by Michael Langemeier, Purdue University
The continued increase in size of tractors, combines, and other machinery has enabled farms to operate more acres and reduce labor use per acre. However, this increase in machinery size also makes it increasingly important to evaluate the efficient use of machinery. This article will discuss machinery cost and investment benchmarks, and illustrate the computation of crop machinery cost and investment for a case farm in west central Indiana.
Key Machinery Benchmarks
Crop machinery cost per acre is computed by summing depreciation, interest, property taxes, insurance, leasing, repairs, fuel and lubricants, and custom hire and rental expense; and dividing the resulting figure by crop acres or harvested acres. Interest should include both cash interest paid and an opportunity charge on machinery and equipment that is owned. In regions where double-cropping predominates, using harvested acres is preferable.
Crop machinery investment per acre is computed by dividing total crop machinery investment (i.e., investment in tractors, combines, and other machinery) by crop acres or harvested acres. Again, in regions where double-cropping is prevalent, using harvested acres gives a more accurate depiction of machinery investment.
Machinery investment per acre typically declines with farm size. Thus, it is important for farms to compare machinery investment per acre with similarly sized farms and to examine the trend in this benchmark for a particular farm. A farm with relatively high machinery investment per acre needs to determine whether this high value is a problem. If the farm faces serious labor or timeliness constraints, their machinery investment per acre may be relatively high. However, if their machinery investment per acre is high due to the purchase of assets used to mitigate income tax obligations or for some other reason, the farm needs to think about their long-term strategy with respect to purchasing machinery and equipment.
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