Total Cost of Operating a Tractor

[GregP27]

Hi,

Here's a neat thing I found. Some of you might want to model your own tractor costs.

Estimating Farm Machinery Costs | Ag Decision Maker

The results could be interesting and could also shed light on what tractor owners charge for doing tractor work for people. At least, I found it interesting and mathematically pretty easy to do in Excel.

I did a test case for a 4WD tractor, list price $35K, purchased for $28k, operated 200 hours per year for 20 years, using my own money to buy it, assuming 5 gallons per hour fuel burn, paying the driver $15 per hour. Total cost came out to be $51.24 per hour over 20 years at that rate. So paying someone $65 - $80 per hour for such a tractor working isn't too unreasonable, is it? Especially if he pays for any broken items.

Just food for thought, no message in here.

 

[4570Man]

That sounds way high. 20 years x 200 hours a year is 4000 hours. Assuming the end value of the tractor is zero that's $7 an hour. The value of a 4000 hour tractor is higher than zero, so that lowered the price. I don't know what kind of tractor we're comparing here, but for $28000 I assume it's a compact. 5 gallons per hour is way high. Try 3/4-1 gallon. That brings the hourly cost to 24 dollars an hour ( 1 gallon of fuel @$2 a gallon, $7 for tractor deprecation, and $15 for operator pay ) we've failed to account for maintenance. Lets just assume the end value of the tractor equals the cost of maintenance.

 

[GregP27]

I might agree if I hadn't read the article and followed the math.

So ... you might read it, follow the reasoning, and decide where you think it might be wrong. I was looking for a logical flaw, and didn't really see one myself. You might. If so, post it.

Their reasoning was that depreciation is the cost to purchase minus the residual value at the end, which is the way it is figured in business almost universally, divided by the years. That's depreciation per year. Divide that by the 200 hours per year and you get $ per hour depreciation. Rather than duplicate it here, read it!

Just to be clear, I didn't write this ... I found it online and posyted a link to it for you to look through.

 

[smstonypoint]

Hi,

Here's a neat thing I found. Some of you might want to model your own tractor costs.

Estimating Farm Machinery Costs | Ag Decision Maker

The results could be interesting and could also shed light on what tractor owners charge for doing tractor work for people. At least, I found it interesting and mathematically pretty easy to do in Excel.

I did a test case for a 4WD tractor, list price $35K, purchased for $28k, operated 200 hours per year for 20 years, using my own money to buy it, assuming 5 gallons per hour fuel burn, paying the driver $15 per hour. Total cost came out to be $51.24 per hour over 20 years at that rate. So paying someone $65 - $80 per hour for such a tractor working isn't too unreasonable, is it? Especially if he pays for any broken items.

Just food for thought, no message in here.

When the question of tractor costs arise, I always link to the referenced article, or similar articles from other ag. economics departments. The most recent occasion was in the following thread: http://www.tractorbynet.com/forums/buying-pricing-comparisons/377826-what-does-your-tractor-cost.html#post4739283.

Note that economists, unlike accountants, take account of opportunity costs.

Steve

 

[xring100]

That sounds way high. 20 years x 200 hours a year is 4000 hours. Assuming the end value of the tractor is zero that's $7 an hour. The value of a 4000 hour tractor is higher than zero, so that lowered the price. I don't know what kind of tractor we're comparing here, but for $28000 I assume it's a compact. 5 gallons per hour is way high. Try 3/4-1 gallon. That brings the hourly cost to 24 dollars an hour ( 1 gallon of fuel @$2 a gallon, $7 for tractor deprecation, and $15 for operator pay ) we've failed to account for maintenance. Lets just assume the end value of the tractor equals the cost of maintenance.

I agree my 85 hp tractor even in heavy brush hogging or mold board plowing only burns about 2 gph. In theory it can burn about 4.5 gph but typically im in the 0.75-1.5 gph hour.

 

[GregP27]

The thing is, if you supply the money yourself, as in don't finiance, then you have to also count the cost of money you would not have made by investing at market rate. If you finance, you have to include all the interest you pay.

The costs I saw in the thread you linked were true, but they leave out a LOT. If that's the way you plan to pay for it, you will come up short when it come time for a new tractor, and that's OK if you are OK with that. Go for it.

I was trying to get to the true total cost, not the cost of fuel maintenance and ownership only. I'm factoring in insurance, cost of money I spent at market minus inflation rate, etc. My numbers rather obviously won't match yours, but if you could supply your numbers, I can run them and post. Did you buy a trailer, too, to haul the tractor? Wanna' depreciate that, too? What do you pay the operator. Don't know about you, but MY time is not free.

I'd need:

1) list price
2) price paid
3) 2WD or 4WD
4) hours per year
5) years to own
6) Residual value at years to own (sale value)
7) Interest rate for investment (I'll estimate 7%)
8) Inflation rate (I'll estimate 2%)
9) estimated fuel burn per hour and estimated cost of fuel per gallon
10) Hourly rate for operator, cannot be zero or there's no point in doing work for anyone else. Noboby works free except for himself, and that really isn't free, because you might have made money doing something else while you were on the tractor.

I'm not saying you are wrong, just not complete. Again, that's fine if you want to figure it that way.

The link I gave is a commercial cost to own and operate summation, and is what any reasonable businessman would do for a reasonable business plan, if he wanted it financed at a real bank and wanted to use the tractor to pay for itself as colatteral. It isn't an estimate of the cost minus all the other opportunity and expense costs. If you want to forgo those, it's great and as long as you don't expect an institution to lend money to you based on the income generated from the tractor to pay for it, it works out fine. Remember, if you are supplying money in any form from another job, say your DAY job, then that money doesn't count for funding the new tractor.

This was a fine find for me, and I already checked it with an old friend who is an accountant and has a property and a tractor. His costs, when he supplies the numbers to me, come out almost spot on with his total actual costs over 10 years. That good enough for me, but we each think differently and I have no issues with other cost to own summations, as long as I'm not financing them. It's all good until then.

Cheers!