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[OCT. 9, 2006]  URBANA -- Farm operators can now calculate their estimated machinery costs for 2006, as a result of a recent University of Illinois Extension study.

"Machinery Cost Estimates for 2006" was prepared by Gary Schnitkey and Dale Lattz, U of I Extension specialists in farm financial management. The report is available on Extension's Farmdoc site.

Lattz noted that more important than the estimates is the fact that they can serve as useful guidelines to assist farm operators in determining what to charge for custom farming operations.

Farm operators should, when possible, calculate their own costs, based on their set of equipment and factors influencing their costs, such as repairs, acres farmed and so on.

"Estimated costs for most operations are higher in 2006 than in 2005, the last time machinery costs were estimated," said Lattz. "Three factors contributed to the increase.

"First, the diesel fuel price was estimated at $1.50 per gallon in 2005. For 2006, a $2.50-per-gallon price was used, a 67 percent increase over the 2005 price."

For planting, that means the fuel price increase caused a 60-cent-per-acre increase in total machinery costs. For corn combining, the fuel price increase added 40 cents to costs per acre.

"New, larger equipment is more fuel-efficient and requires less fuel per acre than smaller, older equipment," said Lattz. "Thus, increases or decreases in the cost of diesel fuel have less effect on machinery costs per acre than they did several years ago. But, it is still a significant factor when calculating machinery costs."

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A second factor driving up the estimated costs was higher priced new equipment.

"For example, the list price of the planter used to estimate 2006 costs was 9 percent higher than the 2005 price; the tandem disk price was up 15 percent; and the combine price was up 11 percent," said Lattz. "Machinery costs are calculated assuming that new equipment is purchased and held for 10 years -- seven years for combines. Higher equipment prices contribute to higher depreciation and interest costs."

Finally, the interest rate used in calculating costs was increased from 7 percent in 2005 to 7.5 percent in 2006.

"A higher interest rate increases the cost of equipment ownership," said Lattz. "While the interest rate was not increased substantially, it resulted in a minor increase in costs."

Lattz noted that combining is the single machinery operation that contributes the most to machinery costs per acre.

"Combining costs can vary significantly based on the number of acres per year the combine is used on," he said.

[University of Illinois Extension news release]

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