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A machinery mystery solved

07/06/2012 @ 3:01pm

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!   

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Another perspective 07/09/2012 @ 9:13am I have another point on this - I'm a fairly young farmer (mid 30's) and I run my farm as a side venture, maintaining a full-time office job as my primary source of income. Since the farm is small, it's not viable as my primary source of income, but it makes a great supplemental income and psychologically is a great break from life in an office. I also am slowly upgrading the older equipment that I inherited and am having a hard time finding good used equipment in the size that fits my operation (small). Since I have a full-time job, I can place a firm dollar value on my time, so I need the equipment I use, even though it's small and older, to be reliable and not have a lot of downtime.

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GREG PETERSON Pete & Roy 07/06/2012 @ 9:02pm Roy, great piece, always enjoy your stuff :-) Thanks for your take, very insightful points. Perhaps we should intertwine our used machinery market & grain markets commentaries more often :-) Hope I didn't give the impression in my earlier piece that I was questioning the wisdom of older farmers still being big buyers on the used market. Beyond the raw sale price data & used value trends I always enjoy looking at the psychology of whose buying what, who isn't buying, why, why not, etc. Your points resonate with what many older farmers have been telling me last couple years. Keep up the GREAT work...hope to catch you at an auction soon too! Pete Machinery Pete

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DANIEL LOOKER Great column! 07/06/2012 @ 3:59pm We all know that many farmers choose not to retire at what is considered a typical retirement age. Besides providing better income than other possible investments, there may be another benefit from continuing to plant and harvest--better health. Some (not all) studies suggest benefits from continuing to work. Here's one posting about the subject: http://longevity.about.com/od/healthyagingandlongevity/a/retirement.htm

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