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Farm Machinery Cost Calculations

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Publication Number: P3543
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Farm equipment is typically the second-largest investment for a crop farm after land, and it is usually the most complex when determining annual costs. By developing annual costs for equipment, producers have an estimate of farm machinery costs that can be used in enterprise budgeting and whole-farm planning, as well as decisions such as asset replacement. Farm machinery costs are separated into two categories:

  1. ownership costs, which include depreciation, interest, taxes, insurance, and housing
  2. operating costs, which include repairs, fuel, lubrication, and labor

Annual ownership costs are calculated from financial information, and annual operating costs are calculated using data from detailed equipment records or from engineering factors (if detailed records are not available). This publication demonstrates the process of calculating farm machinery costs using engineering factors when detailed records are not available or when projecting costs for new equipment.

The engineering factors used in the following analysis are from the American Society of Agricultural and Biological Engineers (ASABE) Standards 2011. These factors include salvage value estimates and machine performance rates of field efficiency, field speed, fuel consumption rates, and repair factors. Some well-accepted estimates will also be used from Farm Management (Kay, Edwards, & Duffy, 2020) which include taxes, interest, and housing (TIH) costs as a function of average equipment value, lubrication and filter costs as a function of fuel costs, and labor hours as a function of machine hours.

Ownership Costs

Depreciation is an expense that represents the loss in value of equipment due to age, wear, and obsolescence. The annual cost spreads the initial purchase cost across the useful life of the equipment. There are several techniques for calculating depreciation including methods used for income tax preparation. The technique used for this analysis and typically used for budget projections is straight-line depreciation. It is calculated as (initial purchase cost – salvage value) / useful life = annual depreciation expense.

Salvage value is the market value of an asset at the time that it is sold or removed from service. Salvage value can be estimated by various methods; in this publication, we will use factors available in Kay, Edwards, and Duffy (2020), which are based on ASABE Standards. Table 1 lists the salvage value factors. The salvage value is calculated as the salvage value factor / 100 × the new list price of the equipment.

As an example of depreciation calculations, consider a 130 horsepower (hp) two-wheel-drive tractor with a list price of $120,000; with dealer discounts, the purchase cost was $115,000. If the expected useful life is 10 years, the salvage value factor is 37 as shown in Table 1. Salvage value is estimated to be ($120,000 × 37 / 100) = $44,400. The annual depreciation is then calculated as [($115,000 – $44,400) / 10] = $7,060.

Interest is the cost of using capital invested in farm equipment. With borrowed capital, interest cost is based on the loan interest rate. With owner equity capital, interest cost is based on the interest rate or rate of return on the next best alternative use of the capital. There are several methods to calculate loan payments depending on conditions of the loan, but interest cost for this analysis will be calculated as the interest cost on the average value of the equipment by multiplying the average value times the interest rate: (initial purchase cost + salvage value) / 2] × interest rate = annual interest expense. This calculation will provide the average annual interest cost over the life of the asset. Using the example above with an interest rate of 5 percent, the annual interest expense is calculated as [($115,000 + $44,400) / 2] × 0.05 = $3,985.

Taxes in Mississippi for farm equipment are sales taxes levied on the purchase of the equipment at the time of sale. As such, these are a one-time cost and should be added to the initial purchase cost. Insurance costs are estimated at 0.5 percent of the average cost, and housing is estimated at 1.0 percent of average cost. Taxes, insurance, and housing (TIH) factors are often combined into one factor of 1.5 percent of average value. Continuing with the example above, the annual expense for TIH is calculated as [($115,000 + $44,400) / 2] × 0.015 = $1,195.50 (round to $1,196).

Total annual ownership cost is the sum of depreciation, interest, and TIH. In this example, total annual ownership cost is $7,060 (sum of depreciation) + $3,985 (interest) + $1,196 (TIH) = $12,241.

Table 1. Estimated salvage value as a percentage of new list price for a similar machine.

Age of machine in years

Harvesting,

crop

Harvesting, forage

Miscellaneous

Planters

Tillage

Tractors

150+ hp

Tractors

80–149 hp

1

69

56

61

65

61

67

68

2

58

50

54

60

54

59

62

3

50

46

49

56

49

54

57

4

44

42

45

53

45

49

53

5

39

39

42

50

42

45

49

6

35

37

39

48

39

42

46

7

31

34

36

46

36

39

44

8

28

32

34

44

34

36

41

9

25

30

31

42

31

34

39

10

22

28

30

40

30

32

37

11

20

27

28

39

28

30

35

12

18

25

26

38

26

28

34

Note: If age of machine exceeds 12 years, the salvage value is assumed to remain constant at the 12-year level.

Source: Kay, Edwards, and Duffy (2020), based on ASABE Standards.

Operating Costs

Table 2 shows the engineering factors used in the following analysis.

Repair costs are best estimated using detailed history for the individual piece of equipment because of differences in manufacturers, management factors, and working conditions. However, if detailed records are not available, factors have been established by the ASABE that are proportional to the original list price for a type of equipment. For example, a two-wheel-drive tractor up to 150 hp has an average repair cost per 100 hours of use of 0.84 percent of new list price (as shown in Table 2). The average repair cost, then, for a 130 hp two-wheel-drive tractor with a list price of $120,000 and annual use of 400 hours is estimated to be ($120,000 × 0.0084 / 100 hours × 400 hours) = $4,032 per year.

Fuel costs can be estimated using a fuel consumption factor multiplied by the PTO horsepower of the equipment multiplied by the price of fuel. The fuel consumption factors found in ASABE Standards 2013 are 0.060 gallons/horsepower-hour for gasoline, 0.044 gallons/horsepower-hour for diesel, and 0.08 gallons/horsepower-hour for LP gas. For example, the 130 hp diesel tractor from above would have an estimated fuel consumption of (130 hp × 0.044 gallons/hp-hour) = 5.72 gallons per hour. For 400 hours of annual use and diesel price of $1.50 per gallon, the estimated annual fuel cost for the tractor would be (5.72 gallons / hour × 400 hours × $1.50/gallon) = $3,432.

Table 2. Machine performance factors.

Equipment category

Equipment type

Field efficiency – range1

Field efficiency – typical1

Field speed – range1

Field speed – typical1

Estimated life (hours)1

Average

repair factor2

Harvesting, crop

Corn picker sheller

60–75

65

2.0–4.0

2.5

2000

1.33

Harvesting, crop

Potato harvester

55–70

60

1.5–4.0

2.5

2500

2.74

Harvesting, crop

PT combine

60–75

65

2.0–5.0

3.0

2000

1.33

Harvesting, crop

Sugar beet harvester

50–70

60

4.0–6.0

5.0

1500

7.77

Harvesting, crop sp

SP combine

65–80

70

2.0–5.0

3.0

3000

1.33

Harvesting, crop sp

SP cotton picker

60–75

70

2.0–4.0

3.0

3000

2.65

Harvesting, forage

Forage harvester

60–85

70

1.5–5.0

3.0

2500

2.60

Harvesting, forage

Large rectangular baler

70–90

80

4.0–8.0

5.0

3000

1.74

Harvesting, forage

Large round baler

55–75

65

3.0–8.0

5.0

1500

5.95

Harvesting, forage

Mower

75–85

80

3.0–6.0

5.0

2000

7.47

Harvesting, forage

Mower (rotary)

75–90

80

5.0–12.0

7.0

2000

8.80

Harvesting, forage

Mower-conditioner

75–85

80

3.0–6.0

5.0

2500

3.12

Harvesting, forage

Mower-conditioner (rotary)

75–90

80

5.0-12.0

7.0

2500

8.80

Harvesting, forage

Rectangular baler

60–85

75

2.5–6.0

4.0

2000

4.00

Harvesting, forage

Side delivery rake

70–90

80

4.0–8.0

6.0

2500

2.45

Harvesting, forage sp

SP forage harvester

60–85

70

1.5–6.0

3.5

4000

1.20

Harvesting, forage sp

SP windrower

70–85

80

3.0–8.0

5.0

3000

1.80

Miscellaneous

Bean puller/windrower

70–90

80

4.0–7.0

5..0

2000

3.12

Miscellaneous

Beet topper/chopper

70–90

80

4.0–7.0

5.0

1200

1.33

Miscellaneous

Boom-type sprayer

50–80

65

3.0–7.0

6.5

1500

4.63

Miscellaneous

Fertilizer spreader

60–80

70

5.0–10.0

7.0

1200

3.09

Planters

Grain drill

55–80

70

4.0–7.0

5.0

1500

5.00

Planters

Roller-packer

70–90

85

4.5–7.5

6.0

2000

2.45

Planters

Row crop planter

50–75

65

4.0–7.0

5.5

1500

5.00

Tillage

(Coulter) chisel plow

70–90

85

4.0–6.5

5.0

2000

3.70

Tillage

Field cultivator

70–90

85

5.0–8.0

7.0

2000

3.56

Tillage

Heavy-duty disk

70–90

85

3.0–6.0

4.5

2000

2.92

Tillage

Moldboard plow

70–90

85

3.0–6.0

4.5

2000

5.05

Tillage

Mulcher-packer

70–90

80

4.0–7.0

5.0

2000

3.12

Tillage

Rotary hoe

70–85

80

8.0–14.0

12.0

2000

3.03

Tillage

Rotary tiller

70–90

85

1.0–4.5

3.0

1500

5.40

Tillage

Row crop cultivator

70–90

80

3.0–7.0

5.0

2000

3.91

Tillage

Spring tooth harrow

70–90

85

5.0–8.0

7.0

2000

3.91

Tillage

Tandem disk harrow

70–90

80

4.0–7.0

6.0

2000

3.91

Tractors 150+ hp

2WD 150+ hp

       

12000

1.12

Tractors 150+ hp

4WD & crawler 150+ hp

       

16000

0.48

Tractors 80–149 hp

2WD <150hp

       

12000

0.84

Tractors 80–149 hp

4WD & crawler <150 hp

       

16000

0.48

1Source: ASABE Standards (2011).

2Average repair factor as a percent of new cost per 100 hours of use. Source: Kay, Edwards, and Duffy (2020).

Lubrication and filter costs can be estimated as 15 percent of fuel costs. Using the example above, annual costs for lubrication and filters will be ($3,432 × .015) = $515.

Labor cost for machinery use is estimated by multiplying the annual machinery hours by a factor of 1.2 to estimate labor hours, then multiplying labor hours by the wage rate in dollars per hour. The factor of 1.2 is a rule-of-thumb factor to be used as an estimate of the time spent by workers in pre- and post- operations such as fueling, conducting preventive maintenance, and cleaning. Continuing with the example above with 400 hours of annual use and a wage rate of $15 per hour, the estimated cost of labor is (400 hours × 1.2 × $15/hour) = $7,200.

Total annual operating cost is the sum of repair costs, fuel costs, lubrication and filter costs, and labor costs. In the example above, total annual operating cost is $4,032 (repairs) + $3,432 (fuel) + $515 (lubrication and filters) + $7,200 (labor) = $15,179.

Total annual cost is the sum of total annual ownership costs and total annual operating costs. Total annual cost for the example above is calculated as $12,241 (total annual ownership costs) + $15,179 (total annual operating costs) = $27,420.

This value may be useful for some decisions, such as whole-farm planning, but, more often, calculations are made to determine costs per hour and costs per acre, which are used to compare equipment costs, develop costs of operations, and develop enterprise budgets. Total cost per hour is calculated by dividing total annual cost by the estimated annual use in hours. In this case, total cost per hour for the 130 hp tractor is calculated as ($27,420 / 400 hours) = $68.55 per hour.

Combined cost per hour is calculated by adding the cost per hour for the tractor and the cost per hour for an implement. Fuel and lubrication costs are calculated for the tractor and not for the implement. Labor costs are calculated for the tractor and not for the implement in order not to double-count labor costs.

Combined cost per acre is useful when determining the cost of an operation such as the cost of planting or the cost of a tillage operation. The combined cost per acre is calculated by dividing total cost per hour by the field capacity in acres per hour. Field capacity is measured in acres per hour and is calculated as [speed (mph) × width (feet) × field efficiency (%) × 5,280 feet/mile] / (43,560 square feet/acre). You can develop speed and field efficiency numbers through farm records or use the ASABE Standards as shown in Table 2, which we will use here. The following example demonstrates the calculations for tractor plus implement, including combined cost per hour and combined cost per acre.

Example Calculation

To illustrate the machinery cost calculations for a tractor plus implement, this example uses a 190 hp four-wheel-drive tractor with a 32-foot field cultivator. Table 3 shows the initial information. The tractor has a list price of $200,000, purchase cost of $189,000, expected useful life of 20 years, and estimated annual use of 400 hours. The field cultivator has a list price of $45,000, purchase cost of $42,900, expected useful life of 10 years, and estimated annual use of 100 hours. Diesel price is $1.50 per gallon, wage rate is $15 per hour, and interest rate is 5 percent.

Table 3. Example initial information.

 

Tractor, 190 hp, 4-wheel drive

Field cultivator

Equipment category

Tractors 150+ hp

Tillage

Equipment type

4WD & crawler 150+ hp

Field cultivator

List price

$200,000

$45,000

Purchase cost

$189,000

$42,900

Expected useful life (years)

20

10

Horsepower rating (tractor only)

190

 

Width (feet) (implement only)

 

32

Annual use (hours)

400

100

Interest rate (%)

5.00

5.00

Fuel price

$1.50 per gallon

 

Labor wage rate

$15.00 per hour

 

Table 4 shows the ASABE factors for the tractor and field cultivator. Factors for the tractor are salvage value factor of 28 and repair factor of 0.48. Factors for the field cultivator are field efficiency of 85 percent, field speed of 7 miles per hour, salvage value factor of 30, repair factor of 3.56, and field capacity of 23.1 acres/hour.

Table 4. Example factors used for calculations.

 

Tractor, 190 hp, 4-wheel drive

Field cultivator

Sources of factors

Field efficiency (typical) (%)

 

85

ASABE (2011)

Field speed (typical) (mph)

 

7

ASABE (2011)

Salvage value factor

28

30

ASABE (2011)

Repair average factor

0.48

3.56

ASABE (2011)

Field capacity (acres per hour)

 

23.1

Calculation

Fuel use (diesel)

0.044 gallons/hp-hour

 

ASABE (2011)

Lubrication and filters

15% of fuel cost

 

Kay, Edwards, & Duffy (2020)

Labor hours

1.2 times machinery hours

 

Kay, Edwards, & Duffy (2020)

Taxes, insurance, and housing

1.5% of average value

1.5% of average value

Kay, Edwards, & Duffy (2020)

Table 5 shows machinery cost calculation results. Total annual cost for the tractor is $31,421 (total annual ownership cost of $14,613 + total annual operating cost of $16,808). Total annual cost for the field cultivator is $6,375 (total annual ownership cost of $4,773 + total annual operating cost of $1,602). Total combined cost per hour is $142.30 ($78.55/hour for the tractor and $63.75/hour for the field cultivator). The combined cost per acre is $6.17.

Table 5. Example cost calculations.
 

Tractor, 190 hp, 4-wheel drive

Field cultivator

Basic data

List price

200,000

45,000

Purchase cost

189,000

42,900

Salvage value

56,000

13,500

Ownership life in years

20

10

Estimated annual use in hours

400

100

Ownership costs

Depreciation

6,650

2,940

Interest

6,125

1,410

Taxes, insurance, and housing

1,838

423

Total annual ownership costs

14,613

4,773

Operating costs

Repairs

3,840

1,602

Fuel

5,016

 

Lubrication and filters

752

 

Labor

7,200

 

Total annual operating costs

16,808

1,602

Total annual costs

31,421

6,375

Costs per hour and per acre

Ownership costs per hour

36.53

47.73

Operating cost per hour

42.02

16.02

Total cost per hour

78.55

63.75

COMBINED COST PER HOUR

 

$142.30

COMBINED COST PER ACRE

 

$6.17

Summary

Because farm equipment is such a large capital investment for a farm business, managers should carefully analyze the costs per hour and costs per acre for equipment and for field operations. Actual farm records are the preferred source of data for calculations, but, if records are not available, the ASABE’s factors can be used to estimate key items necessary to calculate machinery costs. An accompanying spreadsheet using this method is available at https://www.agecon.msstate.edu/whatwedo/budgets.php.

References

ASABE Standards. 2011. Agricultural Machinery Management Data, ASAE D497.7. American Society of Agricultural and Biological Engineers. St. Joseph, Michigan (Reaffirmed 2015).

Kastens, T. 1997. Farm Machinery Operation Cost Calculations. Kansas State University Experiment Station and Cooperative Extension Service. MF-2244.

Kay, R. D., W. M. Edwards, and P. A. Duffy. 2020. Farm Management. McGraw Hill. New York, NY.

This material is based upon work supported by USDA/NIFA under Award Number 2018-70027-28585.


Publication 3543 (POD-10-20)

By Jeff Johnson, PhD, Extension/Research Professor, Agricultural Economics.

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Portrait of Dr. Jeff Johnson
Extension/Research Professor