June 29, 2016 - 10:04am -- noggle.17

by: Barry Ward, Leader, Production Business Management Department of Agricultural, Environmental and Development Economics & John Barker, Extension Educator Agriculture/Amos Program, County Director- Ohio State University Extension Knox County

A large number of Ohio farmers hire machinery operations and other farm related work to be completed by others. This is often due to lack of proper equipment, lack of time or lack of expertise for a particular operation.  Many farm business owners do not own equipment for every possible job that they may encounter in the course of operating a farm and may, instead of purchasing the equipment needed, seek out someone with the proper tools necessary to complete the job. This farm work completed by others is often referred to as “custom farm work” or more simply “custom work”. A “custom rate” is the amount agreed upon by both parties to be paid by the custom work customer to the custom work provider.

The custom rates reported in this article are based on a statewide survey of 365 farmers, custom operators, farm managers and landowners conducted in 2016. These rates, except where noted, include the implement and tractor if required, all variable machinery costs such as fuel, oil, lube, twine etc., and the labor for the operation.

Some custom rates published from this study have a wide range. Possible explanations are the type or size of equipment used, size/shape of fields, condition of the crop (for harvesting operations), the value of labor, the mix of labor and equipment used and the different income goals of full-time custom operators versus farmers supplementing their income. Also some custom operations are provided at bargain rates due to family relationships between the parties or due to the fact that custom providers may see an increased probability of eventually securing the custom farmed land in a cash rental or other rental agreement. Some providers are simply attempting to spread their fixed costs over more acreage to decrease fixed costs per acre and are willing to forgo complete cost recovery of their variable costs.

Average custom rates reported in this publication are a simple average of all the survey responses. The Range rates represent -/+ one standard deviation around the average1. The Median represents the middle value in the survey responses. The Minimum and Maximum reported reference the minimum and maximum responses from the survey data for a given operation.

Charges may be added if the custom provider considers a job abnormal such as distance from the operator’s base location, difficulty of terrain, amount of product or labor involved with the operation, or other special requirements of the custom work customer.

There is no assurance that the average rates reported in this publication will cover your total costs for performing the custom service or that you will be able to hire a custom operator for the average rate published in this factsheet. Calculate your own costs carefully before determining the rate to charge or pay. It may be helpful to compare these custom rates with machinery costs calculated using an economic engineering approach. The data are intended to show a representative farming industry cost for specified machines and operations. The following resources are available to help you calculate and consider the total costs of performing a given machinery operation. Users may also consider using the data contained in these publications as a base for future custom rates.

  • Farm Machinery Cost Estimates available at:

https://drive.google.com/file/d/0B3psjoooP5QxWWd3a2cwblJCTjQ/viewMachinery

  • Economics at farmdoc:

http://www.farmdoc.illinois.edu/manage/index.asp

  • Estimating Farm Machinery Costs

http://www.extension.iastate.edu/agdm/crops/html/a3-29.html

Before entering into an agreement, discuss all of the details of the specific job with the other party.

Fuel prices have an impact on custom rates and rates may fluctuate based on large movements in fuel prices. The approximate price of diesel fuel at the time of this survey was $1.75-$2.50 per gallon for off-road (farm) usage.

1 Standard deviation is a measure of the variability of the survey responses. One “standard deviation” both above and below the average (mean) includes approximately two-thirds of all survey responses.