Farm programs custom farming rates increasing slightly in 2015 news thelandonline.com gaston y daniela

As has been the trend in recent years, average 2015 custom rates for farm work are likely to show a small increase, compared to 2014 custom rates. Most custom rates for tillage, planting, and harvest operations in 2015 are listed at two percent to five percent above the rates for similar operations in 2014, with an average increase of about 3.5 percent. Fuel costs have declined slightly from 2014 levels; however, increasing cost for new and used machinery, along with rising repair and labor expenses, are also factors in the higher custom rates.

These results are based on the annual “Iowa Farm Custom Rate Survey” that is coordinated and analyzed by Iowa State University. The survey sampled 166 custom operators and farm managers on what they expected 2015 custom farm rates to be for various farm operations. The survey summary lists the average custom rate and the range 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, lists average machine rental rates for some equipment, and includes a formula for estimating average machinery rental rates. The survey also lists average custom farming rates for corn, soybeans, and wheat. Over the years, the average custom rates for farm operations in southern and western Minnesota has been very close to the average Iowa custom rates.

All listed custom rates in the Iowa Survey results include fuel, labor, repairs, depreciation, insurance, and interest, unless listed as rental rates or otherwise specified. The average price for diesel fuel was assumed to be $2.94 per gallon. A fuel price increase of 50 cents per gallon would cause most custom rates to increase by approximately five percent. These average 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.

An alternative to leasing farmland is a custom farming agreement. In a typical custom farming agreement, the custom operator agrees to perform all the machine operations on the owner’s land in exchange for a set fee or rate. Average custom farming rates for 2015 are listed in the 2015 Custom Rate Survey Table at the end of this article. The landowner pays for all seed, fertilizer, chemicals, crop insurance, and other input costs; receives all grain produced, as well as all eligible farm program payments on the land; and is responsible to store and market the grain.

One obvious advantage to the custom operator is that a custom farming agreement provides some extra farm income, with little or no additional operating capital or farm machinery investment. Fuel, lubrication, and repairs are usually the only added costs. In addition, custom farming offers a fixed return per acre to the custom operator, and although there is some possibility of higher repair bills, this is minor compared with the price and yield risks typically faced by a farm operator in a normal cash rental contract. Of course, in a good year, profits from a custom farming agreement will be lower than under most cash rental leases; however, in this era of much higher land rental rates there is much more risk to the farm operator with a cash lease, as compared to a custom agreement with a landowner.

Landowners also find several advantages to a custom farming agreement. Landowners with small acreages can make most of the crop production and grain marketing decisions without the investment into a full line of farm machinery. The landowner does not have to negotiate land rental rates or worry about collecting lease payments, since the owner receives all of the crop proceeds. The landowner does have to pay the farm operator an agreed upon per acre fee for the custom farming services by specified dates. The landowner is considered to be the material participant for income tax purposes, and the landowner is typically entitled to all government farm program payments, crop insurance indemnity payments, etc.

Although the concept of a custom farming agreement is simple, close communication between the custom operator and the landowner is essential. A written contract for the custom farming agreement should definitely be prepared that specifies the amount of payment by the landowner to the custom operator, and all other pertinent details. Following are some points to consider for a custom farming agreement:

• The normal field practices to be included under a custom farming agreement should be listed (including tillage, planting, weed control, harvesting, hauling grain, etc.). Typically, these agreed upon practices are part of the per acre custom farming payment that is negotiated between the custom operator and the farm owner.

• Additional tillage trips or replanting due to weather conditions, or added spraying applications of pesticides to control weeds, insects or diseases, which are provided by the custom operator, are usually charged to the landowner at a custom rate per acre, which is over and above the base custom farming rate.

• Timing of planting and harvesting operations should be discussed and negotiated between the custom operator and the landowner prior to the growing season, and possibly be included in the written contract. This can become a tenuous issue, especially in years with challenging weather conditions.

• The custom operator may be asked for advice by landowner regarding the seed corn hybrid or soybean variety to plant, fertilizer rates, chemical applications, levels of crop insurance, farm program sign-up choice, or grain marketing decisions. However, the final decisions on these type of items lie with the farm owner/operator, and the custom operator needs to be careful not to take responsibility for the final authority on those decisions.

• Typically, the harvested grain of the landowner is delivered by the custom operator to a farm storage facility that is owned or rented by the landowner, or to an agreed upon area grain elevator, as part of the custom farming agreement. Any grain deliveries beyond the local area usually result in the landowner paying an extra custom rate charge for grain hauling. Also, if the landowner uses the custom operators grain drying and handling facilities, there is typically an added charge for these services.