Agricultural Custom Work – What to Charge?

There are various resources or guides available to assist custom machine hire and service providers in figuring rates in Nebraska. The Nebraska Custom Rates Report is a popular biennial publication, now updated for 2022.  Information provided in the report is from survey data gathered on 136 different custom operations and services from 193 survey respondents providing those services in Nebraska. The report provides market rates and is an informational source for those providing custom work and their potential customers. The report provides common charges, or a range of rates charged in their area and for Nebraska.  Another important source of information is to calculate cost of owning and operating machinery and equipment with a program like the Agricultural Budget Calculator (ABC). Considering market information combined with covering costs plus a profit margin is a common formula for setting a price for services.   

Agricultural custom rate charges can vary across the state; therefore, the Nebraska Custom Rates Report provides rate details from survey responses grouped by Nebraska Agricultural Statistics Districts.  Several factors contribute to rate differences reported by survey participants, including field and job sizes, soil conditions, and the number of responses for the various operations. Some operators may charge lower than market rate prices to neighbors or relatives. Rates may change from year-to-year due to expense differences and local market forces. Determining appropriate charges for custom machine hire and agricultural services may include consideration of various elements including current market rates as reported in the custom rates survey report, market demand in the area for specific types of custom work, and availability of services.

Fuel cost is a key expense when operating machinery and can fluctuate dramatically which has certainly been the case this year.  2022 custom rates survey data was received primarily during the first quarter of 2022.  The average expected farm delivered diesel fuel rate per gallon in 2022 reported by survey participants was $3.05. Since then, the diesel price rate has gone up to nearly $5 per gallon for on farm delivered diesel. Custom service operators should adjust the reported rates, to accommodate higher fuel prices. For example, let’s assume the price has increased $2.00 per gallon and a machine with a diesel consumption rate of 0.80 gallons per acre is utilized. In this scenario, $1.60 should be added to the per acre custom charge to factor in the fuel rate increase ($2.00 diesel price increase x 0.80 = $1.60).

Another way to determine custom rate fees is to calculate actual machine ownership and operation costs, plus a desired profit margin may be added. The UNL Center for Agricultural Profitability developed the ABC program to assist producers in determining their cost of production for their enterprises which include machinery and equipment used in their agricultural operations.  Custom operators can utilize the online program, agbudget.unl.edu  to enter their machinery and equipment  information such as purchase value, length of anticipated ownership and other key information, along with their actual fuel prices, labor costs and estimated annual repair expense for each machine to determine operation costs per acre.  Fuel, repair, and salvage value cost factors and calculations from the American Society of Agricultural and Biological Engineers (ASABE) are utilized in the ABC program. The ABC machinery cost calculations for machinery and equipment ownership and operation costs, combined with the Nebraska Custom Rates Report data, should assist custom operators in setting charges that are comparable in the marketplace while covering all costs.

The following tables provide three examples of information entered into the ABC program to figure machine ownership and field operation costs. The state average labor rate of $22.61 as shown in the 2022 custom rates report is utilized in these example calculations, in addition, a diesel fuel rate of $4.50 per gallon was used in these calculations ($1.45 per gallon higher than shown as the state average on the 2022 custom rates report).  Information in the table provides the per acre cost calculations and a note on how the cost figure compares to the state averages reported in the 2022 custom rates report. Equipment size, list and purchase prices, age, anticipated ownership, and annual usage can vary widely, therefore operators are encouraged to utilize a program like ABC to figure their operation costs and then compare those costs to similar operations in the custom rates report. 

Determining a rate to charge for agricultural custom services should be no different than establishing prices for other industry business services. Operators should consider current market prices, as provided in the Nebraska Custom Rates Report or other resources that provide such information, their total costs as figured using the ABC program or by other means, and then if desired, add an extra amount or profit margin to the price charged. 

Table 1: Spray Herbicide with Boom Sprayer pulled by Medium Sized Tractor

Table 2: Field Cultivate Using Large Tractor >150 H.P. PTO

Table 3: Harvest Corn (240 H.P. combine and corn head)