Measure investment per acre: Efficiency goal of machine management

We are asked about machinery management quite often. “How much machinery do I need?” “Should I repair and keep this machine or trade it for a new one?” Both questions fall under the heading of machinery efficiency.

In general, the objective of efficient machinery use is to accomplish all field work in a timely manner and as inexpensively as possible. A college text book — Farm Management by professors Ronald Kay, William Edwards and Patricia Duffy — provides the basics for tackling these questions. This article borrows extensively from a section in their book.

One measure of machinery efficiency is machinery investment per crop acre, calculated by dividing the value of all crop machinery by the number of crop acres on the farm.

The value of all machinery for a given year can be taken from an inventory list for that year. Preferably these values would be fair market values instead of book values (i.e. cost minus depreciation).

Since total machinery value has most likely changed during the year, either because machinery has been purchased or sold, or because the market values have changed, the average machinery value for that year should be used. This is calculated by averaging the machinery value at the beginning of the year and the machinery value at the end of the year.

The Iowa State University Extension service has access to a large number of farm records. They calculated the machinery investment per crop acre in 2001. Their high-profit grain farmers averaged $228 per acre in machinery investment while their low-profit grain farmers averaged $245 per acre. Their high-profit farmers apparently made more efficient use of machinery.

These values should be used with caution. Studies have shown that investment per acre declines with increases in farm size, and vary by farm type.

Machinery investment per acre values for farms in the Delta are not readily available. Still a producer can track his progress over time. Your loan officer might also provide targets or benchmarks for machinery investment per acre.

Improving machinery efficiency focuses on five areas. They include:

  • choosing the optimum size of machine,
  • choosing the least cost alternative for acquiring machinery services,
  • proper maintenance and operation,
  • efficient machinery use, and
  • replacement decisions.

Selecting machinery of the appropriate size can be one of the more difficult decisions in farm management. Farm size is important, and labor and timeliness costs must also be considered. For some operations, custom hiring or leasing machinery rather than owning can increase machinery efficiency.

Proper use and maintenance of machinery increases efficiency. Ag engineers report that excessive repair costs can generally be traced to:

  • overloading or exceeding the rated machine capacity,
  • excessive speed,
  • poor periodic maintenance, and
  • improper adjustment.

Misusing a specialized machine can reduce efficiency. Boll buggies and grain carts keep harvesting equipment doing the job for which they were purchased. Performing a second harvest on cotton may or may not be an efficient use of harvesting equipment, depending on the situation.

Finally, when to replace or trade a machine is another difficult decision with no easy decision rule. Replacement decisions affect costs, reliability, income taxes and cash flow.

The decision to replace a machine can be made for any of the following reasons:

  • the present machine is worn out,
  • the machine is obsolete,
  • costs are increasing with the present machine,
  • capacity of the present machine is too small,
  • favorable tax laws,
  • a high profit year, or
  • pride of ownership.

Kelly Bryant, James Marshall, Rob Hogan and Scott Stiles are University of Arkansas Extension economists. Comments or questions? Call 870-460-1091 or e-mail [email protected].

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