Cost of Producing Tart Cherries in Northwestern Michigan (E1108)

Cost of Producing Tart Cherries in Northwestern Michigan (E1108)

This cost evaluation of tart cherry production in northwestern Michigan is a projection of costs developed through focus group discussions with cherry growers from Antrim, Leelanau and Grand traverse counties.

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Cost of Producing Tart Cherries in Northwestern Michigan

This cost evaluation of tart cherry production in northwestern Michigan is a projection of costs developed through focus group discussions with cherry growers from Antrim, Leelanau and Grand traverse counties. In the discussions, growers described growing and harvesting practices of representative cherry growers in the area. They also agreed on the size of cherry acreage, the equipment and the cultural practices generally used by a grower.

These figures cannot necessarily reflect the average cost of tart cherry production for each grower in the state. Costs vary considerably by area and from farm to farm.

The data can provide an outline to help you develop cost information and better evaluate your farm situation. Each of the appropriate table in this report includes a “Your Farm” column for you to note your costs for a particular operation. Where costs cannot be determined, you may wish to adjust and substitute the study data.

The assembled data assume that equipment and labor are available for a hypothetical farm of 200 acres of diversified tree fruit, including 100 acres of 10 acres of tart cherries, however, to make it easier for you to visualize many of the resource inputs.

Labor Costs

The full-time labor classification includes the working time of the operator and regular hired help devoted to cherries. Operator labor is not considered a cash expense. But to allow for differences in the proportion of work performed by regular hired help or by the operator, both have been included as cash expenses. As a result, producers who do a major portion of the work may have a lower cash labor cost than the figures indicate.

Several rates were combined to determine a 23 percent labor fringe, i.e. 7.65 percent for FICA, 8 percent for workers compensation and 7.35 percent for a combination of housing, health insurance, unemployment, retirement plans, etc.

Equipment Costs

Major factors considered in the computation of equipment costs are depreciation (based on years of life and annual usage), initial cost, salvage value, years of life, annual usage, repair costs, insurance, interest and operating expenses such as fuel and oil. The operating costs per hour, based on direct use of equipment, are given in Table 1, pages 4-5.

Variable Costs

Variable costs are those that change directly with increases decreases in the acreage of tart cherries. Examples of such costs are spray material, fertilizer, hired labor and machinery operating costs.

Variable costs incurred in cherry production are categorized by labor, machinery and materials in Table 1. Included is a breakdown of hours for labor and machinery by operation as well as cost of materials. If your costs are substantially higher than those shown, analyze those components closely to see if you can reduce them. A high cost for a particular component may be justified if it contributes to sufficiently higher yield or improved quality.

Costs incurred in harvesting an acre with 7,000 lbs. of cherries are shown in Table 2. The influenc3e of yield on harvest costs is shown in Table 3. Harvest costs per acre are adjusted down at low yield to reflect greater harvest speed when handling less fruit and are adjusted higher at high yields. The costs include machinery depreciation, repairs, operating costs and labor. At 7,000 pounds per acre, harvest, handling, and assessment costs were 8.3 cents per pound.

Overhead Costs

The overhead or fixed costs of cherry production (Table 4) include interest on orchard investment, orchard depreciation and taxes. The details of orchard establishment costs are shown in Tables 6 and 7.

Fixed costs on machinery, including depreciation, interest on investment, insurance and housing, are included with variable costs in the equipment section of Table 1. Interest on land and growing and establishment costs were charged at 6.5 percent. Fixed costs vary more from farm to farm than do the variable costs shown in Table 1. Such costs are for land acquisition and orchard establishment. If a grower establishes an orchard, current establishment costs illustrated in Tables 7 and 8 are more appropriate to use.

You should evaluate your farm situation and decide whether to consider fixed costs as part of the total cost for decision-making purposes. For example, orchard overhead is a fixed cost if you own the orchard outright but a variable cost if you rent.

Production Costs

Yield per acre is very important in determining production costs per pound (Table 6). In computing per pound costs, it was assumed that pre-harvest costs per acre, such as spraying, pruning, cultivating, etc., do not vary greatly, regardless of the yield. Harvest rates were adjusted based on yield in Table 3.

Overhead costs for interest on orchard value and depreciation will vary considerably from farm to farm, depending on when the orchard was planted. These costs include an estimated 2002 establishment costs, so they may overstate actual costs on currently producing orchards. You are encouraged to substitute your land and orchard acquisition or establishment costs in these tables.

Trickle irrigation costs were not included in this analysis. Initial investment in such a system would cost $500 to $700 per acre.

Establishment Costs for a New Orchard

All pre-productive establishment costs incurred in years 1-5, including interest, are capitalized in one establishment cost. Individual cost. Individual cash costs will vary widely, depending on the site preparation and the cultural practices needed to establish the orchard. This example does not include the cost of trickle irrigation, which is expensive but should obtain higher economic yields from trees at an earlier age.

The first column of Table 8 summarizes the costs per year shown in Table 7. In the second column, an interest charge of 6.5 percent is calculated on one-half of the current year’s growing cost and on the prior years’ accumulated cost. The third column shows the interest charge of 6.5% on the land investment of $5,000 per acre. In Table 4, the final accumulated cost of year 5 is used to calculate the operating year’s depreciation of the established cost. If you purchase an orchard, substitute the purchase cost for the establishment cost.

Marketable Yield

In situations where a portion of the crop is abandoned or not harvested for diversion purposes, it is best to calculate costs per pound on the product that was marketed.

 

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