230 likes | 442 Views
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. High 1/3 Mid 1/3 Low 1/3
E N D
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 High 1/3 Mid 1/3 Low1/3 • Total cost / acre $89 $100 $106 • Investment /acre $289 $294 $346
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
Disadvantages More expensive if you plan to own it Do not build equity Locked into lease period No tax depreciation deduction Advantages Lower initial investment Can trade frequently Payments usually lower than loan payments Know machine before purchasing Payments tax deductible Leasing Machinery
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
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 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
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