Capital costs impact a farm’s bottom line

decrease font size  Resize text   increase font size       Printer-friendly version of this article Printer-friendly version of this article

Over the past few years, favorable commodity prices and crop yields in the Saginaw Valley have allowed many farms to undertake some overdue upgrades of farm machinery and make other improvements. These capital purchases are great for the farm and rural economy, generating a great deal of business activity. As a result of the higher than normal capital investments, we have seen a drastic increase in depreciation, which is being reported as part of a farm’s overall annual cost of production. These numbers can be seen in the “Type of Farm Business Summary Reports”, found on the Michigan State University Extension FIRM web page.

Most farms have taken the expanded accelerated depreciation and bonus depreciation as a cost on the Federal 1040 -Schedule F tax forms, at an average of $108.73 per acre for the years 2010 through 2012. Ten years prior, during 2000 - 2012, depreciation on equipment and improvements was $38.75 per acre. This is a cost increase from $0.21 per bushel to $0.59 per bushel applied to a 185 bushel corn crop, not that the $0.38 per bushel is a change that must be accounted for. If a farm uses this tax depreciation value in calculating the farm’s cost of production, it will substantially raise the break-even prices to levels higher than what may be available from the current corn price. So farms may want to use an alternative method to estimate a depreciation value that may be closer to an actual calculation of the decrease in their equipment value over time.

ANNUAL DEPRECIATION = (purchase price – salvage value) / useful years

Real depreciation is much different from the values reported on tax returns, where a tractor goes from full purchase price to zero value in seven years or with bonus depreciation from full purchase price to 50 percent value in the first year. Or, you may choose to use Section 179, Direct Expense option, which allows you to take up to 100 percent of the purchase price deduction in the year of purchase. With all these options and methods, a farm needs to step back for a moment and calculate a value that represents their situation. This is a good topic to discuss with your farm’s financial advisor.

Depreciation taken



$ change









Total depreciation




*data taken from Type of Farm Business Analysis Summary Reports, Michigan State University

Farms can find a set of crop production cost budgets on the FIRM web page. These templates are a quick method to compare various crops in a side by side worksheet which can allow the user to look at impact of changes in prices and production practices.

Buyers Guide

Doyle Equipment Manufacturing Co.
Doyle Equipment Manufacturing prides themselves as being “The King of the Rotary’s” with their Direct Drive Rotary Blend Systems. With numerous setup possibilities and sizes, ranging from a  more...
A.J. Sackett Sons & Company
Sackett Blend Towers feature the H.I.M, High Intensity Mixer, the next generation of blending and coating technology which supports Precision Fertilizer Blending®. Its unique design allows  more...
R&R Manufacturing Inc.
The R&R Minuteman Blend System is the original proven performer. Fast, precise blending with a compact foot print. Significantly lower horsepower requirement. Low inload height with large  more...
Junge Control Inc.
Junge Control Inc. creates state-of-the-art product blending and measuring solutions that allow you to totally maximize operating efficiency with amazing accuracy and repeatability, superior  more...
Yargus Manufacturing
The flagship blending system for the Layco product line is the fully automated Layco DW System™. The advanced technology of the Layco DW (Declining Weight) system results in a blending  more...
Yargus Manufacturing
The LAYCOTE™ Automated Coating System provides a new level of coating accuracy for a stand-alone coating system or for coating (impregnating) in an automated blending system. The unique  more...
John Deere
The DN345 Drawn Dry Spreader can carry more than 12 tons of fertilizer and 17.5 tons of lime. Designed to operate at field speeds up to 20 MPH with full loads and the G4 spreader uniformly  more...
Force Unlimited
The Pro-Force is a multi-purpose spreader with a wider apron and steeper sides. Our Pro-Force has the most aggressive 30” spinner on the market, and is capable of spreading higher rates of  more...
BBI Spreaders
MagnaSpread 2 & MagnaSpread 3 — With BBI’s patented multi-bin technology, these spreaders operate multiple hoppers guided by independent, variable-rate technology. These models are built on  more...

Comments (0) Leave a comment 

e-Mail (required)


characters left

Blend and Bulk Tower Systems

Waconia Towers provide speed, efficiency and reliability that only gravity-fed systems can offer. Towers are available with up to 300 ... Read More

View all Products in this segment

View All Buyers Guides

Feedback Form
Feedback Form