LINK TO: IDAHO CUSTOM RATES
How much should I charge for baling hay for my neighbor is a common question that I receive in the Extension Office. The answer is often, "It depends". If you are doing a custom operation for your neighbor, you need to cover your operating costs (fuel, tire wear, oil, etc). Your own operation has already covered the fixed costs such as depreciation, insurance, etc.
On the other hand, if you purchased your tractor, baler or whatever with the idea that you need to do the operation on additional acres to justify the purchase, the rate you charge a neighbor will need to be higher since some of the fixed costs need to be covered by those additional acres.
Montana Extension no longer does a custom rate survey. Idaho Extension however does a yearly survey. When looking at the costs watch how many responses have been received.
Courtesy: Idaho Extension Service
Custom rate information was collected by telephone
and mail surveys between November 2005
and April 2006. Some custom operators provided
the rates they charged in 2005 because they had
not yet set rates for 2006, while others provided
rates they expected to charge for 2006. In all cases,
rates for 2006 were higher than 2005 rates.
The equipment needed to operate a modern
farming operation is expensive and often quite
specialized. On smaller farms, the operator may
find it impractical to own all of the necessary
equipment. Large diversified farms also may not
find it feasible to own all needed equipment. Even
farms with a complete machinery compliment
may need help to avoid missing planting or harvesting
windows when weather delays occur.
Some farmers solve these problems by trading
work with their neighbors, while others hire a custom
operator to perform certain farm operations.
A custom operator typically specializes in certain
farm operations, whereas a neighbor simply may
have the equipment and time to trade work or to
provide services for a fee.
Owning vs. Custom Hire
How much should be charged for custom farm
work? Full-time commercial custom operators
must charge a fee that covers all costs plus a profit.
Those performing custom services for a neighbor
may charge only enough to cover labor and
fuel costs. In areas where a considerable portion of
farm work is done by custom operators, established
customary rates often cover actual machine
operating and ownership costs. Problems can
arise, however, where no customary rates have
been established or when a rapid increase in costs
puts established rates significantly below total
costs.
Custom services can sometimes be hired at a
cost lower than that of owning and operating farm
equipment, particularly on smaller farms.
For
example, a grain combine may have an annual
ownership cost of $18,000 or more. If operating
costs for this combine are $8 per acre and a custom
operator charges $28 per acre, then a minimum
of 900 acres of grain must be harvested
before ownership becomes as economical as custom
hiring. The break even acreage calculation is
calculated as follows:
Break even acreage =
Annual ownership cost
______________________________________
(Custom rate per acre – Operating cost per acre)
Annual ownership cost = Annual depreciation, interest,
taxes, insurance, and housing
Custom rate per acre = Going rate charged for that service
Operating cost per acre = Fuel, maintenance and repairs,
labor, and supplies
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