LOUISVILLE, Ky. – North American farmers operate approximately $880 billion worth of equipment, and the combine, with its average price tag of a quarter million dollars, is the most expensive.
However, the issue of combine ownership is no longer a big problem for Kansas farmer David Govert. The company he founded owns 250 of them, the oldest of which have only three harvest seasons.
Govert, who farms 3,000 acres, started a company he called MachineryLink as a means of helping farmers cope with the problem of high cost combines. MachineryLink is in the business of arranging three-year combine leases with farmers across the northern Great Plains.
Each combine is traded for a new one after it finishes its third harvest season. Farmers always have access to fresh combines with new technology, and Govert is never stuck with old iron.
“Combines have become one of those issues where you really do need the biggest and latest machine to be efficient,” said Govert. “That point is obvious.”
Because of continuing rapid advancements in combine technology, he added, a farmer will fall out of the technology curve if he buys a combine and keeps it too long. When that happens, the equity in the combine goes down the drain and the machine becomes more inefficient compared to new combines on the market.
“The question is, ‘can you afford a new combine?’ It’s a very large capital expense and it’s difficult to justify because utilization is so terrible,” Govert said.
“Farming is the largest industry in North America. It is the largest factory, if you want to look at it that way. The question I pose is, how can you afford the tremendous capital outlay for a piece of equipment that sits idle 93 out of 100 days? How can you afford to run a factory that is so inefficient and still hope to be competitive on the world market? I don’t think you can do it.”
Govert made the remarks in Louisville, Kentucky, last month while addressing the International Conference on Crop Harvesting. His presentation, The Future of Crop Harvesting for the North American Farm to be Competitive, was delivered to a packed hall. It outlined the basic problem with combine ownership.
“Farming is like any factory. Higher equipment utilization creates more profit. The truly bad equipment utilization we have with the combine eats into farm profits.”
Govert said that if a producer can lower his capital outlay on the combine and still run new equipment, he can then invest that available money in areas that have more potential to generate income. Cattle, more acres and processing would be wiser investments than a combine, he added.
To deal with this challenge, Govert created the MachineryLink network. He enters into three-year agreements with individual farmers in which he guarantees delivery of a specific combine on a specific date for each of those three years.
In exchange, the farmer agrees to pay a pre-determined charge for that combine. The farmer determines the exact make and model of combine and also selects which local machinery outlet he wants to deal with.
“We believe in supporting the local rural economy as much as possible,” Govert said.
“So the farmer picks the dealer he wants. MachineryLink handles all the pricing and administration and we also pay the maintenance bills at the local dealership. This is a no-surprise lease from the farmer’s point of view. Everything is in black and white. For example, the farmer pays for the insurance on the combine while it is actually on his farm. And we’re responsible for training all of his staff who are not already experienced operators.”
Header requirements vary from one farm to the next, with the best header for each field depending on crops, terrain, growing conditions and farm size. As a result, Govert does not buy headers. Each farmer dealing with MachineryLink buys and maintains his own selection of headers.
“Transportation is the other problem with having MachineryLink own the headers,” Govert said. “Transportation is already a big factor in this business, and each header is a separate truck load. Plus, one header might serve a farmer for a dozen years or more.
On our MachineryLink program, that would be four new combines. So it makes more sense for the farmer to own the headers.”
Although the precise rate for each combine agreement varies, Govert said wheat harvest on his MachineryLink system averages between $10 and $12 per acre. Corn is usually a little higher.
While it is in the range of custom rates, he said it is considerably lower than the cost of owning a combine. Some farmers say it costs them $18 to $20 per acre to own and operate a combine.
“Their actual cost per acre is far higher than that if you’re only putting on 150 or 200 hours per year,” he said. “It’s much higher when you factor in depreciation.”
Govert said that timing is a big advantage compared to hiring a custom operator because the MachineryLink agreement guarantees an exact delivery date.
“That makes it more predictable than hiring a custom operator. The farmer picks his target date and then we allow him to move that delivery date 10 days forward or 10 days back to compensate for weather fluctuations.
“Early in the harvest season as we’re moving through the wheat belt, our rates are more time sensitive. We have a day charge factor along with an hourly rate on the separator.
“As the season progresses and we get past the September delivery dates, we drop the day charge. Once we’re past that peak in the first two weeks of September, our fleet starts freeing up so we have more combines available. That works out well because as we move into the fall and move further north, your combine hours per day are more limited.”
Although MachineryLink owns a small number of trucks, most of the transportation is handled by custom haulers. Govert says that on any given day during the peak season, he will have up to 55 trucks hauling the combines.
MachineryLink started with eight combines in 2001 and has grown to his current lineup operating in 33 states.
For more information, visit www.machinerylink.com.