Owning

a Combine

Versus

Custom

Harvesting

Joe Parcell ExtensionEconomist

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. lnitial.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 conlained information on annual and per acre costs for owning and operating various types of harvesting equipment.

Table harvesting

I shows with

the total

cost per acre for equipment as

various

types

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 I 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 timing of custom harvesters harvester in an area, of the custom 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 would lower need the number of acres a producer to harvest to justify owning a purchase older combines

combine. Some producers that are initially

cheaper but may incur additional

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annual will

repair

costs.

Each producer's

situation

Opportunity

costs of custom harvesting

must

be different. Over-capitalization can reduce and not owing debt on a combine profound affect on the balance sheet.

profitability can have a

be weighed against the convenience of owning and operating a combine. The decisions made by individua] farmers will vary.

Table 1 Estimated Combine Ownership and Operating Costs*

Acres harvested Rer year
1,358 2,036 891 1,069 1,485 672 560 840 1,018 1,527

TIRe of EouiDment

Size

Total cost Der acre $14 .97 $11 .74 $23 .36 $21 .97 $161.07 $301.70 $37 .03 $26 .57 $22 .80 $18 .33

Combine with small grain head, 20 ft. Combine with small grain head, 30 ft. Soybeancombine with head, 15 ft. Soybeancombine with head, 18 ft. Soybeancombine with head, 25 ft. Corn combine with head 4-36, 12 ft. Corn combine with head 4-30, 10 ft. Corn combine with head 6-30, 15 ft. Corn combine with head 8-30, 20 ft. Corn combine with head 12-30, 30 ft.
*As reported in Doane's Agricu[tura[

220 hp 275 hp 220 hp 275 hp 275 hp 190 hp 190 hp 220 hp 220 hp 275 hp

Report, August 25,2000,

Table 2 Comparison of Harvesting Costs with Owned Combine Versus Custom Harvesting at Different Acreage Levels

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