Consider these factors when making farm machinery investments

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Farmers have plenty to consider when they decide whether to invest in farm machinery, a Purdue Extension agricultural economist said in a recent Purdue Agricultural Economics Report article.

"Crop Machinery Benchmarks," written by Michael Langemeier, highlights two of the most important factors farmers should consider when evaluating the economic efficiency of their farm equipment: crop machinery investment per acre; and crop machinery cost per acre.

The information is especially helpful to crop farmers because machinery represents a large cost. In addition, many crop farmers have updated their machinery during the last few years in response to strong crop net returns.

Because machinery is such a large investment, it is important to evaluate whether a farm's machinery costs are too high, Langemeier said. Farmers whose operations have high machinery costs should carefully evaluate whether further machinery purchases are necessary and affordable.

"If a farm has relatively high crop machinery benchmarks, it is likely to have above-average crop break-even prices or be less competitive than its peers," he said. "In this instance, a farm should be extra careful in determining whether future machinery purchases are prudent."

A farmer also should consider farm size and the options of owning, leasing or hiring custom work.

Timeliness of field operations, particularly during planting and harvest, can have a significant effect on crop yields. That is why farmers should carefully consider what kind of machinery they buy if they decide to own. Larger machinery can harvest crops more quickly, but is more expensive. Because of this, large farms might choose larger machinery, while small farms might find it more cost-effective to own or lease smaller machinery.

To view the full article, which includes case studies and more detailed information on machinery investments, download the Purdue Agricultural Economics Report at http://www.agecon.purdue.edu/extension/pubs/paer/pdf/PAER6_2014.pdf.



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