Custom Farming Rates Holding Firm
While grain prices have trended lower lately, the lag in corresponding cuts in the costs to raise those crops -- things like seed and chemical -- has been widely documented. The same is true with custom farming rates in parts of the Corn Belt, according to new information.
William Edwards has retired from Iowa State University (ISU) Extension, but he still conducts an annual survey of custom farming rates. The 2014 version shows the sector is following those other inputs -- not grain or farmland prices -- in their stable or upward-trending prices despite signals that they "should be" following those larger markets lower.
"Most operations showed increases of 4% to 6% over the average rates in the 2013 survey. The survey includes information on tillage, planting, spraying, and harvesting grain or forages. Also included are values for miscellaneous services and machinery rental," according to a university report summing up the survey conducted by Edwards and ISU Extension program specialist Ann Johanns. "There are many reasons for why the rate charged in a particular situation should be above or below the average. These include the timeliness with which operations are performed, quality and special features of the machine, operator skill, size and shape of fields, number of acres contracted, and the condition of the crop for harvesting. The availability of custom operators in a given area also will affect rates."
The survey sought opinions from just shy of 200 farmers in Iowa.
Not everything comprising the typical custom rate is higher, though; in Kansas, diesel prices are projected to stay 7¢ to 10¢ cheaper per gallon, chipping away slightly at custom rates there, says Kansas State University Extension ag economist Kevin Dhuyvetter. And, that's a major component, as is the machinery producer paid index (PPI), which is seen sneaking slightly higher for this year, largely offsetting the trim in diesel costs.
But figures like these are just a baseline for making custom rate decisions, Dhuyvetter adds. He agrees with Edwards; using data like this can help yield a fair custom rate deal, but there are other factors specific to each agreement that should be layered on top of these types of numbers.
"Custom rates have many uses for different people. Obviously, people hiring others for certain farm operations benefit from having information as to what reasonable expectations are. Likewise, custom operators themselves benefit from having information to help them as they negotiate rates with their customers," Dhuyvetter says. "[Projections] should be reasonable and provide a good starting point for producers and custom operators to begin their negotiation process."