Farm equipment is a big expense for producers

How many dollars per acre does your farm equipment cost you each year? With the huge range among producers in their equipment investment and the different opinions on how to translate that into a cost per acre, estimating the true cost isn’t an exact science.

In Saskatchewan Agriculture’s just released Crop Planning Guide 2019, it’s assumed that a brown soil zone farm has $330 per acre invested in machinery, while a dark brown soil zone farm has $372 and a black soil zone farm has nearly $422. The ministry says this is based on data provided by Statistics Canada.

What’s your equipment investment cost per acre? It’s a simple calculation. Just estimate the value of all your farm equipment and divide by your cropped acres. Include the current value of leased equipment as well because the cost to lease is about the same as owning.

Saskatchewan Agriculture’s Crop Planning Guide uses 7.5 percent of machinery investment as an annual cost. In the dark brown soil zone, where the average equipment investment is $372 an acre, that’s nearly $28 an acre.

On top of this comes machinery depreciation calculated at 10.7 percent — nearly $40 an acre in the dark brown soil zone.

Then add repair costs calculated at 2.6 percent of the investment cost —– nearly $10 an acre. Saskatchewan Agriculture places repairs under operating costs rather than fixed costs, but it’s a cost nonetheless.

Adding machinery investment, depreciation and repairs makes a total ranging from $68.65 an acre in the brown soil zone to 87.61 per acre in the black soil zone. That’s a large annual cost.

Some producers will have a much lower machinery investment and others will be much higher with corresponding differences in annual cost.

Manitoba Agriculture uses different assumptions in its Guidelines for Estimating Crop Production Costs 2019. An assumed line of equipment is costed for a farm with 2,000 conventional crop acres and 500 specialty crop acres. The investment per acre comes to $682 in conventional equipment plus $86 an acre for specialty crop equipment.

Equity of 50 percent is assumed for the equipment with the other 50 percent financed at 4.875 percent over 10 years. The machine finance cost totals a bit more than $49 an acre. While this may be the out-of-pocket cost, it really doesn’t account for the total value of money tied up in equipment.

Manitoba Agriculture also uses a machinery depreciation cost that equates to just 3.3 percent. Most equipment certainly doesn’t depreciate at the capital cost allowance rate that you can claim for income tax, but 3.3 per cent seems like a very low estimate.

Farm management specialist Jonathan Small, formerly with MNP and now with Global Ag Risk Solutions, advises producers to assume that 25 percent of their farm machinery investment becomes a cost each year. Small’s estimate includes depreciation at 15 to 20 percent, the cost of money at five percent and the cost of repairs at five percent.

Depreciation certainly varies widely, with combines much quicker to lose value than four-wheel drive tractors. Either way, it’s a big jump in cost when you invest in newer equipment.

Any way you calculate it, machinery costs are a big deal and they’re one cost over which producers have some control.

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