Farm Machinery Cost Analysis

• machinery
• costs
• equipment

What goes into machinery cost?

Extension economists split costs into two groups. Ownership costs happen whether the machine runs or not: depreciation, interest on the money tied up, insurance, housing and sometimes taxes. Operating costs rise with use: repairs, fuel, lubricants and labor.

Adding both and dividing by hours or acres gives a per-unit cost you can compare with custom rates or a newer machine.

Notice that interest can be a real cost even on a paid-off machine, since the money could be earning something elsewhere or paying down debt.

• Depreciation or loss in value
• Interest on investment, actual or opportunity
• Insurance and housing
• Repairs and maintenance
• Fuel, oil and operator labor

How do you estimate depreciation and repairs?

Extension publications provide repair and depreciation tables based on machine type and accumulated hours. They are estimates, not promises, so adjust them with your own repair records. Your accounting depreciation for taxes can differ from economic depreciation, so keep the two separate and ask your CPA about tax treatment.

Keep a file for each machine with purchase price, hours, major repairs and trade value. After a few years you will have farm-specific numbers.

Repair costs often climb with age, but not in a straight line. Keep your own repair records, and watch for the point where a machine starts costing more in downtime and parts than a replacement would cost to own.

Why does use per year matter so much?

Fixed costs are spread across hours. A combine used a few hundred hours a year carries a far higher cost per hour than one used more. That is why a machine can be a bargain for a large operation and a burden for a small one.

Calculate the cost per acre at your own acreage. If it climbs well above what a custom operator charges, reconsider ownership, sharing or a smaller unit.

Peak season matters as well. If three machines are needed in the same week, ownership may make sense even at low hours.

How can you compare machines and options?

Line up the options side by side: keep the current machine, replace it with new or used, share it, lease it or hire the work done. Include timeliness. A slow or unreliable machine can cost yield through late planting or harvest, which does not show up on a repair bill.

Free spreadsheets from Purdue, Iowa State and other universities calculate these costs. Check their sites for current tools.

When comparing, use the same assumptions for every option, such as the same acres, labor wage and fuel price.

What do lenders and tax rules add to the picture?

Lenders will look at how machinery debt fits your cash flow and how much of your asset base sits in equipment. Heavy machinery investment relative to acreage is a flag for many. Tax rules about depreciation and expensing change over time, so check IRS Publication 225 and talk with a CPA before buying for tax reasons.

A purchase made only for a tax deduction still costs real money.

What are common machinery mistakes?

Buying more horsepower or capacity than needed, ignoring ownership costs on older paid-off machines, trading too often, skipping maintenance and failing to track hours are common. Another is forgetting the resale value, which can be a large part of the picture.

Ask yourself: what job does this machine do, how many hours or acres will it cover, and what is the cheapest reliable way to do that job?

How do you put the analysis to work this year?

Pick your three most expensive machines and run the numbers. Collect purchase price, current value, annual hours or acres, last year's repairs and fuel use. Use a university spreadsheet to calculate cost per hour and per acre.

Then compare the result with local custom rates, which your extension office or state agricultural statistics service may publish. If the machine costs well more than the custom rate at your usage, ask whether that is acceptable because of timeliness, or whether another arrangement would work better.

Write down the decision and revisit it each year. Costs change as machines age and as your acreage shifts.

• Pick the top three machines by cost
• Gather price, value, hours, repairs and fuel
• Compare with custom rates
• Record the decision and review annually

Last reviewed: November 12, 2026. Written by the Farm Money & Grants Editorial Team. Educational only, not tax, legal or financial advice. See our editorial policy.