Managing Machinery Costs Is a Balancing Act

Keeping machinery costs contained within the financial corral best suited to the size of your operation is, as you well know, an ongoing juggling match, to say the least. "This is always going to be a hassle for producers," says Allen Graner, a longtime North Dakota Farm Business Management (FBM) instructor.

Working with FBM participants over a period spanning several decades, he's heard firsthand the questions: Should I trade tractors now or hold off? Should I upgrade combines? Should I downsize my equipment? Should I run longer days in the field?

"Managing machinery costs is just as important as managing any other input cost," Graner says. "You have to think of your business as a pie chart. If you replace machinery, you could increase your machinery cost but not necessarily your profit. That's because you're running over the same number of acres."

Of course, there's no standard carved in stone for managing overall machinery costs. It is, at best, a balancing act. Yet, there are six questions the FBM records and instructors suggest might point to reduced costs.

1. Is my equipment of an efficient size? "Covering more acres could reduce the cost of owning a machine," says NDFBM instructor Jory Hansen. "Trading to a smaller model that will still do the required job may reduce equipment cost."

2. Am I overequipped? "When crop prices were good, we saw producers buying a lot of machinery," says Hansen. "One example is the self-propelled sprayer that we formerly saw owned primarily by custom applicators. We've recently seen some producers trading down to a smaller model."

Graner, too, suggests reviewing iron lines for pieces that might not be needed. "A single operator might ask, 'Do I need three big tractors and two combines when I'm only one person?' " he says.

Taking a hard look at your line of tillage implements could lead to a further streamlining of equipment inventories. Goals and family needs play a role, too, in maintaining lines of equipment. As an example, Hansen points to the labor needs of his own family of beef producers, six partners all employed off the farm. Time is a precious commodity. "You have to think about the amount of time you have to do a given job," says Hansen.

3. Is it time to trade? Just because a piece of equipment is paid for doesn't mean it costs less to operate. Sooner or later comes the day when it must be replaced. Monitoring its trade-in value may help determine the cost effectiveness of trading.

"Every year that you have a machine, its value gets closer to zero," says Hansen. "When you lose too much in trade-in value, you face higher replacement costs, and that increases machinery costs."

4. Is it time to hold on to equipment? While trading one piece of equipment may be cost effective, holding on to another may be a better choice."If you bought a tractor in 2012, it's costing less in depreciation every year," says Hansen. "Just by maintaining the newer equipment that you have, you can reduce costs over time."

5. Should I consider leases or custom hire? These are usually alternatives to owning some pieces of machinery.

6. Am I managing fuel and repair costs to the max? The FBM records for south-central North Dakota show that the high-profit producers of corn and soybeans have somewhat lower fuel costs than the low-profit producers. They also have significantly lower repair costs.

Graner offers one rule of thumb for overall cost containment. "Always try to maximize all working assets, whether it's machinery or breeding cattle," he says. "The greater the usage, the more the overall cost will go down."