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Report Summary:
Economic Setting:
Small profit margins are forcing
farmers to re-examine their assumptions about cropping agronomy, harvesting and post
harvesting handling. Although the value of collecting chaff and weed seeds is proven, the
additional equipment and operating costs in the past have been the limiting factors in the
implementation of chaff collection systems.
Increasing equipment and crop input costs, together with years of low grain prices have
forced farms to increase in scale to survive. Only the largest farmers in the range of
2,000 to 3,000 acres are able to purchase a new combine harvester. However, 80 percent of
producers still manage farming operations of less than 2,000 acres.
Re-engineering:
While harvesting machinery may change,
the basic processes that comprise crop harvesting remain the same. It is how these
operations are organized that determines the economics of different harvesting machinery
systems.
Unlike the combine harvester that merges reaping, threshing and winnowing functions
into a single piece of equipment, the McLeod Harvest system employs two pieces of
equipment to perform the functions of harvesting. The McLeod field unit completes reaping
and threshing processes, while the winnowing process is carried out at a stationary mill.
Grain, chaff, weed seeds and other material (collectively known as graff) are collected by
the field unit and transported by truck to a winnowing mill that is located near the grain
bins. Straw is spread back onto the field or deposited in rows for subsequent bailing.
The winnowing mill cleans the grain, which is then put into storage or shipped to
market. Chaff, crushed weed seeds and small kernels of grain (collectively known as
millings) are piled separately and used as a source of livestock feed. The simple
reorganization of these harvesting functions has a profound impact on the economics of
grain farming.
Financial Analysis:
The economic assessment utilizes a
benefit-cost (B/C) approach. A 15-year investment lifetime is used to determine the merits
of investing in the McLeod Harvest versus the combine. The average price of a new combine
is $216,000 compared to $192,000 for the McLeod Harvest system. Operating costs of the
McLeod Harvest system are lower by $14.78/hour.
The economics of crop production are sensitive to acreage size, yield and the price of
grain. At wheat yields of 40 bushels per acre and a farm price of $4.30 per bushel, the
B/C analysis is calculated for farm sizes ranging from 200 to 3,000 acres. (The
reliability of these estimates diminishes at farm sizes greater than 1,500 acres). The net
present value (NPV) measures the return on investment in addition to the desired rate of
interest (5 percent real rate of interest is assumed). Alternatively, the implied interest
rate can be calculated as an internal rate of return (IRR).
The internal rate of return and net present value of the McLeod Harvest are greater
than the combine for all farm sizes under consideration. A farm as small as 500 acres
could afford to purchase the McLeod Harvest at these prices, while even an operation of
2,000 acres would lose money on the investment in a traditional combine harvester.
Activity Based Costing:
In total, the McLeod Harvest can
increase a farmer’s profit margin by $36.59/acre. This profit is influenced by
reduced input costs (namely herbicides) and supplementary revenues from cleaned grain and
salvaged crop residue. Collected chaff has the value of medium to high quality hay when
utilized as cattle feed. An average chaff yield is estimated at 525 lbs./acre. Using
recent average hay prices, the value of chaff used for feed is $17.38/acre.
The McLeod Harvest system is designed to capture all grain, chaff, weed seeds and crop
residue particles. Stationary machinery cleans grain more efficiently and reduces grain
loss. The difference in grain loss between the combine and the McLeod Harvest system is
worth $2.54/acre. The splitting of operations increases the cleaning efficiency of the
McLeod Harvest system, which adds further economic value. Producing grain cleaned to
export quality standards is worth an additional $0.67/acre.
The physical collection of weed seeds improves short term and long term weed
management. Less herbicide and tillage is required to control grasses and volunteer crops.
Chaff collection also limits the spread of weeds. As a result, significant savings can be
obtained by precision application of patch sprays. An estimate of the agronomic savings of
improved weed management in the McLeod Harvest system is $16.00/acre.
Conclusions:
Changes in input costs and technological
improvements alter the economics of competing grain harvesting systems. This study
concludes that the economics of the new McLeod Harvest system are superior to the
incumbent combine harvesting system.
Farmers who adopt the McLeod Harvest can increase their profit margins by $36/acre.
This is based on an analysis of wheat, but appears to apply to most grain and oilseed
crops. In addition, the McLeod Harvest machinery has lower capital and operating costs
than conventional combine harvesters. The analysis suggests that the McLeod Harvest could
be the most important innovation to prairie agriculture since the breeding of canola.
Manitoba Hydro and the Electric Power Research Institute/U.S. Agriculture Technology
Alliance have also provided in-kind and monetary support for this project.
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