A farm investment plan is a one-page list of what you will buy or build in the next three to five years, with each row’s cost, year, numeric condition and approver. Write yours before the next dealer visit, because without it purchases follow income. On grain farms in one Illinois record-keeping program, capital purchases fell from $335,000 per farm in 2023 to $184,000 in 2025 as income dropped. A combine row shows how thin the margin can be. Nebraska Extension estimates $46.41 per acre to own and run one, and the 2024 state average to hire the job on irrigated corn is $47.84, so on 1,500 acres the machine saves $2,145 a year. One cost left out of the first number erases that.
What decides the purchase when nothing is written?
Two things, and both come from income that has already arrived. The first is the cash left at the end of a profitable year. The second is the tax bill that income creates. The dealer tends to show up after a good year, and in December whoever keeps the books calls with the tax a purchase before year end would save. Nick Paulson, an agricultural economist, and two colleagues wrote in a 2024 farmdoc daily bulletin: costs increase more rapidly during high income periods as producers make machinery investments and manage their taxable income. Neither trigger has anything to do with whether the farm needed the item. A farm without a list still has a rule for buying. Nobody agreed to it, and its one input is the bank balance.
The Illinois series comes from Illinois Farm Business Farm Management (FBFM), a record-keeping program for farms in that state. Gary Schnitkey and three fellow agricultural economists published it in August 2026. Capital purchases, meaning machinery and buildings, averaged $335,000 per grain farm in 2023, $236,000 in 2024 and $184,000 in 2025. The authors read this as a pattern: higher capital purchases are often associated with higher net farm income, with capital purchases declining when net farm incomes decrease, often in a lagged fashion.
A purchase also stays in the costs for years as depreciation, the yearly share of the machine’s price counted as a cost. On high-productivity grain farms in central Illinois, depreciation averaged $91 per acre, representing 53% of the $170 machinery-related costs for growing corn in 2025. More than half of the machinery cost on an acre of corn was wear on machines bought in earlier years, and every machine the farm buys adds to that charge.
What goes on each row, and how do you set its condition?
Five things: the item, its cost, the year, the condition and the person who approves. For the cost, use a current quote or the last invoice for something comparable. For the year, use the production plan, not the age of the machine or the dealer’s calendar. What the farm means to produce over the next few years sets which machines and buildings have to exist and by when, and that is written in a multi-year production plan. A row with no year is a wish with a price on it. Each row with a year also needs a line in that year’s budget, such as a three-year budget built on a stated price. A row that never reaches the budget has no money held back for it.
The condition is a number somebody else could check before the money goes out. To find it, compare the purchase with the other option, such as hiring a contractor or keeping the old machine one more year. Take the combine row for a farm with 1,500 acres of irrigated corn. The Nebraska Extension article estimates $46.41 per acre for the combine and header, and says that figure can be used to compare what custom operators in the area may be charging. The same article notes that the machine costs in that report do not include taxes, housing, insurance or licensing.
Write the other option’s figure on the row, with its source and the date, in a record of the option you turned down. When you read the list again, you can tell whether the condition was set wrong or the contractor’s price moved. The list does not project a return. Payback, net present value and internal rate of return all rest on forecast cash flows, so none works as a trigger.
In what order do the rows wait, and who approves them?
Rank the rows from most needed to least needed. When money runs short, the bottom rows wait, and a list with no order leaves the choice to whoever is at the dealership. Radek Zdeněk and a colleague, agricultural economists, followed Czech farms from 2003 to 2016. They found that purchases of land are likely to affect the growth of the relative age of tangible fixed assets, especially the obsolescence of buildings that are not sufficiently resourced by farms. In short, money went into land and the buildings went without upkeep. Those farms were buying back land they had rented, something particular to that country, and the authors call the effect likely, not proven.
A ranked list does not stop a farm from buying land. It keeps the farm from finding out, in the year the shed roof gives way, that the roof was never on the list. Erosion control is the row that most often has no year and no cost, because it gets decided the week after a heavy rain and paid for out of whatever is left.
Next to each row, write the name of one person who approves it, and not necessarily the same person on every row. Without that column, the list describes purchases nobody in particular is authorized to make, which in practice means whoever is standing in front of the dealer.
At the foot of the list, add the total the rows ask for in each year, beside what you expect the operation to earn that year. When the total is the larger figure, part of the money has to come from somewhere else. In Illinois, average annual capital purchases over ten years exceeded average annual net farm income, with government payments counted as income. The authors point to off-farm income by family members associated with the farming operation, as well as income from other businesses. It is better to see that gap on the list than in the bank balance in December.
How high should the condition be when prices swing?
Higher, because waiting has a value: a purchase put off can still be made once prices are clearer. Spiegel and two colleagues modeled one arable farm in northern Germany for Q Open, a journal of agricultural economics. They found that higher volatility, or a higher perceived risk level, increases both the option value and the trigger price that must be reached in order to initiate investment. Put simply, the more prices swing, the higher the price has to climb before investing makes sense. On the list, the less predictable the price of what the farm sells, the more demanding the condition on that row should be.
The study simulates one farm type and one crop, so its figures are not anyone’s figures. The direction is what carries over. It runs against common practice, where a volatile year that happened to end well is often the year the farm spends most. Only a farm that wrote the condition down before that year can tell afterwards whether it met the condition or changed it.
If a row goes ahead before its condition is met, write down that day the date, who decided, the figure the condition asked for and the figure that was actually true. A good purchase and a bad one look the same in the year they are made. Comparing the two figures afterwards is the part of farm management that an investment list skips most often, because by then the machine is in the shed and the question feels settled.
In December, the investment question and the tax question usually come up in one conversation. The tax half rests on the accounting method the farm files under, which a written record of the tax accounting method holds. On the investment list you decide what to buy. On the tax record you see under which rules the purchase will be counted. A farm that has only the tax record is planning taxes and calling it an investment plan.
Where to start
Two hours, with the machinery and building inventory and the old purchase invoices on the table. One page, one row per item, five columns and a date at the bottom. The condition is the column that most often stays blank, and without it the list is a wish list. Write the date it was made and the date it gets read again. A list read once a year, with the rows that went ahead marked and the wrong conditions rewritten, stays useful. A list written once and filed is a snapshot of one year’s opinion.
A good year is real information, and nothing here says to ignore it. It tells the farm what it can afford this December. It does not tell the farm what it needed, and that question had to be answered earlier, before anyone knew how prices would turn. With the list, the two questions get answered on different days.