Custom Baling versus Buying a Used Round Baler
A one-person hay and beef operation harvests 85 acres of grass-legume hay in two cuttings, putting up about 700 4x5 round bales per year for a 60-cow herd and some sales. The owner also works off-farm three days a week and currently hires a custom operator who charges $14 per bale including hauling from the field. Last June the custom operator, busy with four other customers, arrived four days after the intended window; 120 bales were rained on and dropped two quality grades, and the owner had to buy 30 tons of replacement hay at $240 per ton. A dealer has offered a used round baler for $19,500 with an estimated 12,000 bales of remaining life, or a new baler for $42,000. The owner's tractor is adequate. Estimated ownership costs are repairs $2,300 per year, twine $1.05 per bale, extra fuel $1.60 per bale, housing and insurance $600 per year, and about 45 additional hours of the owner's labor per season.
1. Compare the annual cost of custom work with owning the used baler, and state clearly what the comparison does and does not capture.
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Custom: 700 bales x $14 = $9,800 per year, with no capital and no labor commitment from the owner.
Ownership of the used baler:
- Depreciation: $19,500 / (12,000 bales / 700 per year = 17.1 years) = about $1,140 per year
- Repairs: $2,300
- Twine: 700 x $1.05 = $735
- Extra fuel: 700 x $1.60 = $1,120
- Housing and insurance: $600
- Owner labor: 45 hr x $18 opportunity cost = $810 Total: about $6,705 per year.
On paper, owning saves roughly $3,100 per year and pays back the purchase in about six years. What the comparison does not capture: timeliness, breakdown risk, and the value of the owner's scarce June hours. A baler sitting in the shed does not bale anything if it breaks during a three-day window and there is no backup, and the owner is at work three days a week exactly when hay needs to come off. It also assumes a steady 700 bales per year; if the herd shrinks, the fixed cost per bale rises fast.
2. Given the off-farm job and last June's timeliness failure, what do you recommend, and what conditions would change your answer?
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The economics favor ownership, but the binding constraint here is labor and timing, not cost. The right move is to solve the timing problem first and then decide on iron.
Recommendation: negotiate a written custom agreement with a guaranteed priority window, a defined late-arrival penalty, and a named backup operator. If the custom operator will accept that, the $3,100 premium is cheap insurance and the capital stays free. If not, buy the used baler but only after a mechanical inspection (belts, bearings, chains, monitor, knotter/twine system) and line up a neighbor or hired operator for the days the owner is at work. Budget the helper at roughly 60 hours x $18 = $1,080, which brings ownership to about $7,785, still below $9,800, and it solves the scheduling problem the machine alone does not solve.
What would change the answer:
- Herd dropping below about 40 cows, cutting bales and raising fixed cost per bale.
- An inspection turning up major repairs, pushing annual repair above about $4,000.
- A custom operator willing to guarantee the window at up to about $19 per bale; at that rate custom is $13,300, and the timing guarantee is worth more than the ownership savings.
3. Calculate the cost of last June's timeliness failure and explain how that number should enter the decision.
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The direct cost is the replacement hay: 30 tons x $240 = $7,200. There is also a quality cost that does not show up on an invoice. The 120 rain-damaged bales, at roughly 850 lb each, are about 51 tons that were still fed but at lower feed value, which shows up later as more supplement purchased or poorer body condition through winter.
Using the decision: a single $7,200 event in one season is not an annual cost, but it is a real probability. If a late arrival of that severity has even a 40-50% chance in a given June, the expected annual cost is $2,900-$3,600, which by itself nearly closes the $3,100 gap between custom work and ownership. That reframes the comparison: ownership is not merely about saving money on baling, it is about buying control of a window that has already cost the operation once.
Two cautions. First, ownership does not eliminate the risk, it converts it into breakdown risk, which must be managed with maintenance, spare parts, and a backup plan. Second, do not double-count: if the custom operator will contract a guaranteed window, the expected cost of the failure falls and the case for buying weakens.