Updated July, 2015
Self-Propelled Harvesting and Spraying: Machinery Ownership Versus Custom Hire
Custom operators harvest approximately 30 percent of the crop acres in Iowa. They play a crucial part in making harvesting more timely and efficient. The decision to own or custom hire a combine can involve many thousands of dollars. Similar considerations apply to other self-propelled machines, such as forage harvesters, windrowers and sprayers.
Most crop producers prefer to own their own harvesting or spraying equipment. They provide labor to operate the machine, assume responsibility for repairs and maintenance, and assume all the risk of obsolescence. The owner also gains complete control over machine scheduling and timeliness, as well as the quality of the work performed.
The large initial investment can be a barrier to ownership, however. Even though ownership may be profitable over the long run, the owner may have to pay for the machine in only a few years. Some owners look for acres to custom harvest or spray in addition to their own, to help pay the machinery ownership costs.
Joint ownership allows responsibility for investment, repairs, and labor to be shared with someone else. Joint ownership may generate enough use to make owning a machine profitable when it would not be profitable for one owner alone. However, cooperation is absolutely essential. The parties must approve of each other's use and care of the machine. The process for scheduling between farms should be worked out ahead of time, and all owners need to agree on who has responsibility for operating the machines and making repairs. For more information on joint ownership see AgDM File A3-34, Joint Machinery Ownership (PM 1373). Leasing also has become popular for large investment items such as combines, as an alternative to ownership. However, the lessee still has full responsibility for operating and maintaining the machine. Leasing may require smaller annual payments than financing the same machine on a purchase plan, but the operator does not have any ownership or equity value at the end of the lease period. For more information on leasing machinery see AgDM File A3-35, Machinery Leasing – Is it for You?.
Custom hiring allows a farmer to gain short-term control of a harvester or sprayer without investing a large amount of capital. It has several advantages compared with owning.
- The machine comes with an operator. That means that the hiring farmer has no responsibility for operating or maintaining the machine. Also, the farmer can perform other tasks such as hauling and unloading grain while the combine is operating, without having to hire extra help. This is an important advantage for farmers with a limited labor supply.
- There is no long-term capital investment in the machine. The cost of custom hiring can be paid from operating capital.
- The hiring farmer has no responsibility or repair costs.
- There is no responsibility for liquidation of the machine if production practices or farm size change and it is no longer needed.
- The farmer pays only for the number of acres actually harvested or sprayed, which may vary from year to year.
- The custom operator's machine is more likely to be a recent model and in good mechanical condition.
- Some custom operators provide grain trucks, carts, or wagons as well as the combine.
Custom hiring also may have some disadvantages, but their severity will depend on the local situation.
- There may not be a competent operator and machine available nearby.
- The hiring farmer will not be operating the machine and will not have complete control over the quality of the job performed.
- The custom operator may not be able to harvest or spray the crop when it is convenient for the owner nor during the optimum time period. Problems could arise if the weather is bad and the custom operator has several other farmers waiting. A schedule or priority list needs to be worked out ahead of time.
Charges for custom harvesting or spraying should be agreed on in advance. Rates should take into account the condition of the crop being harvested, the size of the field, presence of terraces, contour rows, streams, etc., speed and quality of the work performed, the use of specialized harvesting heads, extra services provided, and the timeliness of the operations. Many operators rely on information from AgDM File A3-10, Iowa Farm Custom Rate Survey (FM 1698). This survey is updated annually. Actual rates may vary from the average rates shown due to the factors mentioned above.
Custom operators who supply grain carts, wagons or trucks, with operators, may either charge separately for these services or charge one rate per acre that covers complete harvesting and hauling to storage or sale.
Custom operators need to know their actual costs. Crop producers need to compare the costs of owning their own machines to the cost of custom hiring. The worksheet in this publication lists the steps needed to do this.
Tables 1, 2, 3, 4 and 5 list estimated field capacities, fuel consumption, salvage values, capital recovery factors, and repair cost rates that can be used if actual data are not available. For the interest rate, consider what the intermediate term loan rate is, what the equity capital could earn if it were invested in a use other than the combine, or an average of the two rates.
At the end of the worksheet the number of acres for which ownership and custom hiring are equal in cost can be calculated. For owners with fewer acres than this, a second calculation shows the number of additional custom acres that would have to be harvested or sprayed to generate enough income to break even.
The worksheet is also available as AgDM Decision Tool, Self-Propelled Harvesting and Spraying: Ownership Versus Custom Hire.
William Edwards, retired economist. Questions?