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Machinery as an investment

03/16/2011 @ 1:22pm

Like it or not, if you're going to farm, you need equipment. And you need reliable equipment that can get the job done. But that machinery — new or used — doesn't come cheap.

That's why having an equipment strategy is so important to your farm's bottom line.

Do you believe in trading every couple of years to keep machinery current and to get the best return on investment?

Or do you believe it's best to avoid excessive equipment purchases, and you hold onto equipment until it's simply worn out?

Each strategy has its good and bad points, and there are many variations between the two extremes.

Since machinery costs are a significant part of crop production, it's crucial to figure out how costs will affect your profitability and how you can keep those costs manageable.

“As input costs — like seed, fertilizer, and fuel — have increased, it is becoming increasingly important to be as efficient as possible with machinery. The need to have newer equipment with advanced technology is probably much greater today than in the past,” says Kevin Dhuyvetter, Kansas State University. “I do believe that it's more important in the current environment that producers don't lag too far behind their neighbors with regard to machinery technology.”

In other words, Dhuyvetter believes the difference between equipment that is several generations apart is much wider today than in the past.

“For example, think of a planter with individual row controllers or sprayers with section controllers and the amount of savings that can be realized relative to planters or sprayers without this technology,” Dhuyvetter notes.

Vern Beninga, John Deere AMS consultant, says, “I've seen a dramatic shift toward including precision ag technology in buying machinery, specifically the planter and sprayer. The automatic section shutoff on planters and sprayers is the real bang for the equipment dollar.

“The main benefit of including precision ag technology in an equipment strategy will be a more efficiently run operation,” Beninga continues. “You'll not only save money but also save time to complete each operation, which will allow you to farm more acres with less money and in less time than you did without precision ag technology.”

Pencil It Out

The key is that the investment needs to be used over enough acres to make sure it pencils out.

“Understanding machinery costs is quite important because research consistently shows that what differentiates producers from each other with regard to profitability is costs. And machinery costs are a big part of that,” says Dhuyvetter.

“Because machinery costs are pretty persistent, it is important to know how you compare with others,” Dhuyvetter adds. “Is it a strength of your business or a weakness?”

When it comes to purchasing equipment, there is no one-size-fits-all equation. That's because your operation has its own unique needs and aspirations. Once you determine what your needs are, you can develop a strategy that conforms to your business plan.

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