Farm Management

1. Farm Management Chapter 22 Machinery Management

2. Chapter Outline • Estimating Machinery Costs • Examples of Machinery Cost Calculations • Factors in Machinery Selection • Alternatives for Acquiring Machinery • Improving Machinery Efficiency

3. Chapter Objectives • Illustrate the importance of good machinery management • Identify the costs associated with machinery • Demonstrate procedures for calculating machinery costs • Discuss important factors in machinery selection • Compare owning, renting, leasing, and custom hiring • Present methods for increasing efficiency • Introduce factors that influence when machinery should be replaced

4. Depreciation Interest Taxes Insurance Housing Leasing Repairs Fuel and lubrication Labor Custom hire or rental Other operating costs Estimating Machinery Costs Operating Costs Ownership Costs

5. Capital Recovery Capital recovery = [amortization factor x (beginning value – salvage value)] (interest rate x salvage value) +

6. Table 22-1Estimated Salvage Value as Percentage of New List Price Source: ASAE Standards, 2001

7. Table 22-2Average Repair Costs per 100 Hours of Use, Percent of New List Price Source: Hunt, Donnell; see text

8. Figure 22-1Relations between total and average machinery costs

9. Examples of Machinery Cost Calculations • List the basic data • Calculate ownership costs • Calculate operating costs • Calculate total cost per hour • Calculate cost per acre

10. Table 22-3Calculating Machinery Costs for a New Combine

11. Table 22-4Combined Cost of a Tractor and Implement

12. Factors in Machinery Selection • Machinery size • Timeliness

13. Machinery Size Field capacity = speed (mph) x width (feet) x field efficiency (%) 8.25

14. Minimum Field Capacity Minimum field capacity = acres to cover hours per day x days available

15. Field Days Needed Field days needed = acres to cover hours per day x acres completed per hour

16. Timeliness Some field operations do not have to be completed within a fixed time period, but the later they are performed, the lower the harvested yield is likely to be.

17. Figure 22-2Hard red winter wheat yields as a function of planting date at Stillwater, Oklahoma

18. Figure 22-3Hypothetical effect of timeliness and machine size on cost

19. Table 22-5Example of a Partial Budget for Selecting the Most Profitable Machine

20. Alternatives for Acquiring Machinery • Ownership • Rental • Leasing • Custom hire

21. Figure 22-4Cost per unit of output for machine ownership versus custom hiring

22. Improving Machinery Efficiency • Machinery investment per crop acre: current value of all machinery divided by total acres • Machinery cost per crop acre: total annual machinery costs divided by total acres

23. Table 22-6Total Machinery Costs for Kentucky Grain Producers (per Crop Acre) Source; Kentucky Farm Business Management Program, 2003 Annual Summary

24. Techniques to Improve Efficiency • Maintenance and operations • Machinery use • New versus used machines • Replacement

25. Replace • When machine is worn out • When machine is obsolete • When there are increasing costs • When there is insufficient capacity • To reduce taxes in high profit year • To fit cash flow • For pride and prestige (not a good economic reason)

26. Figure 22-5Estimated annual cost of a 165-horsepower tractor

27. Summary Annual machinery costs are a large part of a farm’s total costs. Selection of optimum machinery size should consider total costs and the effects on timeliness. Machinery efficiency can be improved by proper repairs and maintenance, by owning equipment jointly, or by exchanging the use of individually owned machines.