custom work can be profitable for your dairy farm! penn state is committed to affirmative action,...
TRANSCRIPT
Custom Work Can Be Profitable For Your Dairy Farm!
Penn State is committed to affirmative action, equal opportunity, and the diversity of its workforce
Sarah Roth and Jeffrey HydeDept. of Agricultural Economics and Rural Sociology
Penn State University
Presentation Overview
• What is Custom Work?• What Are the Advantages?• What Are the Disadvantages?• Does it Make Sense For You?• Where Can You Find Custom Workers?• What Else Should You Know?• Should You Do Custom Work?
What is Custom Work?
When a person/business outside of the farm operation is hired to perform one
or more activities necessary for the function of the farm as a whole.
What is Custom Work?
Think of it as
“Out-sourcing”
What is Custom Work?
Examples related to Animals
•Heifer raising•Dry/transition cow housing & mgmt.•Hoof trimming•Artificial insemination•Heat Detection•Mating/genetics
What is Custom Work?
Examples Related to Crops
•Tillage & cultivating•Planting/drilling•Spraying/fertilization•Harvesting•Wrapping round bales•Filling ag bags•Grinding & shredding•TMR/feed sales
What is Custom Work?
Miscellaneous Examples
•Brush hogging•Fencing•Hauling•Manure pumping & hauling•Skid Loading•Motor repair•Sharpening
What Are the Advantages?
• Free up management & labor for
remaining enterprises
• Concentrate efforts in fewer enterprises
- Specialization
• Obtain higher quality product
• Cut input and/or production costs
What Are the Disadvantages?
• Different type of control over tasks
• Tasks may not be completed on the
same time-table
• Must be able to cash flow for payments
Does it Make Sense For You?
To determine if hiring custom work will be profitable, you can use
tools such as:
• Enterprise accounting• Partial Budgeting
Does it Make Sense For You?
Partial Budgeting Worksheet
Let’s work through an example partial budgeting problem to analyze the decision to have
heifers custom raised.
Does it Make Sense For You?
Partial Budgeting Worksheet
Objective
Farmer is comparing the positive and negative impacts
of raising one heifer on the farm versus having that heifer
raised by a custom grower.
Does it Make Sense For You?
Partial Budgeting Worksheet
Positive Impacts
Added returns: having heifers custom raised does not increase revenues.
Does it Make Sense For You?
Partial Budgeting Worksheet
Positive Impacts
Reduced costs: Look at the costs that are reduced when the farmer doesn’t raise his own heifers.
Does it Make Sense For You?
Partial Budgeting Worksheet
Reduced Operating Costs
Cost Amount
Feed $703.07
Labor $160.00
AI Breeding $45.00
Bedding $20.00
Vet & Med $15.00
Total $943.07
Does it Make Sense For You?
Partial Budgeting Worksheet
Reduced Ownership Costs
Cost Amount
Buildings $60.02
Equipment $63.88
Total $123.90
Does it Make Sense For You?
Partial Budgeting Worksheet
Reduced Animal Ownership CostsCost Amount
Mortality $1.25
Miscellaneous $40.00
Interest $74.69
Total $115.94
Does it Make Sense For You?
Partial Budgeting Worksheet
Total Reduced CostsCost Amount
Operating $943.07
Ownership $123.90
Animal
Ownership
$115.94
Total $1182.91
Does it Make Sense For You?
Partial Budgeting Worksheet
Negative Impacts
Reduced Returns: Having heifers custom raised does not reduce the farm’s revenues.
Does it Make Sense For You?
Partial Budgeting Worksheet
Negative Impacts
Increased Costs: Look at how much the grower will charge for the services.
Does it Make Sense For You?
Partial Budgeting Worksheet
Total Added CostsCost Amount
Grower’s fee $985.50
Refund for calf death $1.00
Transport to grower $10.00
Transport to dairy $20.00
Interest $71.16
Total $1087.66
Does it Make Sense For You?
Partial Budgeting Worksheet
Net Effect
Impact Amount
Reduced Costs $1182.91
Added Costs $1087.66
Net Reduced Costs $95.25
Does it Make Sense For You?
Partial Budgeting WorksheetNet Effect
Each heifer raised by the custom grower increases farm profit by $95.25
For 75 heifers, this amounts to $7143.75
Does it Make Sense For You?
Partial Budgeting Worksheet
Other considerations
Value of additional time
Health of animals
Biosecurity
Increased/decreased production
Where Can You Find Custom Workers?
You can find information about custom workers in your area from
these sources:
• Extension • Input Suppliers• Business Consultants• The Internet
What Else Should You Know?
Learn more about the individual or business you are interested in hiring!
Ask for a few clients to contact as references
Talk with the operator’s suppliers
What Else Should You Know?
Be sure that the contract is advantageous to you!
John Becker lays out some questions to consider when developing a contract:
What Else Should You Know?
Do both parties clearly understand the
obligations of the contract?
What Else Should You Know?
Does the contract account for the possibility that something may
arise to prohibit the supplier from
providing service in a timely manner?
What Else Should You Know?
What are allowable excuses for failure
to perform the custom services?
What Else Should You Know?
Can either party transfer their rights
and obligations under the contract?
What Else Should You Know?
Who provides insurance against damages or losses
that may occur while the contract is
in effect?
What Else Should You Know?
Have the important dates and times
been clearly spelled out in the contract?
What Else Should You Know?
Are there any implied or expressed warranties or
guarantees in the contract?
What Else Should You Know?
Does the contract specify how
disputes between the buyer and seller are to be handled?
Should You Do Custom Work?
Relevant question for:
1. Those interested in expanding their operations,
2. Those with excess machinery capacity (combines, planters, etc.), or
3. Those looking to exit production but wanting to remain in the dairy industry.
Should You Do Custom Work?
Advantages:• Good way to
supplement income• Make more efficient
use of owned equipment
Should You Do Custom Work?
Disadvantages:• May spread yourself
thin (not enough time)
• Essentially working for someone else
Summary
Custom hiring is an opportunity,
however not a necessity
Analyze the situation to make sure that
a change will be profitable
Every option has their respective
advantages and disadvantages…know
what they are