Custom farming rates going up, but so are the costs

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wheat harvest

SALEM, Ohio — If you’re paying someone else to plant or harvest your crop — known as custom work — you’ll probably pay a little more this year than usual.

Rates are up for everything from planting to harvesting, according to a survey conducted by Ohio State University, with results released in July.

The survey is conducted every two years, and this year included 256 participants.

Compared to 2012, the cost for custom planting is up about 10.4 percent on average, grain harvesting is up 10.5 percent and hay/straw harvesting is up 15.4 percent.

Rates normally do go up, according to ag economist Barry Ward, a business management leader with OSU Extension, who coordinates the survey. But this year’s increase is noticeably higher, partly due to the profitable conditions for farmers the past few years.

“We’ve seen a very profitable period in grain production that has allowed some of these rates to go higher,” he said, adding that it amounts to inflation.

Questionable year

Of course, farmers already know that this year could be a difficult year to be profitable — as prices for crop commodities have been falling all year, and are approaching and dipping below the break-even point.

But Ward said it will likely take more time and sustained low prices, before those factors begin to factor into the price of custom work.

See our custom farming infographic here.

Even with the price increases, he said many custom operators probably are not covering all of their costs. Custom operators usually cover their cash costs, he said, but may not figure in all of their variable costs, like depreciation of equipment or the amount of time spent doing the custom work.

Part of the reason, Ward said, is because a lot of custom work is done within a neighborhood or a family — and those custom operators may not be in it for profit — as would an operator who travels or does custom work full-time.

Many factors

There’s a wide variety of scenarios, depending on the custom operator and the farm that hires the work done. That’s why Ward’s survey includes average prices, as well as the range of prices. The survey lists prices for dozens of field operations, but should not be considered the market standard.

The average cost to harvest corn with a combine and grain cart, for example, is $34.65 per acre, but the range is from $25-$68 per acre. Similarly, the average price for harvesting soybeans is $32, with a range of $23-$50.

“Hopefully, it’s not setting the market,” Ward said, suggesting instead that farmers should use the survey results as a “starting point” and a reference.

Covering costs

Even with the increases, custom operators say their own costs are becoming harder to cover.

Jon Orr, of Orrson Custom Farming in Apple Creek, harvests forages in Ohio, Michigan, Georgia and Florida. He is also vice president of U.S. Custom Harvesters — a nationwide association of custom harvesters.

The two biggest challenges Orr has had in recent years are the cost of good labor, and the price for good equipment.

“We’re having to up the ante on what we pay employees to be able to maintain employees,” he said, noting that government regulations have made it too difficult to get foreign workers.

His company had previously relied on workers from South Africa who were dependable and responsible farm hands. He’s also finding himself in competition with the oil and gas industry, which has spurred employment.

At the same time, equipment prices are going up at unprecedented levels, with the price of new forage choppers sometimes increasing 6-10 percent a year. Orr said he’s also seeing an increase in the price of tandem-axle trucks, which he believes is tied to new demand, resulting from the oil and gas industry.

“Our overhead is going up continually, our labor is getting harder, we’ve got to charge more if we want the quality,” he said.

Advantages of going custom

Ward said he’s unsure how many farmers in Ohio may be hiring custom field work, but if he had to guess, he said he would guess the trend has decreased slightly in recent years, because more farmers have invested in their own equipment following years of good grain prices.

There are advantages both ways, and those who hire the work done usually do so to increase efficiency and free up their time to do other tasks.

Orr said he sees custom harvesting as Henry Ford once saw the auto industry — with a focus on specialization and quality.
‘“We know these machines — we run these machines the whole year,” Orr said. “This is our specialty.”

And experience is important, considering the new machines are ever-evolving and more complex and costly than ever.

Jerome Rhoads, who custom harvests forages in and around Lancaster County, Pa., said farmers may only need to use certain equipment, like harvesters, twice a year. It often doesn’t make sense to own the equipment year-round.

The advantage of hiring the work done is “a consistent job. We get it done when it needs done, with up-to-date equipment,” he said.

Keeping up

Rhoads admits, though, that being consistent can be stressful during harvest season — especially when the weather isn’t cooperating.

“That can be very challenging,” he said. “You can’t guarantee it. You do the best that you can.”

If things get too bad, he hires custom harvesters himself — to help share the load and make sure the farmers get what is promised.

Orr said he tries hard not to over-book himself and, like Rhoads, he sometimes turns to other custom harvesters to help get the job done. He harvests between 7,000-8,000 acres of forages each year — a huge responsibility.

“In general, we (custom operators) try to work together,” he said. “Our goal is to get the work done.”

Retaining customers

Part of a custom operator’s concern, he said, is retaining customers and making sure veteran harvesters don’t lose out to a new competitor. Orr said it’s not uncommon for a new custom harvester to emerge during the busy season — with offers of cheap labor and cheap harvest.

But, he said, such harvesters usually find out in a few years’ time what it’s like to stay in business — and many end up exiting.

Orr’s own family has been custom harvesting since 1949, and on a traveling, commercial scale since 1997. Rhoads has been custom harvesting since 1982.

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