November - December 2000
Every three years the Department of Agricultural Economics conducts a survey of custom rates being charged in Missouri for a range of agricultural activities. The most common custom rate for combining reported in 1997 was in the $20 to $22 per acre range. Initial responses to the 2000 Missouri Custom Rate survey indicate that this has not changed.
Usually soon after the release of these survey results in MU Guidesheet #302, we begin receiving phone calls from farmers who want to know how anyone can afford to run a combine for the low rates reported in the guide. These callers have been approached about combining a neighbor's field. Their point of initial negotiation is this guide, but they realize quickly that their costs may be as much as $5?$10 per acre higher than the reported rates. A likely explanation for the lower custom rates is that custom harvesters are able to spread their fixed costs (the combine) over more acres.
This raises the question of whether a farmer would be financially better off owning a combine and harvesting his own crops or hiring a custom harvester. Dividing the total cost per year for owning and operating a combine by the number of acres to be harvested will give a number for comparison to a common custom rate charge per acre. However, there are other considerations beyond this simple cost comparison which are discussed near the end of this article.
Doane's Agricultural Report recently published a summary of an analysis by Bill Lazarus, Associate Professor in the Department of Applied Economics at the University of Minnesota, reporting the ownership costs of different pieces of farm machinery. This report contained information on annual and per acre costs for owning and operating various types of harvesting equipment.
Table 1 shows the total cost per acre for harvesting with various types equipment as reported in the Doane's Report. Total costs per year include interest payments (for purchase of combine and other related expenditures), depreciation, insurance, taxes, fuel, maintenance, repair, and labor. Figures in the final column of Table 1 can be compared with a typical custom rate to determine whether it is more profitable to own a combine or pay a custom harvester. If a typical custom rate is $20 per acre, then any value in the last column of Table 1 above this level would suggest that a producer might be better off hiring a custom harvester.
Table 2 provides a comparison of possible total annual combine ownership and operating costs with custom rate charges for harvesting at various acreage levels. For example, if annual costs were estimated at $24,000 for owning and operating a combine, a farmer would need to harvest approximately 1200 acres to justify the cost of owning a combine rather than hiring a custom operator at $20 per acre.
What about non?accounting financial factors? Important considerations not included in the simple cost comparison described above would be the availability of custom harvesters in an area, timing of the custom harvester to get the crop out, and potential poor quality of work during harvest (amount of grain/oilseed left on the ground). Some farmers who use custom harvesters offer incentives for getting the crop out prior to a specified date and for achieving a certain efficiency level. These financial incentives increase the cost of hiring a custom harvester and would lower the number of acres a producer would need to harvest to justify owning a combine.
Some producers purchase older combines that are initially cheaper but may incur additional annual repair costs. Each producer's situation will be different.
Over-capitalization can reduce profitability and not owing debt on a combine can have a profound affect on the balance sheet.
Opportunity costs of custom harvesting must be weighed against the convenience of owning and operating a combine. The decisions made by individual farmers will vary.
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Table 1
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Estimated Combine Ownership and Operating Costs*
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| Type of Equipment |
Size
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Acres harvested per year
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Total cost per acre | |
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| Combine with small grain head, 20 ft. |
220 hp
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1,358
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$14.97
|
|
| Combine with small grain head, 30 ft. |
275 hp
|
2,036
|
$11.74
|
|
| Soybean combine with head, 15 ft. |
220 hp
|
891
|
$23.36
|
|
| Soybean combine with head, 18 ft. |
275 hp
|
1,069
|
$21.97
|
|
| Soybean combine with head, 25 ft. |
275 hp
|
1,485
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$16.07
|
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| Corn combine with head 4-36, 12 ft. |
190 hp
|
672
|
$30.70
|
|
| Corn combine with head 4-30, 10 ft. |
190 hp
|
560
|
$37.03
|
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| Corn combine with head 6-30, 15 ft. |
220 hp
|
840
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$26.57
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| Corn combine with head 8-30, 20 ft. |
220 hp
|
1,018
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$22.80
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| Corn combine with head 12-30, 30 ft. |
275 hp
|
1,527
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$18.33
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| *As reported in Doane's Agricultural Report, August 25, 2000. | ||||
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Table 2
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Comparison of Harvesting Costs with Owned Combine
Versus
Custom Harvesting at Different Acreage Levels |
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Owned Combine |
Custom Rate Per Acre for Harvesting | ||||||||
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$18
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$19
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$20
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$21
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$22
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$23
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$24
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$25
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$26
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Number of harvested acres needed for custom rate
to equal self-harvest
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$23,000
|
1278
|
1211
|
1150
|
1095
|
1045
|
1000
|
958
|
920
|
885
|
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$25,000
|
1389
|
1316
|
1250
|
1190
|
1136
|
1087
|
1042
|
1000
|
962
|
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$27,000
|
1500
|
1421
|
1350
|
1286
|
1227
|
1174
|
1125
|
1080
|
1038
|
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$29,000
|
1611
|
1526
|
1450
|
1381
|
1318
|
1261
|
1208
|
1160
|
1115
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