In This Section

Guide To Custom Farmwork and Short-Term Equipment Rental

Factsheet - ISSN 1198-712X   -   Copyright Queen's Printer for Ontario
Agdex#: 825
Publication Date: March 2007
Order#: 07-019
Last Reviewed: May 2007
History: Replaces OMAFRA Factsheet 05-071
Written by: Carl Fletcher - Strategic Planning & Business Development Program Lead/OMAFRA

Table of Contents

  1. Introduction
  2. Equipment Use Options
  3. Survey of Custom Farmwork and Short-term Equipment Rental Rates Charged in 2006
  4. Survey Areas
  5. Table 1. Custom Farmwork Rate Calculator
  6. Table 2. Short-term Equipment Rental Rate Calculator
  7. Example 1. Custom Farmwork Rate Calculation
  8. Table 3. Cost per Acre Comparison
  9. Example 2. Short-term Equipment Rental Rate Calculation
  10. Table 4. Trade-In Values as a Percent of Purchase Cost
  11. Table 5. Accumulated Repair Costs as a Percent of Purchase Price
  12. Example 3. Accumulated Repair Cost Calculation
  13. Table 6. Performance, Horsepower and Fuel Requirements of Selected Farm Equipment
  14. Sample Custom Farmwork Agreement
  15. Summary
  16. References

Introduction

This Factsheet provides the following decision-making tools for farm managers and custom farmwork operators to manage the use of equipment and work time to meet production and profit goals:

  • Survey of Custom Farmwork and Short-term Equipment Rental Rates charged in 2006
  • Guide to Calculating Custom Farmwork Rates and Short-term Equipment Rental Rates
  • Factors to Consider in a Custom Farmwork Agreement
  • Sample Custom Farmwork Agreement.

Hiring custom farmwork provides an option for farm managers to purchase fieldwork and other services instead of owning the equipment and doing the work. In this Factsheet, a multi-year equipment lease is considered to give the farm manager the same day-to-day control as ownership. For more information on multi-year lease agreements see the OMAFRA Factsheet Leasing Farm Equipment, Order No. 01-003.

For equipment owners, providing custom farmwork services can be the focus of a business, a sideline farming enterprise that spreads equipment ownership costs over more acres, or a marketing tool to complement the sale of other farm inputs.

Equipment Use Options

Option

Farm with owned equipment or multi-year equipment lease

Advantages

  • Equipment and operator is ready and available when needed, especially for weather-sensitive operations such as planting, spraying, and harvesting. Timeliness of operation impacts directly on yield, product quality, and farm revenue.
  • Farm manager has direct control of operating decisions.
  • Farm manager develops and maintains hands-on knowledge of operation.
  • Limited risk of weed transfer or biosecurity concerns.

Disadvantages

  • Size of the farm business may not be large enough to cover the equipment's ownership and operating costs.
  • Equipment replacement rate may not keep pace with new technology.
  • The farm may not be able to supply the labour at the time the operation is required.
  • Farmer is required to master an additional management skill set.
  • Responsible for repairs beyond warranty when owned or as per lease agreement.Option

Hire custom farmwork

Advantages

  • Farm manager gains use of newer and more efficient equipment without full cost of ownership/operating expenses.
  • Custom operator provides expertise gained from a wider experience.
  • Custom operator maintains required regulatory certification.
  • Farmer can be busy elsewhere while custom operator provides service.
  • No direct repairs and maintenance costs.

Disadvantages

  • Custom operator may not be available at the most optimum time resulting in reduced yield, product quality and revenue.
  • Farm manager loses direct control of operation.
  • Farm manager is dependent on the availability of custom operators.
  • Increased risk of weed transfer and other biosecurity concerns.

Option

Short-term equipment rental

Advantages

  • If equipment is available, farm manager controls the operation and the timeliness of the work.
  • Farm manager gains the use of equipment without the full cost of ownership and operating expenses.
  • Repairs and maintenance as per agreement.

Disadvantages

  • Availability of equipment affects timeliness of operation.
  • Rental equipment may not be available due to lack of year round demand, or over demand during a short season of use.

Survey Of Custom Farmwork And Short - Term Equipment Rental Rates Charged In 2006

The Survey of Custom Farmwork and Short-term Equipment Rental Rates Charged in 2006, (see related links at the end of the Factsheet) reports on a survey of the rates charged in 2006 by 300 Ontario custom farmwork operators. The survey included:

  • full time custom operators
  • farmers who provided custom farmwork as a significant sideline business
  • farmers who provided limited custom farmwork to neighbours and
  • farm input suppliers who provided custom application as a service.

The custom rate charged included the equipment, fuel, and operator cost but excluded the cost of material applied.

The survey shows what rates were charged in 2006 across Ontario. The rates shown should be used as a guide in making management decisions. There is no assurance that using the "average" rates reported here will cover the cost of providing the service. Custom operators should carefully calculate all costs and returns before setting prices. See Guide to Calculate Custom Farmwork and Short-term Rental Equipment Rate Charges.

Ranges are given for the rates, as there are many factors that can cause variations in the rates charged. Rates are influenced by:

  • the type, size, age of equipment
  • the amount of use (number of acres covered or hours used)
  • availability of the equipment in the local area
  • field shape, size and topography
  • soil conditions
  • local tradition.

The Survey of Short-term Equipment Rental Rates Charged in 2006, summarizes two sources of short-term tractor rental rates. The first source is seventeen reports from custom operators. The second source, used with permission, is taken from Iron Solutions' Eastern Canada Winter 2006 Official Guide. These rates are from a survey of tractor rental rates charged by Eastern Canadian machinery dealers in 2006.

Survey Details

Results are summarized on a provincial basis and also by 6 smaller regional areas. Where available the provincial average 2003 rates are also listed. The 2003 survey is the previous survey to the 2006 survey.

Average Rates

An average rate is given when there are at least 3 reports. The greater the number of reports, the greater the summary reflects the market rates.

What are percentiles and how can you use them?
Percentiles have been used to help show the range of the rates that were charged. For example, in the Provincial Summary, the 15th percentile for corn combining(with grain buggy, no GPS) is $35/acre and the 85th percentile is $40/acre. This means that 15% of those surveyed charged $35/acre or less and 15% charged more than $40. Seventy percent (85th -15th percentile) of all those reporting charged between $35 and $40/acre. The average rate charged was $37/acre.

Survey Areas

Provincial Summary (All Areas)

Area 1
Chatham-Kent, Elgin, Essex, Lambton, Middlesex

Area 2
Brant, Haldimand, Hamilton, Niagara, Norfolk, Oxford

Area 3
Bruce, Dufferin, Grey, Halton, Huron, Peel, Perth, Simcoe, Waterloo, Wellington

Area 4
Durham, Haliburton, Hastings, Kawartha Lakes, Muskoka, Northumberland, Parry Sound, Peterborough, Prince Edward, York

Area 5
Frontenac, Lanark, Leeds-Grenville, Lennox-Addington, Ottawa, Prescott-Russell, Renfrew, Stormont-Dundas-Glengarry

Area 6
Algoma, Cochrane, Kenora, Manitoulin, Nipissing, Rainy River, Sudbury, Thunder Bay, Timiskaming

Survey areas map

Figure 1. Survey Areas

Guide To Calculating Custom Farmwork And Short-term Equipment Rental Rate Charges

Where a farm manager uses the equipment in his or her own operation as well as providing custom farmwork to others, the costs should be calculated using the total of own farm and custom acreage and operation hours.

Example calculations are based on market prices and Tables 4, 5, and 6 found in this Factsheet. The OMAFRA Factsheet Budgeting Farm Machinery Costs, Order No. 01-075, provides additional machinery cost information. Downloadable spreadsheet versions of the Custom Farmwork Rate Calculator and the Short-term Equipment Rental Rate Calculator are available as part of the Computer Management Tools section of the Agricultural Business Management Section of the OMAFRA Web site www.ontario.ca/omafra

Table 1. Custom Farmwork Rate Calculator

Power Unit (Tractor Or Self-Propelled Machine)

Annual Fixed Cost
Depreciation =
(purchase price - trade-in value) ÷ life of
machine (years)
 


__________
Interest* =
(purchase price + trade-in) ÷ 2
x annual interest rate
 


__________
Insurance & housing =
purchase price x 1 ½ %
 

__________
Total
(A)
__________
Annual Operating Cost    
Fuel & lubricants = (from Table 6)
(L/hr x hr/yr x fuel cost/L x 1.15)
 

__________
Repairs = estimate using Table 5  
__________
Total
(B)
__________
+ Machine (Tillage Implement, PTO Machine, Other)
Annual Fixed Cost    
Depreciation =
(purchase price - trade-in value) ÷ life of
machine (years)
 


__________
Interest* = (purchase price + trade-in) ÷ 2
x annual interest rate
 

__________
Insurance & housing =
purchase price x 1 ½%
 

__________
Total
(C)
__________
Annual Operating Cost    
Repairs = estimate using Table 5  
__________
Total
(D)
__________
= Annual Machinery Costs (A+B+C+D)
(E)
 
+ Profit Margin (return to management, admin. costs) (suggest 15% of machinery costs ( E x 0.15 )

(F)
 
+ Operator Labour (self or hired) - (suggest 15% over machine hr for travel, downtime) # of machinery hr x 1.15 x wage/hr

(G)

__________
= Total Costs (E+F+G)
(H)
 
= Custom RateH ÷ Total annual acres
or H ÷ Total annual hours
(I)
__________
 
per acre or per hour
Interest - Interest calculation is the average annual interest cost of the investment (yours and/or the lender's) that is tied up in the machine

 

Table 2. Short-term Equipment Rental Rate Calculator

+ Machinery Costs (from Table 1. Custom Rate Calculator above)
(E)
__________
- Total Fuel and Lubricant cost (if any) (see Custom Rate Calculator above)
(J)
__________
+ Profit Margin (return to management, admin. costs) suggest 15 % of Machinery Costs (E - J) x 0.15
(K)
__________
= Total Costs (E-J+K)
(L)
__________
= Rental Rate L ÷ Total annual acres or L ÷ Total annual hours
(M)
__________
per acre
or per hour
Note: Rental Rates may have minimum daily or weekly rates

Example 1. Custom Farmwork Rate Calculation

The following example calculates a custom farmwork rate for a combine with corn and soybean heads expected to be traded in 5 years.

Life (years) = 5

  • Purchase Price = $ 240,000
  • Trade in value = $ 105,000
  • Interest rate = 5.0 %
  • Acres/year = 1600
  • Hours per year = 200
  • Fuel Cost/L = $ 0.60
  • Corn/soy average acres/hr = 8
  • Average fuel used (L/hr) = 40
Example 1. Custom Farmwork Rate Calculator
Power Unit (Tractor Or Self-propelled Machine)
Annual Fixed Cost
Depreciation =
(purchase price - trade-in value) ÷ life of machine (years)
$ 27,000
Interest* = (purchase price + trade-in) ÷2
x annual interest rate
8,625
Insurance & housing = new price x 1 ½%
3,600
Total fixed costs/yr
(A)
$ 39,225
 
Annual Operating Cost
Fuel & lubricants = (L/hr x hr/yr x fuel cost/L x 1.15)
$ 5,520
Repairs = (from Table 5 Accumulated Repair Costs)
2,000
Total operating costs/yr
(B)
$ 7,520

+ Machine (Tillage Implement, PTO Machine, Other)

  1. Annual Fixed Costs
(C)
0
  1. Annual Operating Costs
(D)
0
= Annual Machinery Costs (A+B+C+D)
(E)
$ 46,745
+ Profit Margin (return to management, admin. costs) suggest 15% of machinery costs (E x 0.15 )
(F)
$ 7,012
+ Operator Labour (self or hired) - (suggest 15% over machine hr for travel, downtime) # of machinery hr x 1.15 x wage/hr
(G)
$ 3,910
= Total Costs (E+F+G)
(H)
$ 57,667
= Custom Rate H ÷ Total annual acres or H ÷ Total annual hours
(I)
$36.04/acre
   
or $288.32/hr

 

In this example, if the operator combines 1,600 acres at $36/acre, the return to management is $7,000 ($4.38/acre or $35/machine hr.), and the return to labour is $3,910 ($2.44/acre or $19.55/machine hr). The custom farmwork operator also earns a return of 5% interest on the owner's equity in the machinery.

Cash Flow Considerations

The above example calculates machinery costs and returns to management, labour and investment. The estimated annual depreciation and interest costs total $35,625. From a cash flow point of view the depreciation is not a draw on the bank line. However, in the case of financing, loan payments are a cashflow requirement. Actual loan principal and interest payments will depend on the amount financed and will be different than the figures in the example. It is possible to cash flow actual expenses at a lesser rate than the example but this would come at the cost of lower returns: to management, operator labour, and to the owner's equity tied up in the machine.

The capital cost of the equipment (purchase-trade in values) and the number of acres worked are the 2 largest factors affecting price rate, and therefore have the biggest impact on profitability.

Table 3 shows how volume of acres affects the per acre costs in order to receive total returns equal to the 1,600 acres used in the previous example.

Table 3. Cost per Acre Comparison

1200 acres
1600 acres
2000 acres
Machinery Fixed Costs
$ 32.70
$ 24.50
$ 19.60
Machine Operating Costs
$ 5.00
$ 4.60
$ 4.40
Return to Management
$ 5.80
$ 4.40
$ 3.50
Return to Labour
$ 2.50
$ 2.50
$ 2.50
Total Rate
$ 46.00
$ 36.00
$ 30.00

 

 
 
 
 

Example 2 Short-term Equipment Rental Rate Calculation

The following example calculates a short-term rental rate for the same combine with corn and soybean heads used in Example 1.

Example 2 Short-term Equipment Rental Rate Calculator
+ Machinery Costs (from Example 1, Custom Rate Calculator above
(E)
$46,745
- Total Fuel and Lubricant cost (if any) (see Example 1, Custom Farmwork Rate Calculator)
(J)
- $ 5,520
+ Profit Margin (return to management, admin. costs) suggest 15 % of Machinery Costs (E - J) x 0.15
(K)
+$ 6,184
= Total Costs (E - J+K)
(L)
$47,409
= Rental Rate L ÷ Total annual acres or L ÷ Total annual hours
(M)
$29.63/acre
or $237.05/hr
Note: Rental Rates may have minimum daily or weekly rates

 

Table 4, Trade-in Values as a Percent of Purchase Cost and Table 5, Accumulated Repair Costs as a Percent of Purchase Price provide information used in the example calculations.

Table 4. Trade-in Values as a Percent of Purchase Cost

Tractor
End of year Tractors <80 hp 80-149 hp 150+ hp Group 1
1
60
68
67
74
2
54
61
59
62
3
50
57
54
54
4
46
53
49
48
5
43
49
45
43
6
41
46
42
38
7
38
44
39
34
8
36
41
36
31
9
34
39
34
28
10
33
37
32
25
11
31
35
30
23
12
29
33
28
20
13
28
32
26
18
14
27
30
24
17
15
25
29
23
15
16
24
28
21
13
17
23
26
20
12
18
22
25
19
10
19
21
24
18
9
20
20
23
17
8

 

Tractor
End of year Tractors <80 hp 80-149 hp 150+ hp Group 2
1
60
68
67
49
2
54
61
59
44
3
50
57
54
40
4
46
53
49
37
5
43
49
45
35
6
41
46
42
32
7
38
44
39
30
8
36
41
36
28
9
34
39
34
27
10
33
37
32
25
11
31
35
30
24
12
29
33
28
23
13
28
32
26
21
14
27
30
24
20
15
25
29
23
19
16
24
28
21
18
17
23
26
20
17
18
22
25
19
16
19
21
24
18
16
20
20
23
17
15

 

Tractor
End of year Tractors <80 hp 80-149 hp 150+ hp Group 3
1
60
68
67
56
2
54
61
59
50
3
50
57
54
46
4
46
53
49
42
5
43
49
45
39
6
41
46
42
37
7
38
44
39
34
8
36
41
36
32
9
34
39
34
30
10
33
37
32
28
11
31
35
30
27
12
29
33
28
25
13
28
32
26
24
14
27
30
24
22
15
25
29
23
21
16
24
28
21
20
17
23
26
20
19
18
22
25
19
18
19
21
24
18
17
20
20
23
17
16

 

Tractor
End of year Tractors <80 hp 80-149 hp 150+ hp Group 4
1
60
68
67
65
2
54
61
59
60
3
50
57
54
56
4
46
53
49
53
5
43
49
45
50
6
41
46
42
48
7
38
44
39
46
8
36
41
36
44
9
34
39
34
42
10
33
37
32
40
11
31
35
30
39
12
29
33
28
38
13
28
32
26
36
14
27
30
24
35
15
25
29
23
34
16
24
28
21
33
17
23
26
20
32
18
22
25
19
30
19
21
24
18
29
20
20
23
17
29

 

Tractor
End of year Tractors <80 hp 80-149 hp 150+ hp Group 5
1
60
68
67
47
2
54
61
59
44
3
50
57
54
42
4
46
53
49
40
5
43
49
45
39
6
41
46
42
38
7
38
44
39
36
8
36
41
36
35
9
34
39
34
34
10
33
37
32
33
11
31
35
30
32
12
29
33
28
32
13
28
32
26
31
14
27
30
24
30
15
25
29
23
29
16
24
28
21
29
17
23
26
20
28
18
22
25
19
27
19
21
24
18
27
20
20
23
17
26

 

Tractor
End of year Tractors <80 hp 80-149 hp 150+ hp Group 6
1
60
68
67
61
2
54
61
59
54
3
50
57
54
49
4
46
53
49
45
5
43
49
45
42
6
41
46
42
39
7
38
44
39
36
8
36
41
36
34
9
34
39
34
31
10
33
37
32
30
11
31
35
30
28
12
29
33
28
26
13
28
32
26
24
14
27
30
24
23
15
25
29
23
22
16
24
28
21
20
17
23
26
20
19
18
22
25
19
18
19
21
24
18
17
20
20
23
17
16

 

Tractor
End of year Tractors <80 hp 80-149 hp 150+ hp Group 7
1
60
68
67
69
2
54
61
59
62
3
50
57
54
56
4
46
53
49
52
5
43
49
45
48
6
41
46
42
45
7
38
44
39
42
8
36
41
36
40
9
34
39
34
37
10
33
37
32
35
11
31
35
30
33
12
29
33
28
31
13
28
32
26
29
14
27
30
24
28
15
25
29
23
26
16
24
28
21
25
17
23
26
20
24
18
22
25
19
22
19
21
24
18
21
20
20
23
17
20

Source: American Society of Agricultural Engineers Standards, American Society of Agricultural Engineers, 1999

Group 1: Combines, self-propelled forage harvesters.

Group 2: Swathers, mower-conditioners, rotary hay mowers, rotary mower-conditioners.

Group 3: Forage harvesters, balers, bale elevators, tub grinders, augers, grinder-mixers, forage boxes, roller mills.

Group 4: Planters, drills, sprayers.

Group 5: Moldboard plows, chisel plows, cultivators, v-rippers.

Group 6: Disks, harrows, hoes.

Group 7: Manure spreaders, miscellaneous equipment.

Table 5. Accumulated Repair Costs as a Percent of Purchase Price

Machine
¼% Life Accumulated Hours - Costs ½% Life Accumulated Hours - Costs ¾% Life Accumulated Hours - Costs Full Life Accumulated Hours - Costs
2-Wheel Tractors
3,000 - 6.2%
6,000 - 25.0%
9,000 - 56.2%
12,000 - 100%
4 WD and MFWD Tractors
4,000 - 4.8%
8,000 - 19.2%
12,000 - 43.2%
16,000 - 80%
Self Propelled Combines
750 - 2.2%
1,500 - 9.3%
2,250 - 21.9%
3,000 - 40%
Planters, Drills
375 - 4.1%
750 - 17.5%
1,125 - 41.0%
1,500 - 75%
Moldboard Plows
500 - 8.3%
1,000 - 28.7%
1,500 - 59.6%
2,000 - 100%
Disk, Disk Harrows
500 - 5.5%
1,000 - 18.0%
1,500 - 35.9%
2,000 - 60%
Chisel Plows
500 - 10.1%
1,000 - 26.5%
1,500 - 46.8%
2,000 - 75%
Cultivators
500 - 10.2%
1,000 - 27.0%
1,500 - 47.6%
2,000 - 70%
Mowers
500 - 14.2%
1,000 - 46.2%
1,500 - 92.0%
2,000 - 150%
Square Balers, Small
500 - 6.6%
1,000 - 23.0%
1,500 - 47.7%
2,000 - 80%
Square Balers, Large
750 - 6.0%
1,500 - 20.7%
2,250 - 43.0%
3,000 - 75%
Large Round Balers
375 - 7.4%
750 - 25.9%
1,125 - 53.6%
1,500 - 90%
SP Forage Harvesters
1,000 - 3.1%
2,000 - 12.5%
3,000 - 28.1%
4,000 - 50%
Rakes
625 - 8.6%
1,250 - 22.7%
1,875 - 40.1%
2,500 - 60%

Source: American Society of Agricultural Engineers Standards, American Society of Agricultural Engineers, 1999

Example 3. Accumulated Repair Cost Calculation

New Combine Cost

$240,000

Projected use

8,000 acres or 200 hours per year over 5 years

Estimated accumulated repair costs at 1,000 hours

4.2 % of purchase cost (estimated using Table 5)

Repair costs

Approx. $10,000 ($240,000 X 4.2%) over 5 yr for an average of $2,000/yr

Used Machinery

When calculating the depreciation on used machinery, use the actual price paid for the machine minus its expected trade-in or salvage value, divided by the expected life of the machine on your farm. Increase repair rates to levels appropriate for the age or number of hours on the machine. Expect to have higher than normal repair expenses in the first year of ownership of a used machine as you bring it back into top operating shape.

Table 6. Performance, Horsepower and Fuel Requirements of Selected Farm Equipment

  HP required Acres/hour Litres/ac Litres/hour
4-l8 in. Furrow Plow
75
2.8
4.5
12.5
6-18 in. Furrow Plow
130 MFWD
4.2
5.1
21.6
8-l8 in. Furrow Plow
160
5.6
4.7
26.5
12.5 ft Field Cultivator
75
9.0
1.4
12.5
18 ft Field Cultivator
105 MFWD
13.0
1.3
17.4
37 ft Field Cultivator
225
26.7
1.4
37.5
11 ft Chisel Plow
75
5.9
2.1
12.5
15 ft Chisel Plow
130 MFWD
8.0
2.7
21.6
11 ft Tandem Disk
60
6.4
1.5
9.9
15 ft Tandem Disk
105 MFWD
8.7
2.0
17.4
4R - 36 in. Row Crop Planter
40
5.6
1.2
6.8
6R - 30 in. Row Crop Planter
60
7.0
1.4
9.9
12R - 30 in. Row Crop Planter
105 MFWD
14.0
1.2
17.4
4R- 36 in. Minimum-Till Planter
60
5.1
1.9
9.9
6R-30 in. Minimum-Till Planter
75
6.4
2.0
12.5
8R-30 in. Minimum Till Planter
105 MFWD
8.5
2.1
17.4
25 ft Grain Drill
130 MFWD
4.7
4.6
21.6
35 ft Grain Drill
160 MFWD
14.9
1.8
26.5
12 ft Presswheel Drill
75
5.1
2.5
12.5
20 ft Presswheel Drill
130 MFWD
8.5
2.5
21.6
15 ft No-Till Drill
130 MFWD
6.4
3.4
21.6
20 ft No-Till Drill
160 MFWD
8.5
3.1
26.5
30 ft Sprayer
40
15.4
0.4
6.8
50 ft Sprayer
60
25.6
0.4
9.9
9 ft Mower Conditioner
40
4.4
1.6
6.8
9 ft Rotary Mower/Conditioner
75
6.6
1.9
12.5
Square Baler
40
4.4
1.6
6.8
Round Baler 1,000 lbs.
60
3.0
3.3
9.9
Round Baler 1,500 lbs.
60
4.0
2.5
9.9
Large Size Square Baler
130 MFWD
16.3
1.3
21.6
Round Baler 1,000 lb./Wrapper
60
3.0
3.3
9.9
2-Row Forage Harvester
105 MFWD
1.4
12.5
17.4
Large Forage Blower
60

 

 

9.9
Combine 4R-30 in. Corn HD
190
2.8
11.4
31.8
Combine 12R-30 in. Corn HD
275
7.6
6.0
45.9
Combine Grain Head 20 ft
220
6.8
5.4
36.8
Combine Grain Head 30 ft
275
10.2
4.5
45.9
Combine Soybean Head 15 ft
220
4.5
8.2
36.8
Combine Soybean Head 25 ft
275
7.4
6.2
45.9

Source: American Society of Agricultural Engineers Standards, American Society of Agricultural Engineers, 1999

 

Factors To Consider In A Custom Farmwork Agreement

Custom hiring is a business arrangement. Write the terms of the arrangement in a formal agreement. If unwritten, the terms are more likely to be misunderstood in the case of a dispute. While written custom hiring agreements have not been common in the past, increased demands for nutrient management plans, quality assurance programs, and environmental stewardship records give added incentive beyond the business benefits of written agreements. Consider the following in a custom hiring agreement.

Timeliness

Significant losses can occur if an operation is not started or completed on time. To facilitate planning, a custom hiring agreement should include a schedule of operations for both parties. Such a schedule would be subject to weather conditions and crop maturity.

Operations

Write into the agreement the exact operations to be performed by each party and the machine, materials and labour to be supplied by each.

Rate Schedule

Stipulate the rate for each operation to be performed on the basis of acreage, time (hour, day, week) or total operation performed.

Management

State that both the custom operator and the owner will adhere to appropriate and accepted farming practices in his or her respective part of the farming operations. The contract provides an opportunity to clarify management roles and responsibilities, create mutual understanding and provide a dispute resolution mechanism.

Environment Matters

While the owner is ultimately responsible for activities occurring on the property, regulatory authorities can charge any one of the owner, the tenant farmer, or the contract operator for causing environmental damage. It is the responsibility of each party to understand his or her environmental responsibilities. Where the custom farmwork operation carries the risk of an environmental spill, such as in manure or pesticide application, it is important that a contingency plan exists that identifies the containment and cleanup process, which party has the authority to initiate the contingency plan and to which party the clean up costs are assigned.

Terms of Payment

Stipulate terms of payment for custom operations. Bill the client upon the completion of each custom operation, indicating actual units (hours, acres, etc.) completed, the rate charged per unit, the total charge and the date payment is due.

Termination

Include a minimum period for notice of termination in a custom hiring agreement. State penalties, if any, for termination or for failure to give appropriate notice of termination.

Other Considerations

Insurance

A custom operator may be considered differently than a farmer when insuring equipment. It is advised that this point be clarified with the insurance company if one considers doing custom work or renting out equipment.

Workplace Safety and Insurance Board

Custom operators are responsible to carry appropriate WSIB coverage for their employees. The WSIB issues Clearance Certificates to employers to document this WSIB employee coverage.

WSIB coverage is optional for sole proprietors, partners, independent operators and executive officers of a corporation.

A WSIB Independent Operator Ruling documents that the custom operator is not considered to be an employee of the farmer by the WSIB.

The WSIB deems the operator of the equipment to be an employee of the farmer during the custom farmwork unless the custom equipment operator has either a WSIB Clearance Certificate or a WSIB Independent Operator Ruling.

Farmers should ask the custom operator to see a copy of a WSIB Clearance Certificate or WSIB Independent Operator Ruling prior to the work. If there is no Clearance Certificate or Independent Operator Ruling, custom operators should itemize the labour component of the custom rate charge on the bill so that the farmer can pay the required WSIB premiums on the equipment operator’s labour.

For further information regarding WSIB responsibilities contact the WSIB at 1-888-259-4228.

Licences and Certifications

The custom operator should maintain, as required, any regulated certifications or licenses for the equipment and equipment operators involved in the custom work.

Sample Custom Farmwork Agreement

This form can provide the custom operator and the farm manager with a guide for developing an agreement to fit their individual situation. This form is not intended to take the place of legal advice pertaining to contractual relationships between the two parties

Date contract signed ___________________

Name of Custom Operator of address , hereinafter referred to as the "custom operator",

agrees to conduct the following types of machine operations on the described farm land

of name of Farmer of address , hereinafter referred to as the "owner"*.


*Note: If the farm manager is a tenant farmer and not the owner of the land where the custom work will occur it may be preferable to replace "owner" with "farmer".


Description of Machine Operation Legal Location # Acres Fee per unit
e.g. Corn Combining
L5 C 10 Township
75
$36.00 per acre
  Trucking to local elevator
L5 C 10 Township
75
$ 8.00 per tonne
 
Description of Machine Operation Legal Location # Acres Fee per unit
e.g. Corn Combining
L5 C 10 Township
75
$36.00 per acre
  Trucking to local elevator
L5 C 10 Township
75
$ 8.00 per tonne
 

Note: Be specific about what each machine operation includes (i.e. combining - does it include grain cart, G.P.S. services, trucking to on farm storage or elevator?)


The custom operator agrees to provide the following materials at the stated prices:

Materials Provided
Rate
Fee per unit
e.g. Herbicide
# litres product per acre, post emerge
$ per acre

Other services/conditions if any: (e.g. Environmental Spill Contingency responsibilities.)

Management

The custom operator will:

  • adhere to appropriate and acceptable farm management practices and legislation
  • maintain, as required, any regulated certifications or licenses
  • carry appropriate and adequate insurance.

Schedule

The custom operator agrees to complete the said machine operations according to the following schedule weather and crop maturity permitting:

Machine Operations Commencement Date Completion Date
e.g. Corn Combining
Nov. 1, 2005
Nov. 30, 2005
  Trucking
Nov. 1, 2005
Nov. 30, 2005
 

Owner's Responsibilities

The owner agrees to supply the following at the same location and during the time stated in this agreement:

Description of Machine Operation

e.g. tractor, grain cart and operator

Materials
Other

(e.g. Environmental Spill Contingency responsibilities)

Management

The owner agrees to provide to the custom operator timely and reasonable access to the properties listed.

The owner agrees to adhere to appropriate and acceptable farm practices and legislation in the management of the crop or land prior to the operation contracted with the custom operator.

Terms Of Payment

The custom operator will supply an itemized invoice upon completion of said machine operations. Payment is due by the owner upon receipt of the invoice. Overdue accounts past 30 days subject to a 2% per month interest charge.

Termination

Grounds for Termination of Agreement - If either party fails to carry out substantially the terms of this agreement in due and proper time, the agreement may be terminated by the other party by serving a written notice citing the instance(s) of default and specifying a termination date of number of days from the date of such notice. The penalty for default will be name the penalty unless otherwise mutually agreed upon.

Dispute Mechanism - Optional

Arbitration of Differences

Disagreements Will Be Submitted to an Arbitrator (s) - Any differences between the parties as to their several rights or obligations under this agreement that are not settled by mutual agreement after thorough discussion, shall be referred to the arbitration of a single arbitrator, if the parties hereto agree upon one; otherwise to three arbitrators, one to be appointed by each party and a third to be chosen by the first two named before they enter upon the business of arbitration. The award and determination of such arbitrator or arbitrators, or any two of such three arbitrators, shall be binding upon the parties hereto and their respective heirs, executors, administrators and assigns.

Cost of the arbitration will be charged at a rate of 50% to the owner and 50% to the operator.

The terms owner and custom operator shall include the trustees, administrators and assigns of the owner and custom operator, respectively.

Witness_______________ Custom Operator________________
Witness_______________ Owner________________________

 

Summary

Contracting custom farmwork will continue to provide farm managers with an option to manage machinery costs and technical skills. Developing clear custom farmwork contracts is a benefit to both the farm manager and the custom operator.


This publication is intended as general information and not as specific advice concerning individual situations. Although it outlines factors to consider in a custom farmwork agreement, all individual custom farmwork agreements should be discussed with your lawyer. The Government of Ontario assumes no responsibility for persons using this publication as a custom farmwork agreement.


References

  • Farm Machinery Custom and Rental Rate Guide 2000, by the Economics and Farm Management Section, Sustainable Production Branch, Saskatchewan Agriculture and Food.

  • 1999 Minnesota Farm Custom Rate Survey, by Bill Lazarus, Extension Economist, Department of Applied Economics, University of Minnesota Extension Service.

  • Acquiring Farm Machinery Services: Ownership, Custom Hire, Rental, Leasing, 2001, by William Edwards, extension economist and Vernon M Meyer, retired extension agricultural engineer, Iowa State University Extension

  • Iron SolutionsTM Eastern Canada Region Winter
    2003 Official Guide, Dealer Edition

  • The author also wishes to thank the custom farm operators and retail farm equipment dealers who completed the survey of rates charged in 2006.
For more information:
Toll Free: 1-877-424-1300
Local: (519) 826-4047
E-mail: ag.info.omafra@ontario.ca