As the saying goes. “Once you’ve seen one farm — you’ve seen one farm.” No two are alike, which creates a real issue when considering the most likely go-to resource for assigning equipment costs is the local land-grant university’s annual custom rate survey. This might get you in the ballpark for costs but quite possibly nowhere near the strike zone.
The most obvious problem with this method is you are relying on other people’s numbers to produce your cost matrix. A multitude of variables such as fuel, labor, depreciation and interest rates can be vastly different from one operation to the next. So the obvious question is: Where to start?
Know Your Numbers
The first important number to determine is your “total equipment value.” That’s including every piece of equipment that touches a field in some shape or form — from combine to grain cart to planter to tillage tool.
Next, calculate total acres touched. From there, you generate a standard ownership cost factor. A default standard is 25% of your total machinery value. That percentage is typically broken down as: 10% interest or opportunity cost, 10% depreciation and 5% allocated to repairs.
For example, using this math, a 5,000-acre farm with $1.5 million equipment valuation would have a base machinery cost of $75 per acre.
That’s a good start, but it doesn’t tell you how effectively and efficiently you’re using your machines. That hasn’t been possible until recently.
Real-time, real-machine data streaming wirelessly is now providing the details to truly move the needle on machine ROI.
With today's technology, you can see your in-field working hours. But more importantly, you can slice machine hours into four categories:
- In-field turning (non-working)
This puts hard numbers to the hours or minutes it took to get to a field or how much time you spent idling while filling the planter (or taking a cat nap while waiting for a load of fertilizer).
Remember, only one of the categories is a positive to the bottom line: working hours. When it comes to depreciation or trade-in decisions, machine hours matter most. You’re talking anywhere between $125 to even $200 per engine hour for many of today’s bigger machines. So any time not working is a direct drag on ROI.
Knowing these numbers can be a game changer just like a yield monitor leads to knowing the performance of each individual acre. Now you’re tracking the performance of each individual hour.
Dec. 16-17, 2019
JW Marriott, Indianapolis
You don’t want to miss Steve Cubbage’s breakouts on new tech to analyze machine data and how to prepare, collect and transfer data. Register at FarmJournalAgTechExpo.com