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Combine in field Tyler Harris
COSTS OF OWNERSHIP: When determining an optimum custom rate for a specific operation, it's a good idea to not only factor in rates reported in the custom rates survey, but also your own machinery ownership and operation costs.

Rising custom rates reflect higher machine ownership costs

When setting a custom rate, consider your own costs of owning and operating machinery.

Every other year, the University of Nebraska-Lincoln's Department of Agricultural Economics conducts a survey of custom operators across Nebraska before publishing custom rates for various field operations. For 2020, 217 surveys provided data for the report, with more than 150 different machine operations and custom services included.

The report is divided into eight districts throughout the state, and into different operations: spring and summer farm and ranch operations, including planting, applying, and hay mowing and baling; and fall operations such as harvesting and hauling grain and livestock.

Glennis McClure, Nebraska Extension agricultural economist, notes that to publish a reported custom rate, there must be at least three or more responses for that field operation. The survey also asked about the cost of machinery, power units, fuel and labor, but not material or input expenses unless otherwise included in the question. Of course, custom rates reported can vary greatly.

"In some areas, the custom operations just may not be very available. So you may see a higher charge if there aren't many folks doing that service in your area," McClure says. "The terrain could make a difference, the location, how far does the custom operator have to travel to get to the site? And sometimes the size of the field or area covered can make a difference in terms of how someone's looking at it and how they charge."

Changes for 2020

So, what's changed?

The average area covered for 2020 was 5,322 acres, with an average of 571 hours of custom work per year, compared to 4,853 acres in 2018, and only 2,100 acres in 2012.

Fuel rates for 2020 averaged $2.12 — down from $2.46 in 2018, but still up from $1.68 in 2016. Labor rates averaged $19.35 per hour — up from $18.85 in 2018.

"As I compared rates reported for 2020 to 2018, I found in general, tillage operation rates per acre were up 7% to 13%; planting and drilling rates increased approximately 7% to 10% per acre; and harvesting rates mostly increased 3% — not a lot, but in one case on a per-bushel rate basis, there was a jump of 25%," McClure says. "Rates for baling round bales, where we get most responses on baling is on large round bales, that rate just jumped up slightly from the 2018 figure [up 9 cents per bale for large round bales without net wrap]."

"We don't ask about irrigated versus dryland rates for harvesting soybeans, but rates for harvesting dryland corn and soybeans seem to run very close to one another," McClure says. "It's also important to point out that with higher production in irrigated corn, the flat rate per acre generally stays higher than dryland corn and soybean combining rates over that 10-year period."

For the most part, there has been an uptick in prices every year of the custom rates survey since 2010. However, there are exceptions. For example, the rate for disk harrowing dropped from $14.77 per acre in 2016 to $14.43 in 2018, before rising again in 2020 to $16.33.

These increases are driven by a number of factors — in particular, by increases in equipment costs, and to a lesser extent, increases in fuel costs.

Watch your own costs

However, it isn't just the custom rates reported that need to be considered when determining a rate, McClure says. It's best to factor in the costs of owning and operating your own equipment. And it's always a good idea to consider the rates reported in other districts of the state.

"As an operator, not only would I want to look at what I was going to charge looking at the report, but also want to consider what I have for equipment and what my costs are," McClure says.

This includes operating costs such as fuel, labor, repairs and supplies, and ownership costs like salvage costs, depreciation, interest, taxes, housing and insurance. All of these help determine the overall opportunity cost of owning a piece of equipment, and the optimum rate to cover that cost.

"Custom operators should consider the state rate, the rates around them, and they could look at the range of rates and the most common rate provided," McClure says. "They can use the report, but you should also consider your own operating and machinery costs."

Read the report at farm.unl.edu/customrates.

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