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?

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$10

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< 320 a. 320-479 a. 480-719 a. 720-1299 a. 1300 + a.

Machinery Costs per Acre (Iowa Farm Business Association)

Interest

Depreciation

Hire

Repairs

Fuel & lube

Machinery Costs per Acre

High 1/3 Mid 1/3 Low 1/3

Total cost / acre $89 $100 $106

Investment /acre $289 $294 $346

Acquiring Farm Machinery

OwnershipRental (short-term)LeasingRolloverCustom HireJoint OwnershipTrade Labor

Advantages of Owning

More control over useMore convenientLess expensive for high use or

long life machinesTax benefits from depreciation

and interestBuild up equity value

Short-Term Rental

Pay only for time machine is actually used

Pay by the hour or dayNo investmentCheaper for low use or

specialized machines

Long Term Leasing

Make annual lease payments (20-25% of new price)

First payment when lease beginsLeases usually run 3-5 yearsOption to purchase at end of leaseOperator pays for repairs, insurance,

etc.Example on page 433

Leasing Machinery

DisadvantagesMore expensive if

you plan to own itDo not build equityLocked into lease

periodNo tax

depreciation deduction

AdvantagesLower initial investmentCan trade frequentlyPayments usually lower

than loan paymentsKnow machine before

purchasingPayments tax deductible

Advantages of Custom Hire

No long term investmentNo repairs or maintenanceCheaper for low use itemsGet operator laborPay only for acres actually

farmed

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300 400 500 600 700 800 900 1000 1100 1200 1300 1400 1500 1600 1700 1800 2000

Acres per year

Own

Custom Hire

Own vs. Custom Hire$ per acre

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 acresIncrease labor supplyOwner/operators can specializeLess investment for each ownerMust be able to schedule useMust adjust costs if use is not proportional to

ownershipSome farmers form machinery co-ops.

Trade Labor for Machinery

No investment or debtNo cash costsUse excess laborTakes 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 costsLower reliabilityMust trade more

oftenRequires more

mechanical skills

Machinery Costs Decrease

Figure 1. Annual costs for a 180-hp tractor

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Age

RepairsFuel & lubeInterestDeprec.

Machinery Capacity

Small machinery causes timeliness lossesLarge machinery has excess ownership

costsBottleneck is suitable field daysLeast-cost machinery set can complete:

tillage and planting in 20-25 days harvesting in 25-30 days

Least-cost Machinery Set

Figure 1. Effect of increasing machinery size on machinery costs

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$20

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Machinery size

Machin

ery

cost

per

acre

Total costs

Ownership costs

Operating costs

Labor costs

Timeliness costs

Minimum cost point

Least-cost size

Effect of planting date on corn yields

50%

60%

70%

80%

90%

100%

Source: ISU Extension publication PM 1885

% of maximum yield

Effect of planting date on soybean yields

25%35%45%55%65%75%85%95%

20

-Ma

y

27

-Ma

y

3-J

un

10

-Ju

n

17

-Ju

n

24

-Ju

n

1-J

ul

Source: ISU Extension publication PM 1851.

% of maximum yield

Northern Iowa

Central Iowa

Southern Iowa

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/hr8.25

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 feetDraft: 500 lb/footSoil factor (corn stalks): 1.5Speed: 5 mphHP = 20 ft . X 500 lb/ft x 5 mph x 1.5 / 375 = 200 hp

When to Trade Machinery

Repair costs are highMachine is unreliableMachine is obsoleteNeed more capacityCash flow is

favorableNeed tax deductions