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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. High Third Low Third Ownership $45.48 $25.27

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Key Questions About Farm Machinery --Chapter 22

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  1. 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?

  2. 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 4.842.63 • Total cost / acre $74.12 $43.30 • Investment /acre $268 $152

  3. Acquiring Farm Machinery • Ownership • Rental (short-term) • Leasing • Rollover • Custom Hire • Joint Ownership • Trade Labor

  4. 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

  5. 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

  7. 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 Leasing Machinery

  8. 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

  9. 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

  10. 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.

  11. 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

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

  13. Machinery Costs Decrease

  14. When to Trade Machinery • Repair costs are high • Machine is unreliable • Machine is obsolete • Need more capacity • Cash flow is favorable • Need tax deductions

  15. 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

  16. Least-cost Machinery Set

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