BALING
TOT UP COST OF WRAPPING &
BALING
Most people accept that
grazing is the cheapest way
to feed grass to livestock,
but how much more does
silage really cost? Tom
Chapman, Farm Business
Adviser with chartered
accountants Grant Thornton
shows how to calculate the
costs of the baling and
wrapping operations.
THE first task is to calculate the fixed costs incurred annually by each machine (table 1). Depreciation is the fall in value of the machine, from its purchase price to its expected sale price some years in the future. Although the exact sale price cannot be forecast, using a depreciation rate of 18% per year tends to give fairly realistic results.
Interest is calculated at a typical rate on the average amount of capital tied up in the machine (even if you do not have to borrow the money to purchase the machine), whilst insurance costs in the example have been estimated at between £6 and £15 per £1000 new price, depending on the implement. Adding spares and repairs, which have been estimated to average 5% of the new price over the five year life of each machine, gives the total annual fixed costs for each item used.
Work rate
The next items of information needed are the work rate and the total hours worked each season (table 2). The work rate may be in acres per hour or, in this case bales per hour
The hours worked allows us to calculate the total annual operating costs (table 3):
Adding the annual fixed costs to the annual operating costs gives the total annual cost and, because we know how many bales are being produced each year, we can allocate this cost on a per bale basis (table 4):
The example above is based on producing a large number of bales each season, typical of a contractor in an intensive livestock area. However, many farmers would prefer to own their own machinery and carry out the operation themselves. In such circumstances, the bale throughput is likely to be much lower, pushing up the cost per bale. The important question is what is the minimum number of bales required to keep the cost below a typical contracting charge of £5.50 per bale?
Using the example above, the fixed costs vary relatively little regardless of how many bales are
Most people accept that
grazing is the cheapest way
to feed grass to livestock,
but how much more does
silage really cost? Tom
Chapman, Farm Business
Adviser with chartered
accountants Grant Thornton
shows how to calculate the
costs of the baling and
wrapping operations.
THE first task is to calculate the fixed costs incurred annually by each machine (table 1). Depreciation is the fall in value of the machine, from its purchase price to its expected sale price some years in the future. Although the exact sale price cannot be forecast, using a depreciation rate of 18% per year tends to give fairly realistic results.
Interest is calculated at a typical rate on the average amount of capital tied up in the machine (even if you do not have to borrow the money to purchase the machine), whilst insurance costs in the example have been estimated at between £6 and £15 per £1000 new price, depending on the implement. Adding spares and repairs, which have been estimated to average 5% of the new price over the five year life of each machine, gives the total annual fixed costs for each item used.
Work rate
The next items of information needed are the work rate and the total hours worked each season (table 2). The work rate may be in acres per hour or, in this case bales per hour
The hours worked allows us to calculate the total annual operating costs (table 3):
Adding the annual fixed costs to the annual operating costs gives the total annual cost and, because we know how many bales are being produced each year, we can allocate this cost on a per bale basis (table 4):
The example above is based on producing a large number of bales each season, typical of a contractor in an intensive livestock area. However, many farmers would prefer to own their own machinery and carry out the operation themselves. In such circumstances, the bale throughput is likely to be much lower, pushing up the cost per bale. The important question is what is the minimum number of bales required to keep the cost below a typical contracting charge of £5.50 per bale?
Using the example above, the fixed costs vary relatively little regardless of how many bales are produced. Therefore as the bale numbers decrease the cost per bale increases. However, operating costs are directly linked to bale throughput; produce no bales and there are no operating costs and vice versa.
By allowing for these variables, we need to produce a minimum number of 6800 bales each year for the cost to be £5.50 per bale.
However, there are other factors to consider. For example, the tractors used in the bale wrapping operation may also be used for other purposes. Therefore it is necessary to work out what proportion of the total annual tractor hours is spent on the baling and wrapping operation.
For example, on a typical stock farm, 85% of the tractors time may be spent on other operations, meaning they only spend approximately 15% each on the baling and wrapping operations in a year. Therefore, only 15% of the fixed costs of the tractor should be allocated to these operations, which reduces them as follows:
The much lower levels of fixed costs allocated to the operations means that fewer bales need to be produced to match the contractors cost of £5.50 per bale. In the example above, only 2420 bales need to be produced each year for it to be financially viable to own a baler and wrapper (Table 6).
It is important to remember that there are other considerations, the most important being the availability of labour. When using contractors you are effectively buying in additional employees as needed and this is becoming increasingly important as farms reduce the permanent labour force to the minimum.
Alternatively, many farms will still be able to use their own labour. It is likely that the business would have to pay the employees regardless of whether they were involved in the silage making. In this situation it may be more accurate to exclude labour costs when calculating operating costs, as the labour is a fixed overhead of the business. However, additional overtime should be included in the calculation as an additional cost incurred during the silage making process. *
Table 1
Tractor & Baler Tractor & Wrapper Total
(£) (£) (£) (£) (£)
Purchase price after discount 35,000 12,900 25,000 7,000
Selling price after 5 years 12,976 4,783 9,268 2,595
Average value 23,988 8,841 17,134 4,798
Annual costs
Interest @ 8% p.a. 1,919 707 1,371 384
Average depreciation 4,405 1,623 3,146 881
Insurance 525 77 375 16
Spares & repairs @ 5% 1,750 645 1,250 350
Annual Fixed Costs 8,599 3,053 6,142 1,630 19,424
Table 2
Baling Wrapping
Average Workrate (bales per hour) 50 45
Hours worked per annum 500 556
Total bales per annum 25,000 25,000
Tractor & Baler Tractor & Wrapper Total
(£) (£) (£) (£) (£)
Purchase price after discount 35,000 12,900 25,000 7,000
Selling price after 5 years 12,976 4,783 9,268 2,595
Average value 23,988 8,841 17,134 4,798
Annual costs
Interest @ 8% p.a. 1,919 707 1,371 384
Average depreciation 4,405 1,623 3,146 881
Insurance 525 77 375 16
Spares & repairs @ 5% 1,750 645 1,250 350
Annual Fixed Costs 8,599 3,053 6,142 1,630 19,424
Table 3
Tractor & Baler Tractor & Wrapper Total
(£) (£) (£) (£) (£)
Operating costs per hour
Labour 8.00 – 8.00
Fuel 2.50 – 2.50
Twine & wrap – 40. 00 – 63.00
10.50 40.00 10.50 63.00
Annual operating costs 5,250 20,000 5,833 35,000 66,083
Table 4
Tractor & Baler Tractor & Wrapper Total
(£) (£) (£) (£) (£)
Annual operating cost 5,250 20,000 5,833 35,000
Annual fixed costs 8,599 3,053 6,142 1,630
Total annual costs 13,849 23,053 11,975 36,630 85,508
Total cost per bale 0.55 0.92 0.48 1.47 3.42
Bale wrapping and bale making. Knowing the true costs involved will help contractors pitch their prices into the profit zone.
Table 5
Tractor & Baler Tractor & Wrapper Total
(£) (£) (£) (£) (£)
Allocated annual fixed costs 1290 3053 921 1630 6894
Table 6
Tractor & Baler Tractor & Wrapper Total
(£) (£) (£) (£) (£)
Allocated annual fixed costs 1,290 3,053 921 1,630
Annual operating costs 505 1,936 565 3,388
Total annual cost 1,798 4,989 1,486 5,018 13,292
Cost per bale 0.74 2.06 0.61 2.07 5.48