The Farm CPA
Paul is now part of the fourth generation in America that is involved in farming and hopes the next generation will be involved also. Through his blog he provides analysis and insight to farmer tax questions.
What Is the Right Equipment Size?
Apr 26, 2012
I was riding on the tractor on Wednesday with Chris Barron, my fellow columnist for Top Producer magazine, and we had a good discussion about how farming is different from other "manufacturing" operations when it comes to the right equipment size.
In most manufacturing operations, the weather plays no role in the production process. The equipment is housed inside of a building, and other than a tornado or hurricane, the weather does not affect the ultimate production for the day.
However, during planting and harvesting, the weather can have a dramatic effect on the production process. There is a small window in which to get planting done and if the weather is not cooperating, not having the right-sized equipment can prevent you from getting your crop planted. Conversely, having too much equipment can be costly if the weather cooperates and you never need to use it.
There is no perfect answer to this question. If you decide to err on the less expensive, smaller side, there may be years when you will not get the crop fully planted or have to switch to an another crop. However, the reduction in equipment cost may offset this. If you err on the high side, you will always be able to get the crop in, but your overall equipment cost may make your operation less profitable compared to leaner farmers.
I think my tractor riding is done for the trip. since the farmer client I meet in Illinois today just finished planting last night. Tomorrow I am in our Stevens Point office for a meeting, then fly home on Saturday. My wife has already told me we are going for a motorcycle ride on Sunday (so I think everybody knows what I am doing on Sunday).