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# Farm Management - PowerPoint PPT Presentation

Farm Management Chapter 22 Machinery Management Chapter Outline Estimating Machinery Costs Examples of Machinery Cost Calculations Factors in Machinery Selection Alternatives for Acquiring Machinery Improving Machinery Efficiency Chapter Objectives

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## Farm Management

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### Farm Management

Chapter 22

Machinery Management

Chapter Outline
• Estimating Machinery Costs
• Examples of Machinery Cost Calculations
• Factors in Machinery Selection
• Alternatives for Acquiring Machinery
• Improving Machinery Efficiency
Chapter Objectives
• To illustrate the importance of good machinery management
• To identify the costs associated with machinery
• To demonstrate procedures for calculating machinery costs
• To discuss important factors in machinery selection
• To compare owning, renting, leasing, and custom hiring
• To present methods for increasing efficiency
• To introduce factors that influence when machinery should be replaced
Depreciation

Interest

Taxes

Insurance

Housing

Leasing

Repairs

Fuel and lubrication

Labor

Custom hire or rental

Other operating costs

Estimating Machinery Costs

Operating Costs

Ownership Costs

Reminder
• Straight Line Depreciation is (Original Cost- Salvage Value)/ Life
• Ownership Interest (Fixed Interest)

Interest = Average Value X interest rate

Average Value =(Cost + Salvage Value)/2

Source: ASAE Standards, 2001

Capital Recovery

Capital recovery =

[amortization factor x (beginning value – salvage value)]

(interest rate x salvage value)

+

This is an alternative to calculating

depreciation and interest.

Amortizing Factor

Amortizing factors can be found in

Appendix 1 of your textbook. It depends

on interest rate and life.

Example: 5% interest, 7 year life

Amortizing factor is 0.17282

Comparison

For a machine purchased for \$52,000 with

a \$10,000 salvage value, and a 7 year life,

Depreciation is \$6,000 per year. Fixed

Interest for this machine is \$1550. The

sum of depreciation and interest is \$7550.

Using the amortization factor, we get:

.17282x42,000 + .05x10,000 = \$7758

What is Capital Recovery?

Capital recovery is the annual payment

that would recover the initial investment

lost through depreciation, plus interest on

the investment. It relates to investment

analysis and net present value. The capital

recovery amount is usually a little higher

than the sum of depreciation and interest

because it accounts for the time value of

money.

Repairs
• Annual repair costs will vary with use, machine type, age, preventative maintenance programs, climate, etc.
• Machinery repair costs increase over time
• Repair costs are highly variable and difficult to estimate without detailed on-farm records.
Table 22-2Average Repair Costs per 100 Hours of Use, Percent of New List Price

Gives average costs

Over entire life. Will

Normally be less for

Higher for older

Machinery.

Source: Hunt, Donnell; see text

Fuel and Lubrication
• These costs are important for powered machinery.
• Fuel use per hour depends on engine size, load, speed, and field conditions.
• For tractors:

Gallons per hour = 0.060xPTO hp (gas)

Gallons per hour = 0.044xPTO hp (diesel)

Where PTO = maximum power takeoff horsepower of the tractor

Lubricants

For powered machinery the costs for

10 to 15% of fuel costs. For non-powered

machines, it is generally small enough to

ignore.

Labor
• Amount needed for machinery depends on operation, field speed and efficiency, and the size of machine.
• Labor costs are generally estimated separately but need to be included.
• Total labor charge should include time spent fueling, lubricating, repairing, adjusting, and moving machinery, not just operating it. These activities can add as much as 10 to 25 % to machinery field time.
Custom Hire or Rental
• Custom machinery rates usually quoted by acre, hour, bushel or ton, and include labor costs.
• A farmer may rent a machine for a few days or weeks. In this case, fuel and labor costs must be added to rental rates.
Other Operating Costs

Some machines use twine, plastic wraps, or

bags. These costs must also be included.

Machinery Costs and Use
• Annual total ownership or fixed costs are usually assumed to be constant regardless of the level of use.
• Operating or variable costs increase with use, generally at a constant rate per acre or hour.
• The result is that annual total costs increase at a constant rate and average total costs fall as use increases.
Examples of Machinery Cost Calculations
• List the basic data
• Calculate ownership costs
• Calculate operating costs
• Calculate total cost per hour
• Calculate cost per acre
Table 22-4Combined Cost of a Tractor and Implement

When a tractor pulls an implement, costs for both must be

calculated. Don’t overlook the implements. Do not add ownership

costs together because the tractor can be used for other purposes.

Factors in Machinery Selection
• Machinery size
• Timeliness
Machinery Size

Field capacity =

speed (mph) x width (feet) x field efficiency (%)

8.25

A 12-foot-wide windrower operating at 8 mph, with a field efficiency

of 82% would have an effective field capacity of 9.54 acres/hour.

Field Efficiency

Field efficiency is included to recognize

that a machine is not always used at

full capacity because of work overlap and

and handling. Planting may have field

efficiencies as low as 50%. Some tillage

operations may have field efficiencies

as high as 85 to 90%, particularly in large

fields.

Minimum Field Capacity

Minimum field capacity =

acres to cover

hours per day x days available

Compare this value to the calculated

field capacity.

Windrower: 180 acres, 2 days, and 10 hours per day = 9.00 acres per hour. Compare to 9.54 calculated.

Okay.

Field Days Needed

Field days needed =

acres to cover

hours per day x acres completed per hour

Operator must decide if typical weather

will permit this many days of operation

without risk of serious losses.

Timeliness

Some field operations do not have to

be completed within a fixed time period,

but the later they are performed, the

lower the harvested yield is likely to be.

Figure 22-2Hard red winter wheat yields as a function of planting date at Stillwater, Oklahoma
Alternatives for Acquiring Machinery
• Ownership
• Rental
• Leasing
• Custom hire
Improving Machinery Efficiency
• Machinery investment per crop acre: current value of all machinery divided by total acres
• Machinery cost per crop acre: total annual machinery costs divided by total acres
Techniques to Improve Efficiency
• Maintenance and operations
• Machinery use
• New versus used machines
• Replacement
Replace
• When machine is worn out
• When machine is obsolete
• When there are increasing costs
• When there is insufficient capacity
• To reduce taxes in high profit year
• To fit cash flow
• For pride and prestige (not a good economic reason)
Summary

Annual machinery costs are a large

part of a farm’s total costs. Selection

of optimum machinery size should

consider total costs and the effects on

timeliness. Machinery efficiency can

be improved by proper repairs and

maintenance, by owning equipment

jointly, or by exchanging the use of

individually owned machines.