Sprayer Economics. No-till Oklahoma. Rodney Jones, Ph.D. OSU NW Area Economist Garfield County Producer and Sprayer Owner

Transcription

1 Sprayer Economics Rodney Jones, Ph.D. OSU NW Area Economist Garfield County Producer and Sprayer Owner

2 Economic Decisions Purchase or hire spraying services How many additional toys Guidance, Section control, etc.

3 Purchase Decision You have decided you are going to spray, question is how Custom Assume you have alternatives who can do the job in a quality and timely fashion, question is cost Own New vs used Pull type vs self propelled Brand, size, etc.

4 Sprayer Salesperson Economics Can he/she make the payments Are the savings from not paying for custom application enough to cover the payments Generally their computer programs net out things like repair costs, fuel, etc. What is often forgotten is operator labor (I generally allocate about $0.40 per acre), and tendering costs(i generally allocate about $0.60 per acre) They almost always make it look better than it is, but even so, a sprayer is one of the easiest pieces of equipment to cash flow you can find

5 Full Cost Consideration Manager Economics Am I economically better off to own my own sprayer compared to the next best alternative Compare the discounted cash flows of buying a sprayer to the projected custom application costs over the same time period Include payments, repair, maint, operating costs, salvage value, possible chemical savings, etc.

6 Classic Capital Budgeting Problem This is what Undergraduate Ag Finance Classes are For Set up a timeline in a spreadsheet with all the cash flows, discount them appropriately, and look at the NPV (per acre compared to custom application costs) Would need to plug in cost of the sprayer, payment terms, depreciation assumptions, acres covered, costs, etc. Fortunately, Someone has already done the hard work for you

7 Ownsprayer available at Market price of sprayer $180,000 Section-179 deduction (max of $500,000 in 2010) $100,000 Cash downpayment $40,000 Calculated new equivalent price (NEP) $180,000 Calculated net $ amount to depreciate $80,000 No. of seasons (years) before trade (max. 20) 5 Sprayer boom width in feet 90 1st year MACRS depreciation rate 10.71% Sprayer travel speed in mph 10 2nd year MACRS depreciation rate 19.13% Calculated acres per hour at 100% efficiency rd year MACRS depreciation rate 15.03% Average expected efficiency (percent) 45.00% 4th year MACRS depreciation rate 12.25% Calculated acres per hour th year MACRS depreciation rate 12.25% Total acres sprayed annually 12,000 6th year MACRS depreciation rate 12.25% Calculated total hours accumulated annually 244 7th year MACRS depreciation rate 12.25% 8th year MACRS depreciation rate 6.13% Labor Calculated error check of depreciation rates % Total labor hours per sprayer engine hour 1.25 Calculated after-tax amortization factor Labor cost per hour $15.00 Calculated first-year after-tax discount factor Calculated labor cost per acre $0.38 Fuel and lubrication Tendering cost per hour $12.00 Sprayer fuel consumption per hour (gallons) 8 Tendering cost per acre $0.60 Average fuel price ($/gal) $3.00 Calculated total tendering cost per acre $0.84 Oil and lubrication percent of fuel cost 10% Calculated fuel and lubrication cost per hour $26.40 Calculated after-tax NPVc from TT section $59,510 Calculated fuel and lubrication cost per acre $0.54 Calculated after-tax amortized NPV from TT $13,436 Repairs and maintenance Calculated pre-tax amortized NPV from TT $19,277 Repair adjustment factor (0.8 to 1.2, usually 1) (RAF) 1.00 Prorated to opportunity interest $7,139 Repairs per hour after useful life $64.80 Prorated to market depreciation $8,006 Prorated to repairs $2,347 Tax, insurance, & shelter (TIS - % of value, decimal) 1.50% Prorated to tax, insurance, & shelter (TIS) $1,785

8 Summary results from previous example Sprayer analysis summary section Analysis highlights: Sprayer purchase price $180,000 Sprayer age when purchased 0 Hours on sprayer when purchased 0 Total acres covered per year 12,000 Hours used per year 244 Number of years sprayer is used 5 Cost breakdown (total cost can be compared to custom rates): $/year $/hour $/acre Opportunity interest $7,139 $29.21 $0.59 Market depreciation $8,006 $32.75 $0.67 Repair and maintenance $2,347 $9.60 $0.20 Labor $4,583 $18.75 $0.38 Fuel and lubrication $6,453 $26.40 $0.54 Tax, insurance, & shelter (TIS) $1,785 $7.30 $0.15 Total for sprayer only $30,314 $ $2.53 Tendering cost $10,133 $41.45 $0.84 Total for sprayer and tendering $40,447 $ $3.37 Date of analysis =====> 2/20/12

9 Additional Features Guidance type Section Control Other newer technologies

10 Considerations For guidance, cost savings come from both reduced equipment usage, and reduced overlap For section control it is all about reduced overlap Not factored in, reduced operator fatigue, and other harder to quantify potential benefits

11 Economic Savings If you can reduce the number of acres your sprayer has to run over by a few percentage points (2 to 5 percent) by using auto steer effectively, there are some cost savings (just calculate the acres times $3 or $4 per acre) Bigger savings come from reduced overlap (if your average product cost is $15.00 per acre and you reduce overlap by 2 to 5 percent, it adds up very quickly)

12 Example from our own farm Two otherwise identical sprayers, 90 ft booms. 1 with 5 section shut off, 1 with 10 section shut off Very nice large square fields, not many obstacles. Average 2% more area covered with 5 section machine 2% times 10,000 acres times $15 = $3, per year Section control valves cost about $ each

13 Guidancesectioncontrolcalculator Available at Economic Analysis of Guidance Systems and Section Controls Section A: Whole-farm information -- INPUTS Size of typical field acres 80 Maximum width of field, perpendicular to direction of swaths (passes) feet 1,500 Running distance of headlands to cover for field feet 6,000 Calculated average angle of approach to headland in degrees (0-90) degrees 30.0 Interest rate for investment analysis, percent interest 6.00% Number of years for amortization years 5 Annual non-ownership costs for current technology (e.g., subscriptions, fees, support) $/farm $0 Annual non-ownership costs for new technology (e.g., subscriptions, fees, support) $/farm $3,000 Cost and income categories to include in net benefits total Machine costs 1 Input costs 1 Yield revenue 1 Non-ownership costs 0 Section B: Equipment-specific information -- INPUTS Farm Implement/farming operation Sprayer Planter Fertilizer Other 1 Other 2 Total/Avg Include in whole-farm analysis (1=Yes, 0=No) Number of swaths (passes) needed to cover headlands count Width of machine feet Turnaround speed is this portion of field speed percent 67% 75% 67% 50% 50% 69% Area in headlands acres Number of machine or boom sections to be controlled count Reaction distance (overlap) on manual shutoff of boom feet Custom rate of machine operation, $/ application acre $4.50 $15.00 $7.50 $6.00 $6.00 $7.80 Cost of input (fertilizer, herbicide, etc.), $/application acre $15.00 $60.00 $35.00 $15.00 $15.00 $32.00 Lost yield revenue for doubling up, $/doubled-up acre $0.00 $50.00 $0.00 $0.00 $0.00 $10.00 Current overlap to consider percent 7.00% 2.00% 4.00% 7.00% 7.00% 4.80% Expected overlap to consider percent 1.50% 0.00% 1.50% 2.00% 1.50% 1.20% Total acres of use annually acres 10,000 5,000 10,000 7,500 10,000 25,000 Expected autoguidance investment autoguidance dollars $15,000 $7,500 $7,500 $5,000 $15,000 $30,000 boom section/control dollars $10,000 $20,000 $10,000 $10,000 $10,000 $40,000 autoguidance, $/acre $1.50 $1.50 $0.75 $0.67 $1.50 $1.20 boom/section control, $/acre $1.00 $4.00 $1.00 $1.33 $1.00 $1.60

14 Summary results from previous example Analysis of Precision Ag Technologies for Sprayer vs. Applied Acres Acres applied annually (average field size = 80 acres) 8,000 9,000 10,000 11,000 12,000 Guidance system (going from 7.00% to 1.50% overlap) Sum of net annual benefits, $/applied acre $0.95 $0.95 $0.95 $0.95 $0.95 Payback for given investment, years Sum of annual net benefits including cost of investment, $/applied acre $0.51 $0.55 $0.59 $0.63 $0.65 ROI given benefits, years, and investment, % 41.9% 49.3% 56.6% 63.8% 70.8% Section control (controlling 90' implement in 5 sections) Sum of net annual benefits, $/applied acre $1.04 $1.04 $1.04 $1.04 $1.04 Payback for given investment, years Sum of annual net benefits including cost of investment, $/applied acre $0.75 $0.78 $0.81 $0.83 $0.85 ROI given benefits, years, and investment, % 78.9% 90.1% 101.2% 112.1% 122.9% Guidance system and Section control ROI, % 57.1% 66.1% 74.9% 83.5% 92.0%

15 Plant and No-till Soil Sciences Oklahoma Extension Questions????