Grains Research and Development

Date: 01.03.2001

$$$$$$ & Sense by Rod Luke Rendell McGuckian: How much machinery is economic?

Rod Luke

Machinery is a basic part of broadacre farming and affects the performance of the farm business, regardless of whether you have a passion for machinery, or you own only the minimum amount you can get by with. A few simple measures can be used to help understand the impact of machinery on the business.

Machinery is a capital item that is used up by the business over a number of years. The rate of use gives rise to the depreciation that is a cost to the business each year. Of course there are skills in owning machinery, which result in the same piece of machinery, as used by different farmers, having totally different useful lives.

The amount of machinery needed to generate income depends on the type of farming system you use. Large-scale cropping requires more machinery than grazing. For mixed businesses, the question is "Are you a cropping business with some livestock, or a grazing business with some cropping?"

Cropping rule of thumb

Machinery ratio to farm income is a way to question the amount of money you have tied up in machineiy.

For cropping businesses, the rule of thumb for machinery ratio is to have about the same level machinery' investment as you generate in farm income. A middle range is between 0.8 and 1.5 times your farm income. For example, if you average a $250,000 farm income, your machinery ratio would be 1.0 if you own $250,000 of machinery.

Grazing businesses generally have less machinery. The mid-range for performance on this indicator in the grazing industries is between 40 and 60 per cent of farm income. That is, if your farm income is $250,000 and you owned $125,000 of machineiy, your machineiy ratio is in the mid-range at 0.5.

The challenge for smaller-scale mixed farming operations is to generate sufficient farm income from cropping and grazing to own enough machinery to get good value out of it. Good value means producing enough to cover the operating costs, including fuel and repairs and maintenance, covering the depreciation and giving a return on the capital tied up in the machinery.