Consider a custom harvester
Controlling input costs in farming operations is one way to manage risk caused by commodity price variances. A successful farmer constantly looks for options that reduce production costs and increase margins.
A common ailment among farmers is hardware disease. But does it make economic sense to own large harvest equipment?
FIGURE THE COSTS
Wide variability of machinery operation costs is seen in state surveys. In some surveys, as many as 70 percent of farmers who responded could improve profits by hiring custom harvesters instead of doing the work themselves.
Custom rates are often lower than actual farm machinery costs because custom harvesters use equipment specialized for a specific operation over more acres per year than most farmers. Some operators may purchase machinery at a lower cost than most farmers could because of volume discounts. These factors reduce fixed machinery cost per acre.
PEEL BACK THE LAYERS
It is important to include all costs incurred in owning equipment: repairs; fuel and oil; equipment depreciation; machinery insurance; machinery shelter; opportunity interest; and harvest labor.
Market depreciation — not depreciation for tax purposes — can be determined by looking through local classified ads, area auction results or website classified ads. Estimate costs of owning and operating all harvest equipment, including pickups or other light vehicles used to travel to and from the field and to deliver fuel and supplies.
THE RIGHT DECISION
Contract with custom harvesters who have good reputations for meeting time commitments and harvest efficiency. Obtain recommendations from other producers who use custom harvesters.
Absence of debt on harvest equipment can have a profoundly positive effect on the balance sheet. The right decision depends on the nature of the individual farm; but hiring a custom harvester is worth considering.