Managing Machinery Costs

Containing per-acre investment costs for machinery can boost profitability.

- Raylene Nickel

Managing machinery costs and investment can go a long way toward increasing your bottom line and lowering break-even prices for crops. It comes down to putting every machinery purchase under the microscope.

“Each farm is unique,” said Michael Langemeier, an Extension agricultural economist and the director of the Center for Commercial Agriculture at Purdue University. “Farmers have to ask themselves, ‘What can I do in terms of maintaining a line of machinery? Should I focus on a mixture of used and newer machinery?’”

“Regardless of farm size, overinvesting in machinery can lead to high machinery costs per acre. That can lead to a high break-even price for crops, making your operation less profitable.”

He pointed to a University of Minnesota analysis of financial data gathered from farmers participating in that institution’s Center for Farm Financial Management's farm business management program. The data showed high-profit farmers invested $118 less per acre on machinery than low-profit producers.

To figure crop machinery investment per acre, Langemeier said, total the crop machinery investment in tractors, combines, and other machinery, and divide by crop acres or harvested acres. “Farms in the low 20% net farm income group had an average machinery investment per acre of $802,” he noted, quoting the data. “In contrast, farms in the high 20% net farm income group had an average crop machinery investment of $684 per acre.”

The data analysis showed similar differences between low- and high-profit groups in crop machinery cost per acre. To calculate machinery cost per acre, total the equipment’s depreciation, interest, property taxes (if applicable), insurance, leasing, repairs, fuel and lubricants, and custom hire and rental expense. Then, divide by crop acres or harvested acres.