Transcript Key Questions About Farm Machinery --Chapter 22

Key Questions About Farm
Machinery --Chapter 22
1. What are the alternatives for acquiring machinery
2. What are the advantages of new versus used?
3. What factors influence the best size of machinery?
Machinery Costs per Acre (Iowa Farm Business Association)
$100
$90
$80
$70
Interest
$60
Depreciation
$50
Hire
$40
Repairs
Fuel & lube
$30
$20
$10
$< 320 a.
320-479 a.
480-719 a.
720-1299 a.
1300 + a.
Machinery Costs per Acre
High 1/3 Mid 1/3
Total cost / acre $89
Investment /acre $289
$100
$294
Low 1/3
$106
$346
Acquiring Farm Machinery
Ownership
Rental (short-term)
Leasing
Rollover
Custom Hire
Joint Ownership
Trade Labor
Advantages of Owning
More control over use
More convenient
Less expensive for high use or long
life machines
Tax benefits from depreciation and
interest
Build up equity value
Short-Term Rental
Pay only for time
machine is actually
used
Pay by the hour or day
No investment
Cheaper for low use or
specialized machines
Long Term Leasing
Make annual lease payments
(20-25% of new price)
First payment when lease begins
Leases usually run 3-5 years
Option to purchase at end of lease
Operator pays for repairs, insurance, etc.
Example on page 433
Leasing Machinery
Advantages
Lower initial investment
Can trade frequently
Payments usually lower
than loan payments
Know machine before
purchasing
Payments tax deductible
Disadvantages
More expensive if
you plan to own it
Do not build equity
Locked into lease
period
No tax depreciation
deduction
Advantages of Custom Hire
No long term investment
No repairs or maintenance
Cheaper for low use items
Get operator labor
Pay only for acres actually
farmed
Own vs. Custom Hire
$ per acre
$90
$80
$70
Own
$60
Custom Hire
$50
$40
$30
$20
$10
$300
400
500
600
700
800
900 1000 1100 1200 1300 1400 1500 1600 1700 1800 2000
Acres per year
Rollover Purchase
New machine is purchased , usually by
company credit plan
Used one season, then traded for a new
model
Difference paid depends on hours of use
on old unit
Joint Machinery
Ownership
Spread ownership costs over more acres
Increase labor supply
Owner/operators can specialize
Less investment for each owner
Must be able to schedule use
Must adjust costs if use is not proportional to
ownership
Some farmers form machinery co-ops.
Trade Labor for Machinery
No investment or debt
No cash costs
Use excess labor
Takes about 5-8 acres
of labor to equal the
value of one acre of
machinery use
Used Machinery
Lower investment
and ownership costs
Higher repair costs
Lower reliability
Must trade more
often
Requires more
mechanical skills
Machinery Costs Decrease
$35,000
Repairs
Fuel & lube
Interest
Deprec.
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Age
Figure 1. Annual costs for a 180-hp tractor
Machinery Capacity
Small machinery causes timeliness losses
Large machinery has excess ownership
costs
Bottleneck is suitable field days
Least-cost machinery set can complete:
tillage and planting in 20-25 days
harvesting in 25-30 days
Least-cost Machinery Set
Machinery cost per acre
$160
$140
$120
Total costs
$100
$80
$60
Timeliness costs
Minimum
cost
point
Ownership costs
$40
Operating costs
$20
Labor costs
$0
Machinery size
Least-cost size
Figure 1. Effect of increasing machinery size on machinery costs
% of maximum
yield
100%
Effect of planting date on corn yields
90%
80%
70%
60%
Source: ISU Extension publication PM 1885
% of maximum
yield
95%
85%
75%
65%
55%
45%
35%
25%
Effect of planting date on soybean yields
Northern Iowa
Central Iowa
Source: ISU Extension publication PM 1851 .
1-Jul
24-Jun
17-Jun
10-Jun
3-Jun
27-May
20-May
Southern Iowa
23
-J
un
16
-J
un
9Ju
n
2Ju
n
26
-M
ay
19
-M
ay
12
-M
ay
5M
ay
28
-A
pr
50%
Some days you just can’t farm!
Machinery Capacity
(Acres covered per hour)
Acres per hour =
width (ft.) x speed x field efficiency %
8.25
Field efficiency allows for time to turn around,
make adjustments, and overlap.
30-ft. field cultivator x 5 mph x 85% = 15 a/hr
8.25
Matching Tractor and Implement
Horsepower needed depends on:
Width of implement
Draft requirement—pounds of force)
Type of soil (firm or tilled)
Speed
HP = width x speed x draft x soil factor
375
Example: Chisel Plow
Width: 20 feet
Draft: 500 lb/foot
Soil factor (corn stalks): 1.5
Speed: 5 mph
HP = 20 ft . X 500 lb/ft x 5 mph x 1.5 / 375
= 200 hp
When to Trade Machinery
Repair costs are high
Machine is unreliable
Machine is obsolete
Need more capacity
Cash flow is favorable
Need tax deductions