How to Estimate Custom Farming Rates

Many farm operators provide custom farming services — or the use of machinery — during the growing season. Payments for this type of work is typically made at the completion of the season and it can be difficult to arrive at a fair rate for certain custom practices. Each February, Iowa State University releases its annual “Iowa Farm Custom Rate Survey,” which is based on a survey of custom operators, farm managers, and ag lenders who share what they expect custom farm rates to be in the coming year. This is probably the most widely used and updated custom rate information available in the Upper Midwest.

The 2018 Iowa Custom Rate Survey includes farm custom rates for typical tillage, planting and harvesting practices, as well as custom farming rates. It also includes average custom rates for less typical practices and services. All rates listed in the Iowa survey include fuel and labor, unless listed as rental rates or otherwise specified. Average rates are meant to be a guide for custom rates, as actual custom rates charged will vary depending on increases in fuel costs, availability of custom operators, timeliness, field size, etc. The 2018 Iowa Farm Custom Rate Survey is available for reference.

Although fuel prices have increased somewhat in the past year, the availability of more farm operators for custom work has resulted in average 2018 custom rates for farm work (tillage, planting and harvest operations) remaining close to steady compared to 2017 rates.

The 2018 custom farming rates for corn and soybean production declined slightly from a year earlier. In addition to the higher fuel costs, labor expenses also increased slightly compared to 2017 levels. The cost for new and used machinery has also remained fairly stable in 2018, thus keeping most custom rates at a fairly even pace.

The 2018 Iowa Custom Rate Survey lists a range of custom rates, in addition to the “average” custom rates for most farming practices. Some of the “average” custom rates listed may be a bit low, given the increasing ownership costs of larger farm machinery and the difficult field conditions and protracted harvest that existed in some areas in 2018. An analysis of farm custom rates from a couple of years ago found that some of the harvesting costs for combining, as well as for the use of a grain cart and grain hauling, were somewhat undervalued in some of the surveys. Based on this cost analysis, the 2018 farm custom rates in some areas for harvesting (fall tillage and custom farming) should probably be a bit higher than the “average” custom rates listed in the Iowa survey, in order to reflect the true costs of operation.

Additionally, the University of Minnesota periodically releases a publication titled “Machinery Cost Estimates,, which was last updated in May. This summary looks at operating cost of farm machinery, as well as ownership costs. Operating expenses include fuel, repairs and maintenance, labor, and depreciation. Ownership costs include interest, insurance and housing, which are calculated based on pre-set formulas. This can serve as a good guide to help farm operators estimate their “true cost” of farm machinery ownership. The University of Minnesota Center for Farm Financial Management offers very good resources on the costs of farm machinery.

 

A reminder to check grain bins

Due to low commodity prices, much of the Upper Midwest’s corn and soybean harvest is likely being stored in grain bins. Depending on the temperature of the grain at the time of storage, and subsequent fluctuations in outside temperatures, there could be wide temperature variations within these storage bins. This can lead to moisture migration in the bin, which could result in significant deterioration. There have already been reports of grain going out of condition in some areas.

Farm operators should run aeration fans periodically to equalize grain bin temperatures, which will help prevent storage issues. Additionally, it is important that farmers check grain bins regularly for signs of storage issues and address those issues promptly. Damage to grain in storage can result in significant financial loss to the farmer, adding to the financial difficulties many operations are facing as we head into 2019.

For additional information email Kent Thiesse, Farm Management Analyst and Senior Vice President, MinnStar Bank, Lake Crystal.  
 
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