Machinery Management Strategies
Understanding the True Costs of Farm Machinery Investments
Farm equipment is a significant and necessary investment with far-reaching impacts on taxes, labor, and financing. Since every farming operation is unique, pinpointing the actual costs tied to equipment ownership and usage can be challenging.
“Effectively managing machinery is all about balancing the need for timely operations with the capital required to perform them,” says Dr. Brent Gloy, a farmer and economist who specializes in agricultural business management and finance.
“For instance, outsourcing harvest through custom work can greatly reduce your need for harvest machinery, which alters your overall equipment investment,” he explains. “However, that trade-off comes with less control over when the job gets done and how it's carried out.”
These kinds of trade-offs often hinge on broader economic conditions, influencing whether it's smarter to invest now or hold off.
“During the early 2000s, we saw a surge in total farm capital investments—jumping from around $30 billion to $50 billion annually—as the sector experienced growth,” says agricultural economist David Widmar. “In contrast, tighter financial conditions in recent years have caused many producers to delay new equipment purchases.”
Regardless of the broader financial climate, understanding your machinery costs, building a sound capital expenditure plan, and securing suitable financing are critical steps for long-term success.
Getting a Handle on Equipment Costs
“Start by tracking machinery expenses relative to your gross revenue,” Widmar recommends. “This gives you a clear picture of how much income your operation generates and what portion is being absorbed by machinery-related costs.”
As a general guideline, machinery costs should ideally be kept below 25% of annual gross revenue. If that figure creeps up to 25–30% or higher consistently, it could be a warning sign.
“It’s normal for this percentage to vary across different operations,” Widmar notes, “but prolonged overages may require a closer look.”
To better understand your machinery investment, keep an eye on the key expense categories known as the DIRTI 5: Depreciation, Interest, Repairs, Taxes, and Insurance.
Widmar and Gloy also recommend including the net cost of custom hire—whether it’s an added income stream or an outsourced service—in your calculations.
“Annual costs like economic depreciation, repair expenses, and custom hire fees are easier to track and can provide insight over time,” Widmar adds.
Building a Capital Expenditure Strategy
One of the most impactful financial decisions producers face is how to allocate funds toward machinery purchases. Widmar and Gloy advise creating a long-range plan that incorporates both near-term and future equipment needs.
“Begin by identifying what equipment needs replacing and estimating the cost of upgrades,” Widmar suggests. “With those figures, you can begin to integrate equipment purchases into your crop budgets over multiple years.”
For example, you might prioritize tractor upgrades one year and delay harvest or tillage equipment purchases until later. Over a five- to 10-year period, your capital plan could also include major assets like irrigation pivots, grain storage, or livestock facilities.
“Mapping out a capital plan allows you to coordinate purchases with your budget and manage spending more effectively,” Widmar says.
Finding the Right Financing Solution
As equipment costs continue to climb, producers face increasing pressure to manage depreciation and debt. Securing the appropriate financing is essential to avoid financial strain.
“Thanks to our relationship with Farm Credit System associations nationwide, AgDirect understands the financing needs of today’s producers and can tailor options that enhance productivity without compromising profitability,” says Ryan Kruger, AgDirect territory manager in Idaho and Utah.
“Rather than focusing on selling equipment, we emphasize structuring financing—regardless of the equipment brand—to fit the producer’s budget,” Kruger says. “We offer a range of loans and lease programs whether you’re buying from a dealer, at auction, or through a private party.”
He also encourages working closely with a financial advisor or accountant to ensure that loan or lease terms support your broader financial objectives, especially when evaluating year-end opportunities like dealer incentives or tax benefits.
