July 28, 2004
PER ACRE MACHINERY COSTS AND VALUES ON ILLINOIS FARMS, 2003
Summaries of Illinois Farm Business Farm Management
(FBFM) records indicate that power costs on Illinois grain farms
average $59.39 per tillable acre in 2003. Power costs are composed
of utilities ($4.85), repairs ($15.73), machine hire and leases
($8.53), fuel and oil ($9.65), light vehicle ($2.19) and depreciation
In 2003, FBFM changed depreciation methods. Prior to 2003, tax
depreciation was used to determine machinery depreciation. Because
tax law now allows large write-offs in the year of purchase, economic
depreciation was adopted in 2003. Depreciation of a particular machine
is determined using a ten-year 125% declining balance with a salvage
value of $0. Bonus depreciation or expense elections claimed for
tax purposes are not included in economic depreciation. For 2003,
the switch in depreciation methods lowered depreciation costs by
about $10 per acre.
Farm Size and Power Costs
Average power cost for farms with less than 500 acres is $67 per
acre (see Table 1). Power costs average lower for larger farm sizes.
Average power costs do not trend upward or downward for size categories
above 500 acres. The lowest average power cost is $54 per acre for
farms between 1,501 and 2,000 acres. Larger farm sizes have slightly
higher power costs of $58 per acre for the 2,001 to 3,500 acre category
and $60 per acre for the more than 3,501 acre size category.
Statistical tests indicate that there is no significant difference
in average power costs for farm sizes above 500 acres. This occurs
because there are large variations in power costs across farms in
a size category.
Power Costs and Profitability
Lower power costs tend to lead to higher profitability. In this
paper, profitability is measured by per acre management returns.
Management returns equal revenue minus expenses, with expenses including
costs for unpaid labor and equity capital invested in the operation.
Farms that have power costs less than $45 per
tillable acre average management returns of $59 per acre (see Table
2). As power costs increase, average management returns decrease.
For power cost categories between $46 and $85 per acre, management
returns are in the $20 per acre range. For farms with power costs
above $85 per acre, management returns average -$16 per acre.
In general, a strong link exists between power costs and management
returns. Farms that have lower power costs tend to have higher profits.
Controlling costs, including power costs, is a key in increasing
Average fair market values for grain farms enrolled in FBFM are
shown in Table 3. In general, fair market values decrease as tillable
acres increase. Farms with less than 500 acres have an average value
of $310 per tillable. Farms with over 3,501 acres average $210 per
acre in machinery value
Averages in Table 3 do not demonstrate the variability of machinery
values within a tillable acre class. Market values can range from
a low of $100 per acre up to $500 per acre.
The author would like to acknowledge that data used in this study
comes from the local Farm Business Farm Management (FBFM) Associations
across the State of Illinois. Without their cooperation, information
as comprehensive and accurate as this would not be available for
educational purposes. FBFM, which consists of 6,000 plus farmers
and 62 professional field staff, is a not-for-profit organization
available to all farm operators in Illinois. FBFM field staff provides
on-farm counsel with computerized recordkeeping, farm financial
management, business entity planning and income tax management.
For more information, please contact the State FBFM Office located
at the University of Illinois Department of Agricultural and Consumer
Economics at 217-333-5511 or visit the FBFM website at www.fbfm.org.
Issued by: Gary Schnitkey, Department of Agricultural and Consumer