Hidden Costs

(post written by Jason) As I lay on my back under our big tractor changing fluids and filters a couple of days ago I had the thought that owning equipment was one of the costs in time and money that nobody thinks very much about when considering what it might cost to run an equine retirement farm. In the last month we put a new set of tires on the front of the big tractor ($1,000.00) and bought $168 worth of filters and another $75 worth of fluids. While these are all expected expenses they do add up and they help quantify that running equipment is far from free.

It may surprise you to learn that we actually estimate the cost of owning and running every major piece of equipment on this farm. We do this multiple times; the first time occurs before we purchase any piece of equipment. Then we do it again every year to compare actual expenses to budgeted expenses so that we can allocate adequate monies for repairs and/or replacement. In order to budget accurately we break the costs of ownership and usage down into a cost per hour of use, then multiply by the number of hours we typically use the piece of equipment per year. I thought it would be interesting to share with you what these (very accurate) numbers look like for our bigger tractor. Keep in mind these numbers do NOT include any costs associated with running implements (hay mowers, bush hogs, balers, etc) pulled by this tractor. Also keep in mind that we have another tractor.

This tractor in question, 90 pto hp (for non tractor people that stands for power take-off and horse power), 4 wheel drive with a new loader, was purchased for $50,000 (including tax) some years ago. I expect that it will give me a useful life of roughly 5000 engine hours. I hope it will have some salvage value at the end of it’s useful life but since I can’t recoup this money until I sell the tractor it doesn’t factor into the cash costs of owning this piece of equipment.

$50,000/5000 hours = $10.00 per hour ownership cost. The rule of thumb is to double this cost for repairs and over twenty years in farming tells me this number is almost exactly right. Thus we add another $10.00 per hour for repairs, bringing the total operating cost to $20.00 per hour. Unfortunately repairs do not include tire replacement. We budget a full replacement every 1000 engine hours; currently a full replacement costs $3,000 or $3.00 per hour.

Maintenance such as fluids and filters also are not included in the repair bill. Add another $2.00 per hour for this cost. We’re now at $25.00 per hour. We still haven’t put fuel in the tractor. Over time the tractor averages roughly 2.5 gallons of diesel fuel per hour. At $3.50 per gallon you can add another $8.75 per hour to cost of ownership, bringing the total to $33.75.

It’s been my experience that tractors don’t run very well without operators, and it’s also been my experience that you get what you pay for in terms of help. Add another $15.00 per hour for wages to the person operating the tractor, bringing the total operating cost to $48.75 per hour.

In addition to using this figure to determine budgets and expenses this is also the figure I use when I’m running budgets to contemplate additional rented land for hay, crops, etc. At current use rates this tractor gets used roughly 300 hours per year. Thus the total operating cost of this one piece of equipment is $14,625.00 per year, before we factor in the cost of any piece of equipment that might be attached to the tractor.

Hope this has been interesting and informative post for all those who wonder about what it takes to own and operate an equine retirement farm.

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Calimba and MyLight