February 25, 2004 | By: Laura Skillman
LOUISVILLE, Ky.

When farmers decide to use site-specific nutrient management as part of their farming operations, they need to decide whether to do it themselves or hire someone else to perform the service.

“If you think it’s worthwhile and have worked out the technical aspects, then you have to determine who is going to do it,” said Steve Isaacs, agriculture economist with the University of Kentucky College of Agriculture.  “Whoever can furnish this at the least cost is who should do it.”

To determine what it costs to own the equipment and do the work himself, a producer needs to look at the initial investment, annualize fixed and variable cost and compare it to custom rates, he said.

Several technologies need to be incorporated into these costs such as mapping and soil sampling and application of the nutrients. Types of equipment would include a GPS system, computer, nutrient applicator and all-terrain vehicle to name a few.

Some pieces of equipment will have multiple uses while others will be totally for site-specific application so a percentage of their costs would need to be used in determining total variable rate application costs for an operation.

Depreciation as well as interest and insurance costs need to be included in the cost analysis.

“You are going to have a pretty significant amount of hardware if you are going to do this on your own on your farm,” Isaacs said.

Annual variable costs to be added to equipment costs are those for labor, fuel and oil and repair.

Next, custom rates from various businesses need to be determined and compared to the annual costs a farmer would have for doing the work himself.

When fixed costs, variable costs and custom rates are known, a breakeven acreage analysis can be calculated. Once this is established, a farmer can determine whether it is more economical to custom hire or to purchase the equipment and do the work himself.

Isaacs also noted that the more often the equipment is utilized the smaller the breakeven acreage becomes. For example, if a farmer does one variable rate nutrient application and a lime application, the acreage breakeven level will be higher than if he does two variable rate nutrient applications and lime application.

“It makes sense that if you own the equipment, the more you can do with that equipment the lower the cost is,” he said.

Costs are easy to determine but Isaacs noted there are other factors to consider before making the plunge into purchasing the equipment.

“Just because it is technically feasible, does an individual grower want to do that? I suggest that in some cases the answer is no,” he said. “Calibrating and making sure that equipment is running right is vital. Can you, and do you want to do that?”

In an industry that’s growing very quickly, some of this equipment may become obsolete before it is warn out, so instead of having to replace something every eight years, a producer may end up having to replace it every five years, thereby increasing the cost.

“That’s another issue and one we don’t have a good feel for because we don’t know what’s going to happen in the future,” he said. ”We expect that the technology will get better over time and you may want to upgrade and that changes the cost structure.”

Timeliness is another factor. A timely application can make a difference in yield, so a farmer needs to determine if he or a custom applicator are more likely to do the work on a timely basis.

Finally, taxes and the ability to accelerate depreciation on some equipment are also factors to be considered above the basic cost per acre data.

Isaacs said a decision tool is being developed that will allow farmers to input information specific to their operation to gauge what option will be the most economic for him.

For more information on precision agriculture contact a county office of the UK Cooperative Extension Service.

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Contact: 

Writer: Laura Skillman 270-365-7541 ext. 278
Source: Steve Isaacs 859-257-7255