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        Thursday, July 24, 2014

 

Do I have too much invested in farm machinery? 

Although there is no right or wrong answer, producers should consider two components to the question.  First, how much can I afford to spend, and second, how much do I need to maximize efficiency? 

Machine costs are comprised of both fixed and variable costs.  It is important to think about both of these when trying to calculate profitability.  It is this profitability that determines just how much we can afford to pay.  The calculation on affordability varies from farmer to farmer.  Profitability is related to productivity, debt load, management ability, and sometimes luck.  Completing a cost of production worksheet is a great way to determine your costs.  The amount of profit left over will relate to how much you can afford to spend. 

Efficiency of equipment can be calculated based on various criteria.  Machine widths, operator efficiencies and horsepower requirements are all part of the decision process to determine what you need to maximize your equipment's efficiency.  These calculations come from the engineering perspective of how much horsepower is needed to complete each operation in a timely fashion.  Another method to determine how much is needed is a comparison to neighbours who farm similar acreage.  It is often a good way to look at equipment sizing or needs.

A survey was conducted by Saskatchewan Agriculture and Food staff in February and March of 2004, led by Glenn Barclay (now of the North Battleford Regional Office), Richard Wharton (now of the Agriculture Knowledge Centre) and a team of Extension Agrologists.  The surveys were conducted at a series of farm management meetings in six communities.

The results of these surveys were very interesting and may go a long way to answering "how do I compare to other producers?"  Machine values were determined by farmers setting their own values.  It was suggested at the meetings that the value should be set at a value they might expect at an auction sale of their equipment. 

Survey Results

Brown Soil Zone - 40 farmers reported

Equipment

Current Value

% of Total Equipment Costs

Tractors

$  97,286

25.6%

Combines

$  91,714

24.1%

Swathers

$    9,929

 2.6%

Seeders

$  53,237

14.0%

Sprayers

$  46,986

 12.3%

Harrows

$    2,260

 0.6%

Grain Trucks

$  34,371

9.0%

Pickup Trucks

$  22,871

 5.9%

Tillage

$    9,169

 2.4%

Grain Augers

$    9,229

 2.4%

Grain Vacs

$    1,050

 0.3%

Other (grain dryers, rollers, etc)

$    2,591

 0.7%

TOTAL

$380,693

100%

Dark Brown Soil Zone - 31 farmers

Equipment

Current Value

% of Total Equipment Costs

Tractors

$ 113,037

28.8%

Combines

$ 114,407

29.2%

Swathers

$  18,278

 4.7%

Seeders

$  47,093 

12.0%

Sprayers

$  23,000

 5.9%

Harrows

$    7,907

 2.0%

Grain Trucks

$  28,130

 7.2%

Pickup Trucks

$  19,074

 4.9%

Tillage

$    9,063

 2.3%

Grain Augers

$    7,061

 1.8%

Grain Vacs

$    1,093

 0.3%

Other (grain dryers, rollers, etc)

$4,130

 1.1%

TOTAL

$392,272

100%

Black Soil Zone - nine farmers

Equipment

Current Value

% of Total Equipment Costs

Tractors

$  97,000

36.1%

Combines

$  61,667

23.0%

Swathers

$  18,833

 7.0%

Seeders

$  30,833

11.5%

Sprayers

$    5,083

 1.9%

Harrows

$    3,333

 1.2%

Grain Trucks

$  18,667

7.0%

Pickup Trucks

$  18,833

 7.0%

Tillage

$    5,917

 2.2%

Grain Augers

$    6,000

 2.2%

Grain Vacs

$       833

 0.3%

Other (grain dryers, rollers, etc)

$    1,667

 0.6%

TOTAL

$268,333

100%

In these results, equipment used in livestock enterprises was not included.

Summary

 

Brown Soil Zone - 40 farmers reported 

Average $380,693 in machinery inventory
Average 3,506 acres or $108.58/acre

Dark Brown Soil Zone - 31 farmers

Average $392,272 in machinery inventory
Average 3,369 acres or $116.44/acre

Black Soil Zone - nine farmers  

Average $268,333 in machinery inventory
Average 1,642 acres or $163.42/acre

How do I compare?

You can complete the following table to make your own comparisons to the above averages.  By completing the form, you can compare your individual machine costs to the averages.  These numbers may bring out some interesting observations.  It also allows you to make some quick calculations on depreciation costs.  The following table also allows you to allocate the equipment between your grain and your livestock operation.  This allows you to do some enterprise analysis to see how much machinery you have devoted to either your grain or your livestock operation.

  • How do you stack up? On a per acre basis, are you above or below the average investment per acre?
  • What are total equipment costs as a percentage of the whole farm's budget?
  • Will getting some of your field work done by custom operators be a method to drive down capital costs without compromising the timelines of an operation?
  • Depreciation is a cost on your farm.  How much is it costing per year if you assume a rate of 10 per cent per year? 
  • What financing costs do you have, and what are interest rates going to do in the next few years?
  • Do you lease or rent any equipment?
  • What about income tax considerations when purchasing equipment?
  • What are repair costs per year for various pieces of equipment?

For more information on this survey or information about machinery investment, contact the Agriculture Knowledge Centre at 1-866-457-2377.

If you would like to participate in the survey, please complete the Farm Equipment (pdf) form. Fax the completed form to 306-787-0410, or mail to Joe Novak, Agriculture and Food, 515 Henderson Drive, Regina, SK, S4P-3V7 and we will update the numbers to reflect the whole province.

Related Links
If you would like to participate in the survey, please complete the Farm Equipment (pdf) form. By completing the form, you can compare your individual machine costs to the averages.


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