Since the cost to own and operate machinery ($90.60 per acre) is greater than having the
operations performed by custom operators ($70.00 per acre), custom rates, on average, do not
cover all costs of ownership and operation, further motivating this research. Schnitkey’s
research shows that, on average, one cannot use custom rates to directly calculate machinery
costs. As such, estimating a “true” custom rate or a rate that on average covers all ownership and
operating costs will be valuable to producers wanting to prorate machinery costs to specific
operations or enterprises.
With the above mentioned “true” custom rates, an individual farm will be able to
determine its relative standing to other farms (i.e., benchmark), with regard to machinery costs.
Benchmarking is the process where an individual compares individual characteristics, such as
costs, revenue, profits, and production measures with the average of the whole group to which
that individual belongs. Benchmarking is especially useful for characteristics where an
individual’s management abilities make a difference. Farm machinery costs are one area in
which benchmarking can prove to be a useful tool.
According to Schuster, in industries with increased competition, consolidations, and
where cost cutting is important, benchmarking provides a means to see ones relative standing. It
allows managers and operators to determine in which areas they are performing above, at, or
below average. As previously discussed, machinery costs are a large portion of crop production
costs and therefore could be a very useful category to benchmark. Schuster points out that
external benchmarking can be used to compare across firms in the same industry, enterprise, time
period, and geographic region to note differences in productivity and performance. A farm
manager can use external benchmarking to see if machinery operations are a strength or a
weakness to the individual farm. If the farm is performing machinery operations for less than the