Freeze 2012: Under what circumstances would it be profitable to harvest tart cherries?

Tart cherry growers should analyze the most profitable strategy for each orchard situation to determine if the crop is worth harvesting or not.

Editor’s note: This article has been updated on June 18, 2012. Some of the values in the tables and worksheets in the chemical section have been changed.

The frost damage in 2012 will result in extremely low tart cherry yields that most growers have not experienced since 2002. Some growers with portions of blocks with a partial fruit crop are thinking under what circumstances it would be advantageous to harvest. The standard rule is “harvest only if the added returns from harvesting exceed the relevant additional costs associated with harvesting.”

The sooner a decision is made on whether or not to harvest, the greater the potential savings. This analysis was assembled to help growers analyze the most profitable strategy for each orchard situation. Given the lack of uniformity of freeze impacts across blocks, we have organized the discussion on a per tree basis instead of per block basis.

Our discussion is organized by:

  • What are the added gross returns per tree under alternative expected price-recoverable yield combinations?
  • What are the relevant added costs and what is an estimate of what they will be if harvest takes place?
  • If a farm is participating in the USDA Farm Service Agency NAP program, what is the impact of harvest versus not harvest on the expected NAP payment?
  • What is the expected net gain or loss to harvesting when the added returns, including impact on the NAP payment, are compared to the added cost if growers were to harvest?

Table 1 frames the added revenue from sales if harvest takes place. We simply calculate the expected gross revenue per tree by multiplying expected recoverable yield times expected price. While this is an obvious step, we are not used to thinking about profitability on per tree basis. Calculations are framed on a per tree basis since few blocks will be harvested in their entirety versus selected areas within blocks.

Table 1. Gross revenue per tree for alternative price-
recoverable yield combinations

Delivered price ($/lb)

Recoverable Yield (lb/tree)

5

10

15

20

25

1.30

6.50

13.00

19.50

26.00

32.50

1.20

6.00

12.00

18.00

24.00

30.00

1.10

5.50

11.00

16.50

22.00

27.50

1.00

5.00

10.00

15.00

20.00

25.00

0.90

4.50

9.00

13.50

18.00

22.50

0.80

4.00

8.00

12.00

16.00

20.00

0.70

3.50

7.00

10.50

14.00

17.50

Our next step is to review relevant added costs that will be incurred if harvest takes place and to work through an example. Use this analysis as a general guide only because costs vary from farm to farm and across harvest systems.

"Overhead" costs, including depreciation, interest, insurance, and property taxes exist whether you harvest or not. These costs are not included in our analysis.

Variable operating costs for the machinery used in harvesting are included (Table 2). This includes fuel, an added repair allocation associated with greater use and labor. In our example, we assume a double-incline shaker; growers will need to adjust their budgets for the performance rate of the shaker and system they are using and the tree load and amount of time to cover the partial blocks.

Table 2. Estimated cash and overhead cost for harvesting tart cherries
(assume 10,000 lb average yield/acre across bearing years at 120 trees/acre)


Time

Labor

Equipment

Total

Operation


Cash

Cash

Overheard

Cash

Overhead


Hrs/A

$/hour

$/hour

$/hour

$/acre

$/acre

Harvest


Double incline shaker1

1.8

$40.57

$40.34

$34.81

$145.64

$62.66

85 HP tractor/forklift

1.8

$14.09

$20.89

$10.02

$62.95

$18.03

60 HP used tractor/forklift

1.8

$14.09

$21.23

$2.06

$63.58

$3.71

Skimmer (or miscellaneous labor)

1.8

$12.25



$22.05

$0.00

Total





$294.22

$84.40

1 Assumes shaker requires one skilled, year-round worker PLUS one skilled, hourly worker

Labor should be charged at its opportunity cost or “reservation price:”

  • Labor hired for harvest that would not otherwise be employed on the farm is clearly a variable cost. That cost is straightforward.
  • Other labor will be family and full-time employees. These hours are likely to be priced on “need to make” at least this much per hour to be worth expending the time.
  • For our example, Table 2, we charged time at loaded rates of $14/hour for temporary skilled and $26.50/ hour for year around skilled based on the MSU 2010 Tart Cherry Cost of Production study. The costs include additional payroll costs such as Social Security, workers’ compensation, unemployment and, in some instances, housing. These rates are likely too high for the current decision context.

Chemical costs, Table 3, will increase if harvest takes place.

Table 3. Chemical costs/acre: Harvest versus no harvest

Harvested Block Program


Un-harvestable Block Program

Pesticide

$ per acre

Pesticide

$ per acre

Bravo Weatherstik x 3

$51.60

Bravo Weatherstik x 4

$68.80

Pristine x 2

$67.20

Pristine x 1

$33.60

Indar x 1

$12.00

Total

$102.40

Ethrel x 1

$5.60



Imidacloprid x 2

$9.20



Guthion x 1

$12.40



Total

$158.00




Based on the following rates and prices

Pesticide

Rate

$/ac

Imidacloprid

8oz

$4.60

Pristine

12oz

$33.60

Indar

6oz

$12.00

Bravo Weatherstik

4pt

$17.20

Ethrel


$5.60

Guthion

1.lb

$19.00

Table 2 is used to estimate variable costs for harvesting. The estimated cash variable cost per acre is $294/acre in Table 2. That’s about $165/hour or $2.50/tree when there are 120 trees/acre.

These variable costs are based upon 1.8 hours/acre or just under a minute/tree with a normal yield. But, “how many minutes does it take to harvest a tree when yields are very low and the harvestable areas are spread across diverse locations?” The time to harvest a tree will probably be less than under normal yields, but will be very dependent on the locations of potentially harvestable trees within blocks. There will be fewer full tanks to drop and empty ones to pick up and less shaking due to the yield load. It’s likely that only one tractor would follow the shaker since it will take a long time to fill one tank. At 0.5 minute/tree and a 10 lb/tree yield, it would take 100 trees or 50 minutes to fill a tank. That performance rate would drop the cost to around $1.25/tree. This may be optimistic if a significant proportion of the rows have to be covered to get to the target areas.

The costs per pound for shipping, cooling pads and the tart cherry assessment must also be added. Costs for shipping and cooling will be on the order of $0.03 to $0.04/lb; assessment costs are $0.01/lb.

Table 3 provides an example of the potential additional chemical costs that will be incurred if harvest stakes place by comparing with and without harvest. All sprays that are the same are eliminated from both programs (e.g., Pro-gibb, trunk sprays, etc.) in making the comparison. The added material cost is $55.60/acre. That’s about $0.48 per tree when thinking about harvesting parts of blocks. Variable application costs differences add at least $20/acre or $0.17 to $.20/tree. That gives a total of about $0.66/tree.

The potential impact of NAP payments, for those participating in NAP, must be taken into account when calculating added returns versus added costs. The comparison is covered in Worksheet 1. Payments, for growers participating in NAP, are reduced by 20 percent when an orchard is left unharvested.

Worksheet 1. Calculation of expected NAP payments (for purposes of harvest decision only; not an official FSA calculator). Example for 10,000 lb/acre APH and 7 lb/tree on 40 trees/acre for 280 lb lb/acre expected yield.


Your Farm

A. Farm’s NAP average production history (APH)/acre: 10,000 lbs


B. Payment is based upon 50% of APH: Value A × 0.50: 5,000 lbs/acre


C. Estimated harvested yield/acre in 2012: 280 lbs/acre (We assume 1/3 of the   block, or 40 trees/acre, if harvested in our example)


D. Pound to receive NAP payment = Value B -Value C: 5,000 – 280 = 4,720 lbs/acre


E. Payment if harvested = payment rate × payment amount = ($0.2227 × 0.55) × Value C) =$0.2227 × (0.55 × 4,720) = $578.13/acre


F. Payment if not harvested = Value B × ($0.2227 × 0.55) × 0.80: = 5,000 × 0.2227 × 0.55 × 0.80 = $489.94/acre


G. Difference in NAP payment for harvest versus non-harvest = Value E - Value F: $578.13   - 489.94 = $88.19/acre or $2.20/tree harvested (assuming 40 trees/acre harvested in the example)


Worksheet 2 summarizes the calculation of added returns vs. added costs including the impact of NAP participation. For the example, we assumed an APH of 10,000 lb/acre (83 lb/tree) and a 7 lb/tree recoverable yield on 1/3 of the orchard, a $1.00/lb delivered price, and the costs developed in Tables 1 and 2.

Worksheet 2. Compare added returns versus added costs associated with the harvest decision



Per tree

Per Acre

Your farm


Added Revenue:




A.

 Added revenue from sales of recoverable yield/tree (Price × yield):





 = $1.00/lb × 7 lb/tree (40 trees/acre in example)

$7.00

$280.00


B.

Increased NAP payment from harvesting if farm participates in NAP

$2.20

$88.19


C.

 Total added revenue if participating in NAP (Value A + Value B)

$9.20

$368.10


D.

 Total added revenue if not participating in NAP (Value A)

$7.00

$280.00



Added Cost:




E.

 Variable harvest machinery and labor

$1.25

$50.00


F.

 Shipping, cooling pads, and the tart cherry assessment

$0.35

$14.00


G.

 Chemical costs

$0.66

$26.40


H.

 Total added cost

$2.26

$90.40



Net gain/loss




I.

 Total if participating in NAP (Value C - Value H)

$6.94

$277.60


J.

 Total if not participating in NAP (Value D - Value H)

$4.74

$189.60


For the example, there is a net gain for harvest. The amount of the gain depends upon whether or not the farm participated in the NAP program.

The results for a particular farm will be driven by all the variables in the analysis. Machinery and labor costs will very sensitive to how the regions with potentially recoverable yield are located in a block since a row must be completed to get to the next row and there may be multiple areas in a block.

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