Custom Harvest Versus Combine Ownership
A 900-acre corn-soybean farm in the Coastal Plain owns no combine. A custom operator charges $42 per acre and has reliably arrived within the optimum harvest window. The farmer is considering a used combine for $165,000, financed over five years at 6.5%. Estimated fixed ownership costs, including depreciation, interest, insurance, and housing, are $32,000 per year. Variable harvesting costs, including fuel, repairs, labor, and supplies, are estimated at $16 per acre. The combine has capacity to harvest 1,200 acres and could custom harvest 200 acres for neighbors at $42 per acre, but the farmer is not sure neighbors will hire him. Harvest losses with the custom operator average 1%; the used combine is expected to lose 3% unless $8,000 is spent on adjustments. Average yield is 180 bu/ac and corn price is $4.50/bu.
1. Calculate the annual break-even acres for owning the combine, ignoring custom work and harvest loss. Compare that with the farm's 900 acres.
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The break-even acreage is fixed ownership cost divided by the difference between the custom rate and variable cost per acre: $32,000 / ($42 - $16) = $32,000 / $26 = about 1,231 acres per year. At 900 acres, owning would cost $32,000 fixed plus 900 x $16 = $14,400 variable, or $46,400. Custom harvesting would cost 900 x $42 = $37,800. Owning is therefore about $8,600 more expensive at the current acreage, before considering harvest loss. The combine would need roughly 1,231 acres of annual use just to match the custom rate. Any neighbor custom work would reduce the effective cost, but only if the work is secured and does not delay the farm's own harvest.
2. Now include harvest loss and the $8,000 adjustment. Does the decision change?
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The extra 2% harvest loss is 0.02 x 180 bu/ac = 3.6 bu/ac. At $4.50/bu, that is $16.20/ac, or $14,580 over 900 acres. Adding that to the ownership cost gives $46,400 + $14,580 = $60,980, compared with $37,800 for custom harvest. If the farmer spends $8,000 on adjustments and reduces loss to 1%, fixed ownership cost becomes $40,000 and total ownership cost is $40,000 + $14,400 = $54,400. Custom harvest is still cheaper by about $16,600. The loss assumption therefore strengthens the case for custom harvest at 900 acres. Ownership would need substantially more acres, a higher custom rate, or guaranteed neighbor work to overcome the gap.
3. What nonfinancial factors and risks should the farmer consider, and what would make ownership attractive?
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The farmer should weigh timeliness and weather risk, the custom operator's reliability, the used combine's repair history, labor availability, storage and transport, resale value, and the risk that neighbor custom work will not materialize. A 3% harvest loss may also affect volunteer corn, residue management, and next year's crop. Ownership becomes more attractive if the farm controls more than about 1,231 acres, if the custom rate rises or the operator becomes unreliable, if the farmer can secure enough custom work to spread fixed costs, or if the combine can be purchased at a low price with a strong repair record. The decision should use a partial budget with sensitivity analysis for acres, custom rate, yield, price, and harvest loss rather than relying on one average calculation.