How Smarter Machinery Investments Can Cut Break-Even Crop Prices

Managing machinery costs and investment can go a long way toward increasing your bottom line and lowering break-even prices for crops. It comes down to putting every machinery purchase under the microscope.

“Each farm is unique,” said Michael Langemeier, an Extension agricultural economist and the director of the Center for Commercial Agriculture at Purdue University. “Farmers have to ask themselves, ‘What can I do in terms of maintaining a line of machinery? Should I focus on a mixture of used and newer machinery?’ 

“Regardless of farm size, overinvesting in machinery can lead to high machinery costs per acre. That can lead to a high break-even price for crops, making your operation less profitable.”

He pointed to a University of Minnesota analysis of financial data gathered from farmers participating in that institution’s Center for Farm Financial Management’s farm business management program. The data showed high-profit farmers invested $118 less per acre on machinery than low-profit producers.

To figure crop machinery investment per acre, Langemeier said, total the crop machinery investment in tractors, combines, and other machinery, and divide by crop acres or harvested acres. “Farms in the low 20% net farm income group had
an average machinery investment per acre of $802,” he noted, quoting the data. “In contrast, farms in the high 20% net farm income group had an average crop machinery investment of $684 per acre.”

The data analysis showed similar differences between low- and high-profit groups in crop machinery cost per acre. To calculate machinery cost per acre, total the equipment’s depreciation, interest, property taxes (if applicable), insurance, leasing, repairs, fuel and lubricants, and custom hire and rental expense. Then, divide by crop acres or harvested acres.

“The low-profit group had an average machinery cost per acre of $226.12,” Langemeier said, quoting the analysis. “The high-profit group had an average crop machinery cost of $157.16 per acre.” Using average corn yields, the difference amounted to nearly $70 an acre, and a 37¢ per-bushel advantage for the high-profit producers in break-even prices.

Of course, knowing your per-acre machinery cost and investment is key to pinpointing financial strengths and weaknesses. And comparing costs with those of farms of similar size, crop mix, and region helps guide decisions relating to machinery investments.

If your records show a high machinery investment per acre, Langemeier advised asking yourself why. The reason could indeed be valid; perhaps you’ve invested in machines to lower per-acre labor costs.

“I’ve seen farms with $1,500-per-acre machinery investment costs,” Langemeier said. “But they were buying bigger machines because they were planning on expanding, so they experienced a period of higher-than-average costs. But in other instances, you might need to look for changes you can make to lower machinery investment costs on a per-acre basis.”

How Much Do You Really Need?

Rightsizing equipment to your acreage or operational needs is key to containing machinery investment costs. “A lot of times, people don’t realize the per-acre cost of equipment when buying a new machine,” said Jay Parsons, an agricultural economist at the University of Nebraska Extension. “The only way to reduce the cost per acre
is to use the machine to its full capacity.”

But as new equipment becomes increasingly larger, rightsizing is a challenge, especially for smaller operations. “It’s getting harder to get the right size of equipment that’s got the technology you need to do the operations that you want to do,” Parsons said. 

For smaller farms, investing in older machines can lower per-acre costs, Langemeier said, noting you may also be able to add technology to the older machines.

Also, modifying farm practices to eliminate or reduce field operations could negate the need for some machines and permit downsizing of others. For instance, University of Nebraska crop budgets suggest that switching to no-till can shave dollars off machinery investment costs.

“Our corn budget for 2025 suggests no-till operators save $40 an acre in ownership and repair costs over full-tillage operators,” Parsons said. “Our budgets assume all equipment is
5 years old.”

Tax Considerations

It’s tricky to buy equipment for the sole purpose of reducing tax liability, Langemeier said, advising
to buy machinery for the right reasons.

“Aiming solely for first-year tax write-offs can lead to overinvestment in farm machinery,” he said. “When buying machinery, look at all the benefits and costs. Ask yourself why you’re buying the machine. Buying a tractor, for instance, for the purpose of reducing repair costs or farming more acres [is a valid reason]. But it’s not a good choice if taxes drive your decision.”

Alternatives to sole ownership of machinery can reduce costs. Leasing, hiring custom work, or sharing equipment with other producers are options. But those alternatives present trade-offs in benefits, and depend on local availability and community dynamics.

“Take an inventory of options available to you,” Parsons said. “The biggest need is finding an alternative source for high-quality fieldwork done in a timely fashion. You have to be able to find service providers
you can trust.

“Leasing some machinery is a good option and lets you access the latest technology,” he noted. “But even leasing requires you to have a good relationship with a dealer.”

Finding operators who provide custom work is another option. Custom operators perform common field operations such as planting, spraying, and harvesting. Finding providers who are timely and efficient is key.

“Most states maintain up-to-date custom-rate surveys that can give you an idea of what custom field operations cost in your area,” Langemeier said.

Sharing equipment with other producers holds the potential to access larger equipment with the latest technology at reduced per-acre cost, but the arrangement often presents pitfalls. “Sharing machinery can be difficult,” Langemeier said. “You have to decide who gets the machine when, and how repairs are going to be handled.”

Arrangements in which family members or close neighbors share equipment have a better chance of succeeding. “Relationships really need to be compatible,” Parsons said. “Put together a written agreement to reduce misunderstandings.”

To sum up: To manage machinery costs, first identify your per-acre costs, then compare them with the costs of nearby similar-sized farms growing similar crops. “If the costs are higher than average, you should ask yourself why your costs are higher and determine what changes you could make to lower them,” Langemeier said.