What is your Machinery Value Per Acre?

The FarmDoc Daily just posted an article on the average value of farm machinery based upon the size of farm operation in Illinois.  As can be expected, as the size of farm increases the total amount invested in farm machinery also increases.  However, the reverse is usually true for the amount of investment per acre.  There is a minimum amount of machinery needed to farm even a small amount of acres.  As acres are added, the increase in machinery values will increase, but not a straight-line.  For example, a farmer who farms 500 acres needs a good tractor.  This tractor may be able to farm 1,500 acres and therefore it would not be traded in until the farm goes over 1,500 acres.

A 1,500 acre farm needs about $1 million of equipment value.  This equals to an investment of about $650 per acre.  A 2,500 acre farm needs about $1.5 million of equipment, but the per acre investment drops to about $550 while a 5,000 acre farm needs about $2.2 million of equipment but their total investment per acre is slightly more than $400.

These statistics do not tell the whole story.  Many farm operations find that leasing equipment (especially certain types such as combines) can be a more efficient and cost-effective than owning.  Those farmers may not have much invested in machinery cost, but their per acre numbers may be just as high or higher.  It pays to run the numbers.  If you are not getting maximum output from your equipment, it may pay to lease equipment especially with the good deals that equipment companies are offering these days for leases.  Or wait two or three years when you can pick up fairly new used farm equipment for a good price.

Paul Neiffer, CPA