Custom Rates Rise

The cost for custom work in Nebraska has increased during the past two years. But, it is a bit surprising still, says Glennis McClure, farm and ranch management analyst for the department of ag economics, at the University of Nebraska, Lincoln, that custom rates have not risen more.

“Overall, it is pretty amazing how close we are [in some categories] compared to 2016,” says McClure, discussing the University of Nebraska’s 2018 Custom Rates Survey. McClure compiled the new report with Jim A. Jansen, an agricultural economist at the university.

Nebraska’s every-other-year Custom Rates Survey notes, for example, the average diesel price (on-farm delivery) rose from $1.68 per gallon in 2016 to $2.46 per gallon this year. Labor rates rose 6% from 2016 to $18.85 per hour. The 2014 survey showed diesel prices averaged $3.39, and the per-hour labor rate averaged $15.58.

Between 2016 and 2018, the average charge for custom-drilling soybeans with a no-till drill went up just more than 1%, to $18.02 per acre in the 2018 survey from $17.76 per acre in 2016. The survey revealed combining irrigated corn using a flat rate per acre averaged $38.22 in the 2018 survey. That is $1 to $3 per acre higher than previously reported.

Charges for some custom operations went up more steeply. For example, the custom charge for planting row crops with row cleaners went up 11%, from $18.91 per acre in 2016 to $21.12 per acre in 2018.

“The concern,” McClure says, “is that custom operators take into account the cost of machinery, fuel and labor. They need to make sure they cover their costs.”

COST CALCULATION. Defining a cost, or defining a charge for a custom operation, includes at least three factors, McClure explains. First are ownership costs, including interest, taxes, depreciation and the cost of housing or sheltering equipment. Second are operating costs, such as the cost of fuel, labor, parts, maintenance and repairs. Third is profit margin--not only covering labor costs but a factor that allows operators actually to pay themselves.

Among custom operations in Nebraska, harvest work and haying appear to be the most consumed custom services.

Custom operators reported more work in 2018. For example, the 2018 survey documents an increase of 100 hours of custom work performed, on average, per custom operator during 2016. Average hours worked per operator in custom operations was 480, according to the 2018 survey. But, from top to bottom, the range was large--from 4,200 hours of custom work performed on the high end to 20 hours performed on the low end.

ACRES WORKED. Custom operators also worked significantly more ground, comparing 2018 with 2016. The average custom operator covered 2,809 acres in 2016. In 2018, custom operators booked on average 4,852 acres. The range was, from top to bottom, even starker than hours worked. Custom operators reported working anywhere from 250,000 acres down to just 70 acres in the 2018 survey.

The accompanying chart shows a sampling of the services covered in the 2018 Custom Rates Survey. The columns name the operation performed, the average rate charged per acre for that work, the most common charge among custom operators answering the survey and the price range recorded from among all the responses collected. All are charges per acre unless otherwise noted.

Note the price spread under the “range” column. McClure says this is partially a result of overall involvement in the business. For example, an operator who performs work at little profit for neighbors compared to an operator who runs a custom operation full time. Expenses also vary across the state of Nebraska as demand and the availability of labor vary.

The Custom Rates Survey report serves only as a guide. McClure says farmers and ranchers should use their judgment and consider their costs when negotiating custom operation rates.

The 2018 survey included 151 custom rates on machinery operations and related services reported, with 227 survey participants providing information on the various rates. Custom rates reported include charges for the use of necessary equipment, fuel, labor and supplies, such as baling wire or twine, provided by the custom operator. Seed, fertilizer and chemical costs are not included.

For More Information:

A summary of the 2018 Custom Rates Survey report is published as Nebraska Extension Circular (EC) 823 and is available online at go.unl.edu/custom-rates.

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