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    Key Questions About Farm Machinery - Chapter 22

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    The document discusses factors to consider when acquiring farm machinery, including alternatives like ownership, rental, leasing, custom hire, and joint ownership. It provides pros and cons of new versus used machinery and outlines how machinery costs per acre decrease with larger acreage and older age. The optimal machinery size balances ownership costs with minimizing timeliness losses from machinery that is too small.

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    Key Questions About Farm Machinery - Chapter 22

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    The document discusses factors to consider when acquiring farm machinery, including alternatives like ownership, rental, leasing, custom hire, and joint ownership. It provides pros and cons of new versus used machinery and outlines how machinery costs per acre decrease with larger acreage and older age. The optimal machinery size balances ownership costs with minimizing timeliness losses from machinery that is too small.

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    Farm machinery

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    Machinery

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    The document discusses factors to consider when acquiring farm machinery, including alternatives like ownership, rental, leasing, custom hire, and joint ownership. It provides pros and cons of new versus used machinery and outlines how machinery costs per acre decrease with larger acreage and older age. The optimal machinery size balances ownership costs with minimizing timeliness losses from machinery that is too small.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    80 views17 pages

    Key Questions About Farm Machinery - Chapter 22

    Uploaded by

    bassouad
    The document discusses factors to consider when acquiring farm machinery, including alternatives like ownership, rental, leasing, custom hire, and joint ownership. It provides pros and cons of new versus used machinery and outlines how machinery costs per acre decrease with larger acreage and older age. The optimal machinery size balances ownership costs with minimizing timeliness losses from machinery that is too small.

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    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


    High Third Ownership $45.48 Fuel & lube 8.42 Repairs 15.38 Custom hire 4.84 Total cost / acre $74.12 Investment /acre $268 Low Third $25.27 5.61 9.79 2.63 $43.30 $152

    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 412

    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

    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

    $ / acre $160 $140 $120 $100 $80 $60 $40 $20 $0

    Own vs. Custom Hire--Combine

    Own Custom

    100

    200

    300

    400

    500

    600

    700

    800

    900

    1000

    1100

    1200

    1300

    1400

    1500

    Acres

    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 $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

    Repairs Fuel & lube Interest Deprec.

    Age

    Figure 1. Annual costs for a 180-hp tractor

    When to Trade Machinery


    Repair costs are high Machine is unreliable Machine is obsolete Need more capacity Cash flow is favorable Need tax deductions

    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


    $160

    Machinery cost per acre

    $140

    $120

    $100

    Total costs

    $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

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