The inconvenient truth is that farmers are to blame for the current equipment environment; just as ordinary people are to blame for continuing inflation in Canada. Farmers can take a large part of the responsibility for rising equipment costs across all areas of the industry. When equipment manufacturers are sold out years in advance, why would we ever see a price decline? The sooner we quit buying, the sooner we will see some form of relief. Interest rates don’t seem to be the answer at this point.
After spending the week discussing machinery optimization and utilization with attendees of Farmer Coach, I have come to one conclusion – the answer is not more machinery.
In fact, in many instances, this can be the root of the problem. Most operations today are gaining more acres per unit machinery, or more acres per foot of machinery, through logistics and process, not through equipment purchases. For an accountant, this is music to my ears.
After watching the industry continually increase capital investment in equipment over the last decade, I believe that we are seeing an adaptation of producers. Whether it be younger farms using technology to gain advantages, or older farms finally fed up with the rising cost of implements, I do believe that there is some hope that the industry is changing.
Don’t get me wrong, I am not naïve. We had manufacturers in the room as well that can attest that machinery is sold out before it hits the lot for the foreseeable future. However, the majority of the discussion went towards what producers are doing outside of capital. How they are looking at cost savings through internal changes.
At Hebert Grain Ventures we have been focusing on this aspect of business for a few years now. Once the pandemic hit and we saw what happened to supply chains in all areas of the industry, it became one of our key risk areas. In fact, I would say that on most farms the biggest risks today are humans, logistics, and government (hard not to include this one based on the current environment). Drought is not the risk I heard over the sessions as most farms have made strong insurance and risk mitigation strategies, the real risks are those that we cannot control as producers.
So, what is logistics?
For HGV it was how to handle putting multiple seeding implements in the same vicinity. When we started the large growth years, we made many mistakes (we just don’t like to share them as much!). One of the largest was putting implements in different fields across the farm. It was not that we wanted all the machines in one field for fun, it was that from a logistics standpoint it was a nightmare to service four drills in four different areas. This was our first big step towards logistical optimization.
Placing drills in close proximity, in many instances the same field, allowed the logistics crew to have a central base and then keep things flowing to that same location. When you go through a full Novid tank of fertilizer per day, you need some efficiency in place to keep everything full and moving.
The second area that was highlighted was the use of spray trailers. Many already jumped on the capital bandwagon of 1600 gallon tanks and 120 to 132ft booms (these were the easy solutions to more acres). The actual largest advantage most farms were seeing was how quickly they could fill the sprayer and not how fast the sprayer could get it on the crop. In fact, much of the discussion went towards spray fill times which if I remember correctly had the lowest time of around five minutes.
Being on a farm before HGV that took close to 30 minutes to fill, I can see the advantages of logistics here. This key here is not necessarily travel, but a focus on boosting the efficiency of equipment on the spray trailer itself. From hot fills to Phiber (Dash) discussions, to getting large volumes of water, to actually taking the trailer to the sprayer and not vice versa, there were many different processes that farms are utilizing, In fact, the actual size of the sprayer was not the determining factor in the benchmark of how many acres per unit or acres per foot guys were achieving.
Lastly, moving into harvest, the discussion then became grain carts, dryers, and number of optimal combines for the acres. I like to always remind people that the most important asset at harvest time is most likely the 16” auger, without it, it doesn’t matter how many combines you have (it will always be the bottleneck if broken). One of my business partners Jeff always says that “an X9 and a 9500 do the same number of acres when they are not moving”. In the end, the discussion went away from acres per unit combine and more towards how many grain carts or semis are optimal for the logistics around grain movement from the field. Also, bags versus bins, and what efficiencies producers were getting out of dryers. This all ties back to logistics and away from the old adage of more machinery, more efficiency.
As with all of our courses, one of the main discussions on farms is the human component. Labour is hard to find, good labour is almost impossible. So, this I believe is why the industry repeatedly sells out manufacturer orders on drills, combines, and sprayers. With a lack of people farms are relying on bigger implements to boost efficiencies. This issue with that is, overpaying a good employee or headhunting from other industries, has a much higher return on investment than any piece of machinery I have seen. In fact, until the last few years of inflation, a depreciating asset was the LAST thing I wanted on farms today.
When I started working with farmers, I can always remember a few moments where I was proud of the things that “we” were accomplishing together. Probably the best moment of the last couple weeks was the discussions of farms on hiring since the last coaching sessions we had. I would say between 35 and 50% of the farms had already picked up employees and were starting to delegate and leverage a large number of responsibilities downward. In terms of efficiency and utilization, this may be the largest dividends these farms will see. The payments on new combines are much larger than a key employee, and we only use a drill for around 20 days a year and a combine for 40. We can use humans all year round. This is something many farms are realizing at a rate faster than I even assumed.
We all know that ag technology is here to stay (or at least you know this now). Even items such as sectional control and variable rate that took decades to be adopted, are now starting to be at the forefront. Show me a new tractor today that you can buy that does not have GPS or is at least GPS compatible. I still remember the days that people would fight me on GPS in the swather saying it was stupid and not going to help efficiency at all.
So, how are farms using technology to gain efficiency?
First and foremost, they are seeing the value of data. I was actually surprised at the number of farms that could tell me transport, idle, and working times on their machinery. In fact, one farm had used these in their multiple units to gauge performance of their operators and make changes when they believed they were inefficient in one unit or another. I had assumed that only a small select number of farms such as HGV were using data in this way, I was wrong. Even though the number was not large, many producers have already reached out to me to see how they could implement this process into their farm moving forward.
The second area for technology is around self-guidance and driving. I know from trials how our farm values technologies in implements for self-driving (especially on combines). But now, I am seeing the industry buy into these technologies. Whether it be self-driving combines or even tracking drill speeds and as applied data, these types of efficiencies are gaining steam. When a machine can outdrive a manual operator by 20% optimization, this changes the game in terms of acres per unit and cost per acre of equipment.
And finally, the area where I see the most improvement of technology on utilization is in terms of humans and communication. We implemented Voxer (a communication app) on the farm a long time ago and it allows our management to identify what is going on for each employee the night before. This avoids the long morning coffee break in the shop determining what to do. If you want quick math, 1 hour per day X 20 working days per month X 12 months X 10 Full time employees = 2,400 hours. We can eliminate one entire human just by using this one communication tool. This is where I see technology being the most efficient.
In the end some farms will always be okay with iron. Each farm has its own definition of success, how hard they want to work, and what equipment they want plastic on the seats. However, if you are at all worried about tightening margins, or inflated equipment costs, I would look outside of the capital investment and towards logistics, humans, and technology to gain efficiencies moving forward. The cost per acre is much more manageable and the results are much more quantifiable. Iron disease is a real thing, don’t get sick.