December 28, 2016
Question: Our 20-year-old combine needs replacing. We managed to get through one more harvest last fall, but there is no way we can depend on it another year. We farm 750 acres of mostly corn and soybeans and a little wheat. We own all of our land and owe about $350,000 on a mortgage on one farm. My question is, would we be better off buying a newer used combine or hiring someone to custom combine our crops? Our neighbor hires someone and is very satisfied with the guy who does it. I’ve talked to this person, and he says he would be able to handle our acreage. I know I wouldn’t have to worry about breakdowns, repairs or hiring extra help if we had someone harvest our crops, but I’m not sure the crops will get harvested as quickly as I get them done. This could be a problem if we get an early winter. I would appreciate your thoughts.
Hodorff: I assume with 750 acres, your farm is a one-person operation. I would also advise you to look at different options for harvesting your crops. As you stated, you wouldn’t have to worry about repairs. You probably should do a partial budget on owning your own combine. Prepare this budget by looking at the cost of purchasing the combine, expected repairs and updates. Also figure your cost of having crops custom harvested. I am not sure how you figure in your concerns of getting crops harvested on time. If you have your crops custom harvested, one of my other concerns is, what will you do with the time you used to spend harvesting crops? Does this save you hiring any extra help? There is also the self-satisfaction of doing the harvesting yourself.
Miller: Complete a partial budget to assist in answering this question, comparing owned vs. custom hire from a financial aspect, and a second comparison of the intangible pros and cons of this decision. After contacting your potential custom harvester, determine the harvesting cost on a per-acre or per-hour basis. Compare this to the operating and capital costs of purchasing a replacement used combine. For the pros and cons list, compare the time requirements for the custom harvest operator vs. you and extra hired labor completing the task. You already indicate peace of mind as one of your open questions with a change. After comparing both lists, make the best decision you are comfortable with. If you need help putting together these budgets, visit with your banker, accountant, Extension ag agent or farm technical college instructor. Good luck with your decision.
Hagedorn: You didn’t mention how long you are going to continue farming. If you are going to be farming for another 10 to 15 years, making the argument for a new or used combine is easier. If you are ramping down over the next five to 10 years, it is easier to support the strategy of using your neighbor’s custom harvester.
From a purely economic standpoint, given 750 acres of grain to harvest on a yearly basis, the opportunity costs of custom harvesting must be weighed against the convenience of owning and operating a combine. Developing a partial budget presents a simplified procedure to aid producers in everyday decision-making. This design is not for total farm planning, but rather to estimate the economic consequences of making a change in some phase of the farm operation. Partial budgeting is a step-by-step process for identifying all the costs and returns that change due to alterations in the production process. Once these costs and returns are identified, they are weighed against each other to estimate the economic consequences of the change. The results can only be as good as the data used. Care should be taken when estimating values for the various categories. Sensitivity tests for values such as yields and prices should be developed to highlight their effect on the ultimate outcome. Any questions on this process can be asked of your local Extension agent.
Agrivision panel: Doug Hodorff, Fond du Lac County dairy farmer; Sam Miller, managing director, agricultural banking at BMO Harris Bank; and Katie Wantoch, Dunn County Extension agriculture agent specializing in economic development. Filling in for Wantoch while she is on maternity leave is Mark Hagedorn, Eau Claire County Extension dairy and livestock agent. If you have questions you would like the panel to answer, send them to: Wisconsin Agriculturist, P.O. Box 236, Brandon, WI 53919, or email them to [email protected].
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