Are Your Power Costs Too High?

Prairie Gleanings

U of I economist explains why the most profitable farmers pay less in power costs.

Published on: January 8, 2010

Today, I braved the blowing and drifting snow to attend the University of Illinois' annual Corn and Soybean Classics. And, boy, I'm glad I did.

 

For farmers, U of I's seminars are a good place to pick up production tips and a hint of research on the horizon. It's also a chance to discuss the brutal year that was 2009.

 

For me, the conference was a veritable gold mine for story ideas. All of the presenters were very good, but I was absolutely enthralled with U of I economist Gary Schnitkey's comments.

 

Analyzing Illinois Farm Business Farm Management data, Schnitkey looked at what the most profitable producers do differently from the least profitable. One of the more interesting points was the cost of farm power (i.e. tractors and combines).

 

As most would expect, the most profitable producers have lower power costs. But, if you think it has to do with new vs. used, think again. As Schnitkey explains, the data show as equipment ages, repair costs go up. If you trade machinery often, you're hit with high depreciation costs. As a result, he contends these two offset each other.

 

Instead, he says there are two big things you should analyze when it comes to power costs. Number one: Is your combine sized properly to meet your needs? Too often, the data showed farms in the lower profit categories were running combines that were too big. 

 

Number two: How many tractors do you have per tillable acre? Schnitkey doesn't want you to count the 20-year old models that you use to run your augers. Rather, the ones doing the tilling and planting. If you've got too many, it's a sure bet that your power costs are too high.

 

Be sure to check upcoming issues of Prairie Farmer for more wisdom from U of I's ACES team.

 

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