For my study project, I chose to look at calculating the financial implications of making the capital purchase of buying a liquid manure spreading tank.

The purpose of my analysis was to compare our current practice of hiring a custom operator to haul the dairy’s liquid manure versus purchasing our own tanker and spreading it ourselves.

Finding the current cost of liquid manure handling was easy, as our farm accounting software has an account dedicated to it. In 2011, the dairy spent $39,500 to spread approximately 2.6 million gallons.

Calculating the cost of spreading it ourselves was quite a bit more tedious. It included amortizing the purchase of equipment and finding the operating costs.

First of all, I had to decide on what kind of spreading system to implement. Since not all of our land is accessible by dragline, our dairy would have to invest in a liquid tanker in order to be able to apply to all the fields.

Our largest tractor is the 140 PTO horsepower John Deere 7630, equipped with an implement brake port. After consulting with equipment manufacturers, I decided that our preferred option is a 6,200 Canadian-gallon tri-axle tanker.

The cost of the tanker, pump and fill-pipe added up to a realistic fair-market cost of $87,500.

To find the annual operating cost, I calculated the cost for labour, fuel and maintenance on the tractor, maintenance on the tanker and pump and the total annual bank payments, assuming that the purchase would be 100 percent financed for eight years at 4 percent interest. (See Table 1.)

After adding up all of the annual cash costs of operating our own tanker, the total comes to about $28,825, a far cry from the $39,500 we currently pay our custom hauler.

But wait, it’s not actually that simple. In Table 2, I examine the effect of income tax on this scenario. Our farm’s income tax rate for 2011 was 15.5 percent.

Since hiring a custom operator is a business expense, it is 100 percent deductible. I figured 15.5 percent of $39,500 is $6,122 in tax savings.

When subtracted from the total, it brings the actual cost of hiring a custom operator down to $33,378.

When hauling our own manure, labour, maintenance and interest are deductible expenses.

We can also add in an average annual depreciation value of $8,870, which brings total deductible expenses for hauling our own manure to be $26,760. This leaves a tax savings of $4,150. For a total annual cost of $24,677.

Long story short, hauling our own manure would save our farm a total of $8,700 per year. So did we go out and buy a tank? Not yet, since many other factors come into play too.

We currently use a dragline to spread manure on our land right beside the barn. Therefore, we only need to ask for the tankers to be used on the more distant fields, which require road travel, when field conditions are adequate.

We are continuing to weigh some hard-to-calculate factors, such as: What is the cost of soil compaction in the spring if we had to use our own tanker all the time?

What happens if you’re too busy hauling manure and catch a sick cow half a day or day late? Losing one or two cows can quickly add up to thousands of dollars in losses. Adding up all the potential costs makes us weary of entering into this venture at the current time.

Also, presently we are very happy with the quality and timeliness of the service we get from the custom operator.

Of course, knowing the accurate costs of hauling our own manure will help us make an intelligent decision if we ever have to re-evaluate our situation again.

For this sample calculation I used numbers specific to our dairy and current business structure, and therefore the results may only be accurate for us. I encourage everyone to use figures that are realistic for their farm and circumstances. Good luck and happy figuring!  PD

Stefan Weber was a participant of the second annual Progressive Dairy Operators and Grand Valley Fortifiers Business Management Workshop Series. He was awarded first place for his final presentation on “Comparison of Custom Manure Spreading vs. Doing it Yourself.”

• Stefan Weber
• Dairy producer
• Scenic Holsteins Ltd.