Machinery is essential to modern farming, but it’s also one of the most challenging expenses to measure, benchmark, and manage. Over the past decade, rising equipment costs and longer financing terms have increased the financial pressure machinery places on farm businesses.
We share practical ways you can better understand machinery expenses—and use that knowledge to strengthen your operation over the long term. When managed intentionally, machinery and equipment expenses can become a competitive advantage.
In this article:
Machinery’s expanding role on the farm balance sheet
Machinery and equipment on the balance sheet is up roughly 50% since 2015. Machinery costs experienced a particularly sharp jump after 2020, a trend producers continue to feel today. That growth matters because increased machinery investment directly affects financial flexibility and long-term cost structure.
“Machinery is one of those capital assets that’s getting really pricey,” says David Widmar, agricultural economist and cofounder of Agricultural Economic Insights. He added that the challenge for producers is “how do we make sure we’re in the ballpark of where we need to be for our operation to be successful.”
Don’t overlook fixed costs
Machinery is a fixed expense, and fixed expenses often don’t receive the same attention as variable costs like seed or fertilizer.
“Fixed expenses are easily overlooked,” he says. “They’re difficult to measure and benchmark, but they’re a huge management opportunity.”
During the past 30 years, family labor, land, and machinery have grown, and today account for more than half of total production expenses for Midwest corn and soybean farms. Machinery alone represents roughly 16%.
“The real value here,” Widmar says, “is that these fixed expenses are a potential source of long-run competitive advantage. If you have a fixed cost structure that puts you in a good cost structure position, that’s going to pay dividends for your operations for decades, if not generations to come.”
Benchmarking machinery investment per acre
Because machinery costs are difficult to evaluate in isolation, Widmar encourages producers to use market value, not book value, to get a handle on their total machinery investment.
“It’s really valuable to use a market value here,” he says. “A lot of times we want to think about the book value of machinery, maybe taking out that tax depreciation. But as you think about this over time, you want to benchmark what that total investment actually looks like.”
For further clarity, calculate your total investment by acre.
“When you turn that into dollars per acre, you can start to take out some of the noise that might be showing up as you expand or adjust the size of your operation,” Widmar says.
Cash flow: What can your operation sustain?
Beyond the balance sheet, machinery decisions also shape annual cash flow. Widmar recommends tracking annual machinery spending alongside other fixed obligations to understand the operation’s true overhead.
“If you track them over several years,” he says, “you start to capture how much your operation can sustain spending—either upgrading equipment or replacing equipment.”
Greg Roberg, vice president of sales at AgDirect, reinforces the importance of liquidity when evaluating machinery decisions.
“When it all comes down to it,” Roberg says, “I would say cash flow is king.”
He encourages producers to clearly communicate financial limits when working with dealers or lenders.
Measuring true ownership costs with DIRTI5
One of the most comprehensive ways to evaluate machinery cost is through DIRTI5:
- Depreciation
- Interest
- Repairs
- Taxes
- Insurance
Widmar emphasizes that depreciation should be viewed economically, not solely from a tax perspective.
When measured consistently, DIRTI5 helps you better understand the true cost of ownership and compare performance internally over time. Widmar suggests a starting benchmark of roughly $150 per acre, while emphasizing that results will vary widely depending on operation structure.
Avoiding common pitfalls with machinery metrics
While benchmarks are helpful, Widmar cautions against relying on any single metric.
“As soon as we turn a measure or a benchmark into a goal, it starts to lose its value,” he says.
Trying to lower machinery costs in one area may simply shift expenses elsewhere, such as through increased custom hire. Instead, Widmar encourages you to be thoughtful—and honest—about your data: “You have to leave excuses at the door and look at your own situation and think about how you can do better and improve over time.”
Leasing, owning, and risk management
Leasing can play an important role in equipment financing—especially for large, complex machines, Roberg says.
“The advantage of a lease is you pay for what you use and that can keep you in a newer model with a warranty,” he says.
For equipment like combines, leasing can help manage both cash flow and operational risk.
“A combine has all these moving parts,” Roberg says. “When you have a breakdown, not only does that cost you time, but it also costs you money. So, a lease may make a lot of sense for some of your bigger equipment, especially combines.”
Advice for the next generation
For younger producers, Roberg stresses the importance of maintaining working capital and resisting pressure to match prior generations’ purchasing habits.
“It’s OK to finance or lease farm equipment, particularly when you’re a younger producer,” he says. “Manage that working capital. That is critical to an operation of any size.”
Both Roberg and Widmar warn against comparing operations to neighbors. Instead, focus on internal progress.
Progress, not perfection
Machinery expenses will always be a significant part of farming. But with better measurement—on the balance sheet, through cash flow, and within ownership costs—producers can make more intentional decisions.
When you capture where you are today and revisit it a year from now, Widmar says, you start to see if you’re getting better. That’s how progress happens.
For farms navigating tight margins and uncertain markets, that kind of clarity can make all the difference.
AgDirect offers competitive financing and lease options on new and used ag equipment. Contact AgDirect for financing options or application assistance.
