Friday, March 22, 2013

Optimizing Your Farm Machinery Costs

Do you know how much it costs to operate each piece of farm equipment you own?  It's important to know the per acre operating cost of your equipment so you can accurately determine your cost of production.  For example, to grow an acre of corn, you would need to determine the costs associated with seed, fertilizer, water, labor, and machinery and then divide by the number of acres you have.  With this value, you can thus set the sale price of your crops to ensure a profit.  The video below describes why knowing your machinery costs is so important.



Obviously, you want to use your equipment as efficiently as possible.  Using equipment that is old and outdated can be just as cost-prohibitive as using expensive, over-sized equipment that is unnecessary for your acreage.  A tool like a machinery cost calculator (like this Iowa State University "Estimating Farm Machinery Costs" calculator found under the Machinery heading) can help determine your cost per acre.  Calculators like these can help you determine fixed and variable costs, depreciation, and cost benchmarks.



A machinery cost calculator is also helpful in the decision making process of buying equipment.  Is buying new, used, or leasing your best option?  You might also determine that a new machine just isn't in your budget, but it is a necessary tool in your farm operation.  You can use your machinery cost calculator to find out if other options like sharing, renting, or custom work are feasible.


As a farm owner, have you calculated your machinery costs lately?  When buying new equipment, have you used this calculation?  Have you had to re-evaluate how you use certain machines because the cost per acre was higher than you expected?