New machinery is among the greatest on-farm investments. Therefore, knowing when to pull the trigger on new investments is a critical decision.
Michael Langemeier, an ag economist at Purdue University, has been helping farmers answer the question, "When are my machinery costs too high?" To do this, they must look at two important factors: crop machinery investment per acre, and crop machinery cost per acre. In particular, farmers who already have high machinery costs need to look closely if further machinery purchases are necessary and affordable, he says.
"Farm managers should calculate these benchmarks each year and then monitor them over time," he says. "Understanding your machinery economics has great value in potentially lowering costs, increasing output and throughput, and in making decisions such as whether to own, lease, or custom hire machinery."
Consider farm size and your options of owning, leasing or hiring custom work, he adds. Although timeliness is critical at harvest, small farms might find it more cost-effective to own or lease smaller machinery rather than purchasing large equipment.
The table below highlights some example ownership and operating costs for a tractor owned by a case farm. Note that this particular farm This farm does not have livestock, so all of the relevant costs are assigned to the crop enterprise. If a farm has livestock production, individual machinery costs should be divided between the crop and livestock enterprises.
Langemeier offers greater in-depth analysis on machinery costs, breakeven estimates and more in the June 2014 Purdue Agricultural Economics Report.