Farmer Iron
Capital purchase budget crimped for 2017? Here's a plan

Capital purchase budget crimped for 2017? Here's a plan

Keep an eye on the future - the distant future - when considering equipment purchases for your operation.

Writing about equipment these days may be almost as hard a selling it. Yet for the owners - or readers of this column - those machines are a key part of your farm. Trouble is, low crop prices make replacement difficult. And sometimes even repairs can be a hassle.

Or course the folks at Agco are doing their part with a 180-day interest waiver on any parts or service purchased through their Agco Plus+ program (so in essence Agco Plus-plus). And that's a great 'we support the farmer' statement from that company. Their dealers also support non-Agco brand machines with parts from Sparex, a company Agco purchased some time ago.

READY FOR SPRING: With a new season just a few months away, considering equipment purchase options will be important; as well as an honest look at the machines you're using now and their dependability.

This deal brings to mind the challenge any business faces - the tightrope walk of what to replace and when. In good times most of us don't have an "equipment replacement plan" it's more like a "what do we buy next" plan. Yet a true plan, properly outlined, is built around the idea of logical purchases and rational replacement, which also involves saving up for "rainy days" so you don't get stuck with high-hour equipment with limited trade-in value for the future.

For readers of this publication who have followed this column for the past 18 years you know I'm a believer in a flexible equipment replacement plan - which means there's a plan in place. The crash in farm income the past two years may slow the plan, but it shouldn't stop and here are three reasons why.

Equipment wears out

Frankly I don't care how modern or well built a machine is, it can't last in these working conditions forever. The hard-working iron on your farm has to perform. And it needs to be dependable. Business savvy readers know that opportunity cost can be pretty expensive if your planter tractor is down for a week in late April - then the rains come in early May.

While brand new equipment can also break down, it's getting rarer. And under warranty you usually get some solid support, but the downtime is less likely.

Tech is important

Newer machines have the better technology - beyond engine tech which I'm sure some of you despise with the rise of diesel exhaust fluid - with improved monitors and cloud-connection tools for improved management. Those of you reading this who don't think you'll use the tech may want to pay attention to the neighbors. Even auto-steer works better on newer machines.

In addition, if you're working to get better at managing data, newer equipment will help there too. Investing in your farm business has the potential to pay off in improved productivity in the future.

Machine value and your balance sheet matter

How much equity are you giving up in a single year? What is your financial position? And just how much is that machine worth today for trade versus next year. There are some questions here that we haven't had to answer in some time, but knowing machinery values and the strength of your balance sheet matters too.

Letting your capital goods age off the books may be a good idea - and accelerated depreciation has helped finance a lot of new machines, but it's more complicated now.

Looking at your inventory, and it's value, may matter to you. If it does, sticking on plan to run with low- to middle-hour equipment may be required. Of course, your farm's position is individual and what works for you won't work for the next guy up the road. Still, considering capital investment and value to your balance sheet matters in the long run.

These times will test us all. We're kicking off a new year with continued depression. Manufacturers predict a slow slide in sales, but eventually this stuff wears out. Prognosis - short term equals slow; long-term equals back to normal sales. The hyper sales from 2009 to 2014 won't be seen again for some time, but this market will find its new normal. Your job is to figure out what's normal for you considering all the factors.

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish