Key Questions About Farm Machinery --Chapter 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 zTotal cost / acre$89 $100 $106 zInvestment /acre$289 $294 $346

Acquiring Farm Machinery zOwnership zRental (short-term) zLeasing zRollover zCustom Hire zJoint Ownership zTrade Labor

Advantages of Owning zMore control over use zMore convenient zLess expensive for high use or long life machines zTax benefits from depreciation and interest zBuild up equity value

Short-Term Rental z Pay only for time machine is actually used z Pay by the hour or day z No investment z Cheaper for low use or specialized machines

Long Term Leasing zMake annual lease payments (20-25% of new price) zFirst payment when lease begins zLeases usually run 3-5 years zOption to purchase at end of lease zOperator pays for repairs, insurance, etc. zExample on page 433

Leasing Machinery Disadvantages z More expensive if you plan to own it z Do not build equity z Locked into lease period z No tax depreciation deduction Advantages zLower initial investment zCan trade frequently zPayments usually lower than loan payments zKnow machine before purchasing zPayments tax deductible

Advantages of Custom Hire zNo long term investment zNo repairs or maintenance zCheaper for low use items zGet operator labor zPay only for acres actually farmed

Own vs. Custom Hire $ per acre

Rollover Purchase z New machine is purchased, usually by company credit plan z Used one season, then traded for a new model z Difference paid depends on hours of use on old unit

Joint Machinery Ownership zSpread ownership costs over more acres zIncrease labor supply zOwner/operators can specialize zLess investment for each owner zMust be able to schedule use zMust adjust costs if use is not proportional to ownership zSome farmers form machinery co-ops.

Trade Labor for Machinery z No investment or debt z No cash costs z Use excess labor z Takes about 5-8 acres of labor to equal the value of one acre of machinery use

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

Machinery Costs Decrease

Machinery Capacity zSmall machinery causes timeliness losses zLarge machinery has excess ownership costs zBottleneck is suitable field days zLeast-cost machinery set can complete: ytillage and planting in days yharvesting in days

Least-cost Machinery Set

Some days you just can’t farm!

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 zHorsepower needed depends on: yWidth of implement yDraft requirement—pounds of force) yType of soil (firm or tilled) ySpeed zHP = 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 zRepair costs are high zMachine is unreliable zMachine is obsolete zNeed more capacity zCash flow is favorable zNeed tax deductions