A machinery mystery solved
In a recent column Machinery Pete questioned why farmers in their 70’s and 80’s are bidding up the price of small, used machinery. To him it seemed that buying machinery that is small and out dated at their age was counter intuitive. I am now in that age bracket so I can shed some light on the subject.
To set the scenario, I cut back on the acres in my farm in 2004 when I was 63 years old. I quit renting eight of the ten farms I had been operating. That left me with twenty percent of the acres I had been farming since 1991. The two remaining farms I own or have an interest in. In my community there are several farmers who graduated from school in the 1950’s or 1960’s. Many of them are still active farmers but on a smaller scale than a few years ago. If asked why they keep farming, they reply that they like farming and intend to keep doing it as long as they are able.
After a few years of experience of my own, it is obvious that there are some good economic reasons for “old guys” to keep farming. The last eight years have been some of the most profitable of my 44 years in production agriculture. Some of the profitability can be explained as the luck of timing. Yields have been good and prices historically high.
Also though, our fixed costs are now dramatically lower than they were. The land and machinery are paid for. Those purchases were made at 1980’s and 1990’s prices. We no longer hire labor, so those costs are almost eliminated. It takes a lot less labor to farm 200 acres than it does five times that much. That means that we can take advantage of early planting and early harvest without buying larger machinery. Selling off the excess machinery that is no longer needed frees up capital for cash flow so we no longer have interest expense.
If we liquidated the farm, where would we invest retirement funds that give a return anywhere close to what the farm will make? In 2010 I overhauled a 42 year old tractor that I use fewer than 50 hours per year. A neighbor begged me to sell it to him to use on his farm. My response was that even at those low hours, I need the tractor more than I need the $6500 that it was worth on the market at the time. Anyway, the value of the tractor is more today than it was in 2010.
It takes much less machinery to farm small. Nonetheless, certain items need to be reliable and in good repair. That is where machinery Pete’s observation about old farmers making the market for obsolete machinery comes into play. By updating an old tractor, replacing a worn out planter or buying a combine head, a farmer may be able to prolong a very profitable small operation that he really enjoys and that generates much better returns than the bank saving accounts.
So Pete, we old guys have deep pockets and are likely to be around buying good used machinery for a long time. I hope to see you at the next auction!