LAKE CRYSTAL, Minn. — Many farm operators provide some type of custom work or use of farm machinery to other farmers during the growing season, and payment is usually made following the completion of the harvest season. Sometimes, it can be difficult to arrive a fair custom rate for the certain farming practices, or for the use of various pieces of machinery. This could be the case in a year such as 2021, when the cost of machinery operation for diesel fuel, repairs, and labor have increased substantially from the beginning of the year until year-end.
Due to the high cost of investment in farm machinery, an ever-increasing number of farm operators are hiring other farm operators to provide some or all of the needed machinery resources for their farm operation. This is especially true with new and younger farm operators, as well as with children that decide to start farming with their parents. In addition, some land investors are choosing to operate a farm themselves rather than cash renting the land another farm operator, thus hiring a farm operator under a custom farming agreement.
One of the best resources for average custom rates is the annual “Iowa Farm Custom Rate Survey” that is coordinated and analyzed by Iowa State University. Each year in January, custom operators and farm managers are sampled regarding the expected farm custom rates for various farm operations. The custom rate summary, which is usually released in late February, lists the average custom rate, as well as a range in custom rates, for various tillage, planting, fertilizer and chemical application, grain harvesting, and forage harvesting functions on the farm. The survey also includes many miscellaneous farming practices, average per hour farm labor rates, and includes a formula for calculating rental rates. Th Iowa Custom Rate Survey is probably the most widely used and updated custom rate information that is available in the Upper Midwest. The complete 2021 “Iowa Farm Custom Rate Survey” for all farming practices is available on-line at the following Iowa State University web site: https://www.extension.iastate.edu/agdm/crops/html/a3-10.html
The average custom rates for farm operations in most areas of the Upper Midwest tend to be very close to the average Iowa custom rates. All listed custom rates in the Iowa survey results include fuel and labor, unless listed as rental rates or otherwise specified. These average rates are only meant to be a guide for custom rates, as actual custom rates charged may vary depending on increases in fuel costs, availability of custom operators, timeliness, field size, etc. In a year such as 2021 that has featured significant increases in operation costs for farm machinery, it may be justified and necessary to adjust some of those custom rates above the median or average rates.
Based on the Iowa State data, average custom rates for tillage, planting, and harvest operations in 2021 were expected to be steady to slightly lower, compared to the rates in 2020. The custom farming rates for corn and soybean production were also expected to be steady compared to a year earlier. Farm custom rates have not changed much in recent years due to relatively stable fuel prices and repair costs, along with more farm operators being available for custom work services. The listed average or median rates are only meant to be a guide for custom rates, as actual custom rates charged may vary depending on continued increase in fuel costs, availability of custom operators, timeliness, field size, etc. and could be adjusted later in the year due to these factors.
All listed custom rates in the 2021 Iowa Survey results include fuel, labor, repairs, depreciation, insurance, and interest, unless otherwise specified. The average price for diesel fuel was assumed to be $2.71 per gallon. A fuel price increase of $.50 per gallon would cause most custom rates to increase by approximately five percent. The cost for new and used machinery has increased rapidly during 2021, which together with increasing fuel and repair costs and higher labor charges, probably justify some adjustments in final 2021 custom rates. These factors may result in some custom operators increasing their final 2021 custom rates at year-end.
— Kent Thiesse, Farm Management Analyst and Senior Vice President, MinnStar Bank