Key Questions About Farm Machinery --Chapter 22

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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?

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Machinery Costs per Acre

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

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Acquiring Farm Machinery

• Ownership
• Rental (short-term)
• Leasing
• Rollover
• Custom Hire
• Joint Ownership
• Trade Labor

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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

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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

6
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

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Leasing Machinery

• Disadvantages
• More expensive if you plan to own it
• Do not build equity
• Locked into lease period

• Advantages
• Lower initial investment
• Can trade frequently
• Payments usually lower than loan payments
• Know machine before purchasing
• Payments tax deductible

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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

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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

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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.

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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

13
Used Machinery

• Lower investment and ownership costs
• Higher repair costs
• Lower reliability
• Must trade more often
• Requires more mechanical skills

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Machinery Costs Decrease
15
When to Trade Machinery

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• Machine is obsolete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

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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

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Least-cost Machinery Set