Farm Machinery Senior Class: Owning vs Hiring

In my last article we touched on technical details on estimating the true cost of a machine. The fixed and variable costs in order for a farmer to look at machinery investment beyond just purchase price. Now, besides the cost structure, there are also other factors that need careful consideration in evaluating farm machinery decisions: both technical and not so technical.

Ownership vs Hiring.

Should one own farm machinery, if they have an option to evade the ownership costs and just incur operating costs? Yes and No! There are hidden costs that are associated with depending on machinery that you do not have absolute control over. Some hidden costs can be quantified for example timeliness cost.

Timeliness Cost.

When one owns all the machinery for his tillage and harvest operations, he has control over the scheduling and deployment. Timeliness cost is the value of field losses incurred due to delays in carrying out certain farm operation. For instance, for every day delayed in harvesting wheat, one loses 50kg per hectare planted.

Advantages of Custom Hiring

The machine comes with an operator. That means that the hiring farmer has no responsibility for operating or maintaining the machine. Also, the farmer can perform other tasks such as hauling and unloading grain while the combine is operating, without having to hire extra help. This is an important advantage for farmers with a limited labor supply.

There is no long-term capital investment in the machine. The cost of custom hiring can be paid from operating capital. There is no responsibility for liquidation of the machine if production practices or farm size change and it is no longer needed.
The farmer pays only for the number of acres actually servicedserviced and the custom operator's machine is more likely to be a recent model and in good mechanical condition.

Custom hiring also may have some disadvantages, but their severity will depend on the local situation.

Disadvantages

There may not be a competent operator and machine available nearby.
The hiring farmer will not be operating the machine and will not have complete control over the quality of the job performed.
The custom operator may not be able to harvest or spray the crop when it is convenient for the owner nor during the optimum time period. Problems could arise if the weather is bad and the custom operator has several other farmers waiting. A schedule or priority list needs to be worked out ahead of time.

The strengths of hiring are the weaknesses of ownership and vice versa. So, the question ceases to be just which one is better than the other, but rather how can I make ownership of equipment as less costly and more profitable as hiring? How do I retain control while using the equipment safely enough to reduce the ownership costs per acre?
The best way to do that is to estimate how many acres you can hire out your equipment so that you earn an income that goes to pay your insurance, housing, interest and depreciation expenses.

Joint ownership allows responsibility for investment, repairs, and labor to be shared with someone else. Joint ownership may generate enough use to make owning a machine profitable when it would not be profitable for one owner alone. However, cooperation is absolutely essential for all involved parties.

Click this link to access the article on the cost structure for owning farm equipment