney and students have an old Corn Belt model for calculating the value of an hour lost at prime seeding time. Twenty years ago, it was more than $1000 an hour on an efficient Midwest farm. Machinery and farm sizes grew. Prairie farms simplified operations by going to direct seeding. Transport changed. Markets changed.

Today’s updated model links the idea of the sweet spot with the fact of machinery purchases that are few but very large. Schoney calls it the “economics of lumpiness;” machinery comes in expensive “lumps” rather than “bite-size” improvements.

The farm machinery shed does not have 20 or 50 pieces of field iron that can be upgraded in increments; it has one 4WD tractor, an air seeding system, high clearance sprayer, a truck and a combine. The few items must be top-notch, ready-to-work and reliable, because time is so valuable during the window of opportunity to seed or harvest. “To maintain cost efficiency, farmers must reach an economic sweet spot toward the bottom of their average total cost curve,” he says. The system cost is only efficient if it is spread over the maximum acres that it can handle in a season.

When a manager expands the farm, to stay or get into the sweet spot, they need to jump (with a change of equipment or land base) to the next sweet spot. “They risk becoming cost-inefficient and endangering their competitive position, if they miss the spot,” he says.
That sweet spot in Saskatchewan for a single family grain farm with modern equipment is around 5000 acres. Given the capabilities of autosteer and direct seeding, and the variability of weather, that base calculates as being sweet and sustainable.

Below that level, some aspect of the operation is under-utilized. More than that level, some aspect will not reach its potential.

Each subsequent sweet spot where things run efficiently requires another system for seeding and harvesting. The jumps across the pond, calculated by Schoney and students, are about 5000 acres in size.

Referring to finding that sweet spot on a rainy day, Schoney concludes, “Buying more machinery may not be the answer. The question is, how do I work around that issue without making the next jump?”