When Is Machinery Worn Out?
Dec 06, 2009
When is the right time to trade farm equipment? Customers often ask at what age a combine, planter or tractor is "worn out." That's a tough question.
We've got customers who farm 5,000-plus acres who pretty much replace their entire equipment line every year, and rarely keep any major piece of equipment for more than three years. We've got other customers who farm between 1,000 and 2,000 acres with 25-year-old combines with 4000-hours on the engine, and 25-year-old tractors. We've also got part-time farmers running 200- to 500 acres with ancient equipment handed down from their fathers.
The guys with mega-acres focus on non-stop farming and go berserk at any breakdown or mechanical problem. One of those farmers told me he prefers to trade major pieces of equipment every year because that way, "Any breakdown is under warranty, and the dealership mechanic comes out to fix it." He also likes staying on the cutting edge of yield monitors, GPS guidance systems and all the latest technology. He acknowledges it took a long time and a humongous investment to reach the point where he could make annual trading work, but has run the numbers and is satisfied that fewer breakdowns, warrantied repairs and the advantages of GPS/precision farming technology pencil out to make him money. Or at least SAVE him money.
Another of our customers prefers trading every three or four years for low-hour used equipment. His attitude is that all the factory "bugs" have been fixed by then, the machine is "broken-in" and running at optimum capacity, and that a few scratches in the paint don't degrade overall performance. He trades-in equipment in good condition that still has reasonable resale value. He's not on the cutting edge of technology, and sometimes gets caught having to having to make big, expensive leaps to keep up with technology rather than making incremental improvements in yield monitors and GPS systems.
The guys who are really squirming are the ones who run the tires off equipment and trade only as a last resort. I had a customer this fall who had a catastrophic breakdown of his 30-year-old combine. He had to put $10,000 of parts and labor into a combine that was worth $6,500. A part-time farmer trying to buy a line of equipment and slowly expand his operation, he ruefully commented, "I only had one more payment before it would have been paid off..."
The question, "When is the best time to trade equipment," would probably be better if phrased, "When is the best time for YOU to trade equipment?" Each farmer has his own comfort level with how big a debt they can tolerate, how many breakdowns they can accept each season, and how important it is for them to have "decent" equipment. Some farmers have detailed, computerized records that allow them to chart maintenance and repair costs. One customer religiously trades when his ratio of maintenance-to-repair cost per acre reaches a certain level. Another customer openly admits he simply, "gets a feeling" when it's time to trade combines, tractors or planters.
I guess it's just like the questions, "When is the right time to sell grain?," "What is the best hybrid to plant?." and "What should I get my wife for Christmas?" Sometimes all you can do is guess, and live with the consequences.