source: Farm and Food Report
The current BSE crisis has forced many to take another look at all the expenses incurred by hay producers this spring.
We know that sprays, fertilizer and seed costs all add up, but one should keep in mind that machinery costs are equally real and should not be ignored, according to Glenn Barclay, a forage industry development specialist at Saskatchewan Agriculture and Food.
“There are major expenses in this area. Some of the findings may surprise you. Machinery costs can be categorized as either fixed or variable operating costs. Even if you never use a piece of machinery, it still generates fixed costs such as depreciation, interest charges, insurance and housing.”
The costs are described below in greater detail:
Depreciation is the loss of value over time. This could be expressed as an annual cost.
“On the matter of interest costs, they should be calculated even if you paid cash for the machine,” says Barclay. “If you had invested that money, it would have been generating interest. This type of cost can be defined as an opportunity cost. You had other options or opportunities for your money.”
Insurance, housing and other fixed costs are more difficult to calculate. These costs represent a minor proportion of total costs. Some authorities use one to one‑half per cent of new cost as a guideline.
Your operation may have additional items to include, such as lease costs and custom costs. Add these in and then total all fixed costs for a year’s estimation of machinery costs.
“The other costs involved with machinery can be categorized as variable costs,” adds Barclay. “Fuel and lubrication costs can be based on historical practices and current fuel costs, or estimated based on acres covered per hour by various machines. A guideline to use for lubrication is 15 per cent of fuel costs.”
Saskatchewan Agriculture and Food (SAF) produces a useful custom rate guide in which operators will find repair tables that give an annual repair rate as a percentage of the original cost.
“For instance, a large round baler will use 1.5 per cent of the original cash cost, a four-wheel drive tractor would use 2.6 per cent.”
Labour is another variable cost which should be included in your machinery cost estimate.
“Use the figure you are paying someone to operate your machine. Don't forget or discount the value of your own labour. Your managerial skills or time could easily be worth more than hired labour,” Barclay points out.
At this point, you should now be ready to add your variable or operating costs to your fixed costs for a total for the year.
“You can analyze these costs on a per acre, per pound of feed, per animal or per hour basis. If you have a mixed enterprise, don’t forget to allocate the proper costs of each machine to your livestock costs.
“You can use this figure to determine if custom work for some operations may make more sense than you owning and operating the machine. It can also help you figure out what field operation costs you the most each year and help you analyze your time management. I’m sure if you spend some time figuring out your costs, you will find your results quite intriguing.”
For more information, call the Agriculture Knowledge Centre at 1-866-457-2377.
The Farm Machinery Custom and Rental Rate Guide produced by SAF is available online at:
For more information, contact:
Glenn Barclay
Forage Development Specialist
Saskatchewan Agriculture and Food
(306) 446–7650
The current BSE crisis has forced many to take another look at all the expenses incurred by hay producers this spring.
We know that sprays, fertilizer and seed costs all add up, but one should keep in mind that machinery costs are equally real and should not be ignored, according to Glenn Barclay, a forage industry development specialist at Saskatchewan Agriculture and Food.
“There are major expenses in this area. Some of the findings may surprise you. Machinery costs can be categorized as either fixed or variable operating costs. Even if you never use a piece of machinery, it still generates fixed costs such as depreciation, interest charges, insurance and housing.”
The costs are described below in greater detail:
Depreciation is the loss of value over time. This could be expressed as an annual cost.
“On the matter of interest costs, they should be calculated even if you paid cash for the machine,” says Barclay. “If you had invested that money, it would have been generating interest. This type of cost can be defined as an opportunity cost. You had other options or opportunities for your money.”
Insurance, housing and other fixed costs are more difficult to calculate. These costs represent a minor proportion of total costs. Some authorities use one to one‑half per cent of new cost as a guideline.
Your operation may have additional items to include, such as lease costs and custom costs. Add these in and then total all fixed costs for a year’s estimation of machinery costs.
“The other costs involved with machinery can be categorized as variable costs,” adds Barclay. “Fuel and lubrication costs can be based on historical practices and current fuel costs, or estimated based on acres covered per hour by various machines. A guideline to use for lubrication is 15 per cent of fuel costs.”
Saskatchewan Agriculture and Food (SAF) produces a useful custom rate guide in which operators will find repair tables that give an annual repair rate as a percentage of the original cost.
“For instance, a large round baler will use 1.5 per cent of the original cash cost, a four-wheel drive tractor would use 2.6 per cent.”
Labour is another variable cost which should be included in your machinery cost estimate.
“Use the figure you are paying someone to operate your machine. Don't forget or discount the value of your own labour. Your managerial skills or time could easily be worth more than hired labour,” Barclay points out.
At this point, you should now be ready to add your variable or operating costs to your fixed costs for a total for the year.
“You can analyze these costs on a per acre, per pound of feed, per animal or per hour basis. If you have a mixed enterprise, don’t forget to allocate the proper costs of each machine to your livestock costs.
“You can use this figure to determine if custom work for some operations may make more sense than you owning and operating the machine. It can also help you figure out what field operation costs you the most each year and help you analyze your time management. I’m sure if you spend some time figuring out your costs, you will find your results quite intriguing.”
For more information, call the Agriculture Knowledge Centre at 1-866-457-2377.
The Farm Machinery Custom and Rental Rate Guide produced by SAF is available online at:
For more information, contact:
Glenn Barclay
Forage Development Specialist
Saskatchewan Agriculture and Food
(306) 446–7650
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