PER UNIT COSTS TO OWN AND OPERATE FARM MACHINERY

If this relative crop machinery cost coefficient is one, then the farm can perform the
operations at the average cost of other producers. If it is greater than one, the farm has relatively
higher machinery costs, if it is lower than one, the farm has relatively lower machinery costs.
Conclusions

Machinery costs play a significant role in farm profitability, and is generally the second
largest cost category on crop farms, following land cost. Management does play an important
part in making a difference in these costs, and managers who tend to have lower costs tend to
also have higher profits according to the literature. In managing machine costs, a farm must
know its own machine costs. To find one’s own machine costs, estimators are present but have
limitations of being complicated, time intensive, and inaccurate due to specific management
abilities. To compensate for the inadequacies of machinery cost estimators, one may use a
market price for performing the different field operations adjusted for individual farm
characteristics. Market prices that are updated annually are custom rates, published by Kansas
Agricultural Statistics. This research found that custom rates for an average size Kansas farm are
25.5% lower than the true cost to own and operate machinery because of work done for friends,
family and neighbors. Therefore, a “true” custom rate (i.e., one that includes total ownership and
operating costs) was estimated that can be used to prorate a farm’s machinery costs to different
field operations. The farm’s prorated machinery costs can then be used to benchmark the farm’s
actual costs against its expected costs, so a farm manager can see the farm’s strengths or
weaknesses with regards to total machinery costs.

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