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Custom Farming Rates Continue to Rise, UNL Analysis Shows

Custom farming rates continue to rise as costs of fuel and farm machinery continue to go up, a University of Nebraska-Lincoln agricultural economist says.

Farmers who hire other people to do field work can expect to pay 15% more for tillage operations and 13.5% more for planting operations than in 2004, says Doug Jose, UNL farm management specialist who conducts the biennial survey of custom rates. The 2006 survey results will be published later this spring.

"These guidelines will help those doing custom work come up with some custom rates, while it will prepare farmers to expect to pay more," the Institute of Agriculture and Natural Resources specialist says.

In 2004, the last time the survey was released, rates overall increased 10%. Then, as now, higher fuel costs were to blame. Power costs, which do not include the fuel, but the ownership and operating costs for the tractor, increased 8.8% in the last two years.

Fuel costs went up 46.2% in the last two years.

Other costs that went up during the last two years based on the Indexes of Prices Paid by Farmers published by the National Agricultural Statistics Service include: repairs, 8.1%; depreciation, 8.8%; overhead, which includes interest, insurance and housing, 14.4%; and labor, 10.1%.

To translate how these increases in the cost of machinery operations affect custom tillage and planting operations, Jose calculated the percentage of total costs represented by each of the cost categories. For example, for tillage operations, which include disking, chisel plowing and moldboard plowing, power costs represent an average of 33% of the total cost of tillage operations. He then combined these percentages with the cost increases from the NASS to calculate a weighted average increase.

To apply these percentages, multiply the rate charged in 2004 by these percentages to calculate an equivalent 2006 rate. For example, if the rate charged for a tillage operation in 2004 was $9 per acre, the equivalent rate for 2006, based on the cost increases, would be $9 x 1.15 or $10.35 per acre.

For more information about this analysis, visit the Update for Custom Rates Jose put together with a step-by-step approach on how to calculate custom costs.