How are Agri-Contractors making money?

sob1467 · 01-07-2021 1:15pm #1

This is something I have often wondered and from watching too many agri contracting units on Youtube. How do these guys, especially the ones with the newer kits make money?

Our own contractors have just bought two new tractors, so have 2x 2021, 1x 2019 and 1x 2018. This is in addition to a harvester and a machine for loading the silage in the pit.

This is the kit they had:
2x 2021 tractors (€100k each) €200k
1x 2019 tractor €70k
1x 2018 tractor €75k
1x 2014 Class Harvester €120k
1x 2015 Volvo L70H €80k

3x Silage wagons (€25k each) €75k
1x Kuhn Buterfly Mower €20k
1x Fendt Slicer Front Mower €25k

That machinery in itself is around €665k. (Some of the above are estimates though)

Add to that finance costs for the new tractors, maintenance, insurance be very difficult to make money unless doing a hell of a lot of work, and get paid for it...

Not to mention wages, if you have a crew of six you are paying wages to five. Say they are working 12 hour days at a tenner, that would be €600 a day on wages alone.

A silage outfit with four tractor trailer, a mower a rake and a harvester could easily drink 2,750 litres per day.

I know agri-contractors work all year around and their machinery can be used for other purposes away from say May till October, but sometimes do struggle to comprehend how they make money.

Eireog1 · 01-07-2021 1:21pm

Easy answer they dont its a mugs game. You will notice most of them dont last that long

Henry... · 01-07-2021 1:26pm

Eireog1 wrote: »

Easy answer they dont its a mugs game. You will notice most of them dont last that long

Is that true

I assumed they were cleaning up

I don't know anything about farming though

krissovo · 01-07-2021 1:28pm

My contractor & neighbor has his own dairy operation and contracts on the side to keep his machines productive as possible. While heavily focused on silage he will support other contractors for other operations so his machines are well utilized. He upgrades one machine and tractor every year.

For him contracting just ensures that he has own machines and gets first choice when to use, I don't think he makes much profit from contracting.

01-07-2021 1:33pm

Why has he (or she!) a harvester and silage wagons?

I dunno how/why they stay going,its a thankless job,many find difficult to get paid at.....if they tied up that amount of money in any other enterprise/assets (except farmland),they would be able to take a wage & retirement alot easier out of it

_Brian · 01-07-2021 1:33pm

Father and son team do ours.
They only do a few clients where they know they get paid on time.

He said he really just does enough to cover the costs of his own silage at home.

_Brian · 01-07-2021 1:36pm

I saw a post from an accountant here maybe later year using a McHale Baler as an example.
Seemed that due to its retained value and cost of finance, depreciation etc that trading up to new kit regular enough was a sensible financial move, newer kit with smaller repayments.

Eireog1 · 01-07-2021 1:37pm

Henry... wrote: »

Is that true

I assumed they were cleaning up

I don't know anything about farming though

Based on the above example.

Wages Before Tax & Prsi 3600 per Week Approximately 1000 between Tax & Employer PRSI USC etc.

Fuel Average cost per litre 65C inc Vat so call it 53 cent exclude vat at 2750 litres a day that 8745 a week on fuel.

Maintenace cost: most of those would be under warranty still so call it €250 a week.

Finance Cost/Depreciation €1500 per Week

Insurance Cost ? I couldnt even hasard a guess between Employer Insurance Public Liability and Motor Insurance Would 200 a week cover it?

So you need to turnover €15200 per week just to break even.

Definitely not loaded.

Then you have to factor in not getting paid. I definitely thinks its only a fools game

Henry... · 01-07-2021 1:43pm

Eireog1 wrote: »

Based on the above example.

Wages Before Tax & Prsi 3600 per Week Approximately 1000 between Tax & Employer PRSI USC etc.

Fuel Average cost per litre 65C inc Vat so call it 53 cent exclude vat at 2750 litres a day that 8745 a week on fuel.

Maintenace cost: most of those would be under warranty still so call it €250 a week.

Finance Cost/Depreciation €1500 per Week

Insurance Cost ? I couldnt even hasard a guess between Employer Insurance Public Liability and Motor Insurance Would 200 a week cover it?

So you need to turnover €15200 per week just to break even.

Definitely not loaded.

Then you have to factor in not getting paid. I definitely thinks its only a fools game

All I know about farming is the smart money seems to be in buying land

Could be wrong there too

148multi · 01-07-2021 1:50pm

sob1467 wrote: »

This is something I have often wondered and from watching too many agri contracting units on Youtube. How do these guys, especially the ones with the newer kits make money?

Our own contractors have just bought two new tractors, so have 2x 2021, 1x 2019 and 1x 2018. This is in addition to a harvester and a machine for loading the silage in the pit.

This is the kit they had:
2x 2021 tractors (€100k each) €200k
1x 2019 tractor €70k
1x 2018 tractor €75k
1x 2014 Class Harvester €120k
1x 2015 Volvo L70H €80k

3x Silage wagons (€25k each) €75k
1x Kuhn Buterfly Mower €20k
1x Fendt Slicer Front Mower €25k

That machinery in itself is around €665k. (Some of the above are estimates though)

Add to that finance costs for the new tractors, maintenance, insurance be very difficult to make money unless doing a hell of a lot of work, and get paid for it...

Not to mention wages, if you have a crew of six you are paying wages to five. Say they are working 12 hour days at a tenner, that would be €600 a day on wages alone.

A silage outfit with four tractor trailer, a mower a rake and a harvester could easily drink 2,750 litres per day.

I know agri-contractors work all year around and their machinery can be used for other purposes away from say May till October, but sometimes do struggle to comprehend how they make money.

That's 5 tractors and a loader + other machinery in 6 years, did he trade anything in, and what sort of value.

Eireog1 · 01-07-2021 1:52pm

Henry... wrote: »

All I know about farming is the smart money seems to be in buying land

Could be wrong there too

Yes and no. Buying land is smart if its a long term investment. You can sign up for a long term lease tax free and hope for some capital appreciation.

To make money of farm land that you buy is alot more difficult if you are actually farming it.

Dairy farming can sustain repaying for land/machinery but only if prices are maintained at current levels.

sob1467 · 01-07-2021 2:02pm

Deleted User wrote: »

Why has he (or she!) a harvester and silage wagons?

A Class harvester to pick up the grass and to throw it into the wagons, for them to haul the silage back to the pit.

Eireog1 wrote: »

Based on the above example.

Wages Before Tax & Prsi 3600 per Week Approximately 1000 between Tax & Employer PRSI USC etc.

Fuel Average cost per litre 65C inc Vat so call it 53 cent exclude vat at 2750 litres a day that 8745 a week on fuel.

Maintenace cost: most of those would be under warranty still so call it €250 a week.

Finance Cost/Depreciation €1500 per Week

Insurance Cost ? I couldnt even hasard a guess between Employer Insurance Public Liability and Motor Insurance Would 200 a week cover it?

So you need to turnover €15200 per week just to break even.

Definitely not loaded.

Then you have to factor in not getting paid. I definitely thinks its only a fools game

Yeah agree with your figures there, 650k depreciated over say eight years would be around €1,500 a week.

I would also add finance costs to the calculaion, you wouldn'have over half a million of shiny stuff sitting in your yard without a decent monthly amount going to some sort of financial institution. Very difficult to quantify how much that would be though.

I think cashflow must be the biggest problem for these kind of guys, say cut silage today, may not be paid until October. All the while even during the winter months the finance repayments would have to be paid monthly.

But assume for a second that the €15,200 is a lower estimate of the revenue required just to cover the wages, depreciation, maintenance, insurance, and not including finance costs.

The FCI suggested contracting charges for 2021 is €125/acre into the pit. So you would need to put an average of 120 acres in every day of the year just to break even, and that makes little sense when you can only put silage in about five months of the year.

sob1467 · 01-07-2021 2:06pm

148multi wrote: »

That's 5 tractors and a loader + other machinery in 6 years, did he trade anything in, and what sort of value.

Ya in fairness, there was a good few machines traded in, but the machines traded were a good bit older, maybe 1x 2008, 1x 2009, 2x 2014s. The harvester was bought in maybe two years ago, and a 2007 model would have been replaced.

All in all though, a pretty big step up this year. Very rough estimate but would think the trade ins would have been in a region of maybe €200-250k. Some had loans against them still though when sold, so can't really be seen as a straight cash injection neither.

148multi · 01-07-2021 2:15pm

sob1467 wrote: »

Ya in fairness, there was a good few machines traded in, but the machines traded were a good bit older, maybe 1x 2008, 1x 2009, 2x 2014s. The harvester was bought in maybe two years ago, and a 2007 model would have been replaced.

All in all though, a pretty big step up this year. Very rough estimate but would think the trade ins would have been in a region of maybe €200-250k. Some had loans against them still though when sold, so can't really be seen as a straight cash injection neither.

Aren't some tractor garages selling at 0% finance

sob1467 · 01-07-2021 2:21pm

148multi wrote: »

Aren't some tractor garages selling at 0% finance

Just looked online, yeah they seem to be very close to zero or zero across a feew manufacturers.

Regardless though the capital still has to be paid off with or wihout the interest.

Grueller · 01-07-2021 2:25pm

sob1467 wrote: »

Just looked online, yeah they seem to be very close to zero or zero across a feew manufacturers.

Regardless though the capital still has to be paid off with or wihout the interest.

They are leases that are rarely bought out. Basically hiring machines.

Too_Old_Boots · 01-07-2021 2:33pm

Easier to buy new gear than second hand as with new all you are doing is signing on the bottom line and away you go. As long as you make the payments the finance co. don't give a fiddlers what you want it for.

Pinsnbushings · 01-07-2021 2:50pm

Too_Old_Boots wrote: »

Easier to buy new gear than second hand as with new all you are doing is signing on the bottom line and away you go. As long as you make the payments the finance co. don't give a fiddlers what you want it for.

Was going to post something similar, new machinery wouldn't be a sign of wealth in my view. Still need to make the repayments though and over a long number of years you need good cash flow.

K.G. · 01-07-2021 3:13pm

Its like farming in general,some guys are making money ,some arent.if you can stand back and look at a guys system and say thats where hes getting his efficiency and his margin then he ll do alright but if it looks like he just wants to work then he probaly isnt.the guys that make the most are generally 1 or 2 men operations where they are working 50 weeks in the year and the guys with the smallest margin are the guys with alot of work being done with hired help.a couple lads around here would make more out of buying and selling the tractors in the off season than the contracting-the contracting only sells the tractors for them

_Brian · 01-07-2021 4:41pm

Was told last week there’s a contractor operating in Cavan area doing silage with self propelled and fleet is all rented in. Everything gps controlled, if he misses a payment they can shut them down remotely.

Is this a thing ??

I’d never heard of lads operating like this.

GrasstoMilk · 01-07-2021 4:44pm

sob1467 wrote: »

Ya in fairness, there was a good few machines traded in, but the machines traded were a good bit older, maybe 1x 2008, 1x 2009, 2x 2014s. The harvester was bought in maybe two years ago, and a 2007 model would have been replaced.

All in all though, a pretty big step up this year. Very rough estimate but would think the trade ins would have been in a region of maybe €200-250k. Some had loans against them still though when sold, so can't really be seen as a straight cash injection neither.

How do you know what money was owed on the tractors?
My contractor grows and sells 100 ac of maize every year
He's making a nice touch at it
Has great gear and I have to go asking him what we owe him

epfff · 01-07-2021 5:49pm

My baler man calls xmass week the last 25 years or so and his first line is always 'if you are anyway tight on money I don't mind waiting until April i have a repayment then'
I have never took him up on offer but I know of friends who have.

He has the best of gear and keeps it new gives a great service never working after dark.

01-07-2021 5:51pm

_Brian wrote: »

Was told last week there’s a contractor operating in Cavan area doing silage with self propelled and fleet is all rented in. Everything gps controlled, if he misses a payment they can shut them down remotely.

Is this a thing ??

I’d never heard of lads operating like this.

the remote shut down is deffo a thing

Hagimalone · 01-07-2021 6:03pm

sob1467 wrote:

The FCI suggested contracting charges for 2021 is â‚¬125/acre into the pit. So you would need to put an average of 120 acres in every day of the year just to break even, and that makes little sense when you can only put silage in about five months of the year.

sob1467 wrote:

But assume for a second that the â‚¬15,200 is a lower estimate of the revenue required just to cover the wages, depreciation, maintenance, insurance, and not including finance costs.

sob1467 wrote:

The FCI suggested contracting charges for 2021 is â‚¬125/acre into the pit. So you would need to put an average of 120 acres in every day of the year just to break even, and that makes little sense when you can only put silage in about five months of the year.

My calculations is average outgoing per week is â‚¬15000
Income is approx based on 80 acres per day, â‚¬120 per ac 6 day week.
(80x120x6)=â‚¬57600.
57600-15000=42600
A good week could bring in
120x120x7=100800-16800=â‚¬84k
Not too bad, l know it's a short season, but there must be money to be made.
Am l missing something?

Mooooo · 01-07-2021 6:05pm

A lot of lads are linking up to spread the cost of equipment. Slurry lads here do a share of mowing, hauling and pushing up with a big self propelled outfit. Spent 26k on contractors last year, between pit, bales, slurry, reseeding etc. plenty farms around here would have similar bills, I hope!
Between it all if they didn't make something its unlikely many would keep going.
Machinery and depreciation can be odd also. Some can hold value well at trade in time depending on how things are going at the time.

Henry... · 01-07-2021 6:20pm

_Brian wrote: »

Was told last week there’s a contractor operating in Cavan area doing silage with self propelled and fleet is all rented in. Everything gps controlled, if he misses a payment they can shut them down remotely.

Is this a thing ??

I’d never heard of lads operating like this.

Hmm lol

trabpc · 01-07-2021 6:33pm

epfff wrote: »

My baler man calls xmass week the last 25 years or so and his first line is always 'if you are anyway tight on money I don't mind waiting until April i have a repayment then'
I have never took him up on offer but I know of friends who have.

He has the best of gear and keeps it new gives a great service never working after dark.

Does he always have to call for the money. Would you call to him after job done to pay instead...

Bass Reeves · 01-07-2021 6:45pm

trabpc wrote: »

Does he always have to call for the money. Would you call to him after job done to pay instead...

Every other business invoices you so why can he not. Gave up chasing contractors as it's a pain in the hole.

They must be rolling in it. Lad started doing it 3 years ago. He just dose baling, he has two tractors around 2010 vintage, baler he bought new two years ago. He has a rake and a 10' conditioner mower that goes on the back.

Up until this year when he be finished he be onto you within 48 hours for payment. This year over a month has passed and he still not looking for his money so he must be rolling in it

trabpc · 01-07-2021 6:49pm

Bass Reeves wrote: »

Every other business invoices you so why can he not. Gave up chasing contractors as it's a pain in the hole.

They must be rolling in it. Lad started doing it 3 years ago. He just dose baling, he has two tractors around 2010 vintage, baler he bought new two years ago. He has a rake and a 10' conditioner mower that goes on the back.

Up until this year when he be finished he be onto you within 48 hours for payment. This year over a month has passed and he still not looking for his money so he must be rolling in it

Suppose that's other side of it. lad that bales here usually invoices if i ask in leaving field so cheque usually given same time. But yea have had experience of chasing lads too. So can understand both sides of argument

Limestone Cowboy · 01-07-2021 7:01pm

Have thought about going at it loads of times but I can't make the figures stack up. Maybe if you were established with a good few years and were just trading up machines it would be justifiable but very hard starting out from scratch. Spent a good few years working for a local contractor and I really liked it and still get drafted in for a week or two when the pressure is on. For a fairly small bailing outfit that you wouldn't be afraid to face out with I reckon you'd want 120k to get up and running with freshish second hand gear and probably be lucky to do 3k bales the first year and maybe the second year as well. You'd really want to love it wouldn't you.

Fils · 01-07-2021 7:07pm

Hagimalone wrote: »

My calculations is average outgoing per week is €15000
Income is approx based on 80 acres per day, €120 per ac 6 day week.
(80x120x6)=€57600.
57600-15000=42600
A good week could bring in
120x120x7=100800-16800=€84k
Not too bad, l know it's a short season, but there must be money to be made.
Am l missing something?

A cheque going out the door is a guarantee to keep those figures in check. I know for a fact that some contractors should be getting prepaid or paid per bale as it’s a thankless exercise chasing it.

How are Agri-Contractors making money?

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