PER UNIT COSTS TO OWN AND OPERATE FARM MACHINERY

and out-dated estimators would be to use a market price of performing field operations, adjusted
by farm specific cost information. The market price of field operations would be custom rates
which are established in the market place by custom operators providing the service (supply) and
producers hiring the custom operator’s service (demand).

However, if one is going to question the validity of other cost estimators, the validity of
custom rates must also be questioned. Based on Illinois data, Schnitkey concluded that, on
average, farmers cannot perform machinery operations at as low of cost themselves as if they had
all the operations custom hired. Schnitkey estimated the annual per acre costs to own and
operate machinery in Illinois. These costs included machinery repairs, machine hire, leasing,
fuel, oil, light vehicle depreciation, machinery depreciation, labor, and opportunity interest on
the machinery. The average annual per acre cost calculated (excluding labor and opportunity
interest) to perform the operations if the machinery were owned was $62.60 per acre (average of
$54.81, $71.00, and $62.00 per acre for central, northern, and southern Illinois, respectively).
However, a labor charge and opportunity cost of capital charge must be included, which were
estimated to be $10 per acre and $18 per acre, respectively. Therefore the average estimated cost
for a producer to perform operations if the machinery were owned and operated was $90.60 per
acre. Schnitkey then estimated the annual per acre machinery costs to have all operations
performed by a custom operator. The custom hire cost was estimated by summing the cost of
each operation, which was calculated as the product of the Illinois custom rates for a particular
operation and an average number of times that operation was performed. He found the average
cost for using custom operations to perform machinery operations to be “about $70” an acre ($68
for soybeans, and $75 for corn).

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