Key Questions About Farm Machinery Chapter 22

Key Questions About Farm Machinery --Chapter 22

 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 by farm profit groups High 1/3 Mid 1/3 Low 1/3  Total cost / acre $97 $101 $123  Investment /acre $338 $336 $385

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

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

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

Machinery Costs Decrease

Machinery Capacity  Small machinery causes timeliness losses  Late planting and harvesting => lower yields  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

Some days you just can’t farm!

Least-cost Machinery Set 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

Used Machinery  Lower investment and ownership costs  Higher repair costs  Lower reliability  Must trade more often  Requires more mechanical skills