Farm Machinery Replacement Strategies

02:01PM Nov 25, 2019
Machinery
One of the biggest farm investments you make is your machinery lineup.
( Lindsey Benne and Darrell Smith )

One of the biggest farm investments you make is your machinery lineup. “Yet, unlike land or buildings, machinery must be monitored, maintained and replaced,” says William Edwards, Iowa State University Extension retired economist. “How and when equipment is replaced can mean a difference of thousands of dollars in annual production costs.” Here are a few strategies to consider. 

Replace Frequently

This approach, Edwards says, minimizes the risk of breakdowns and costly repairs by trading key machinery items every few years. “Even when repairs occur, they often will be covered by the original warranty,” he says.

This might be the most expensive approach over time, but some of the extra costs are offset by less downtime. Consider leasing or a rollover ownership plan, Edwards says.

Replace Something Every Year

Keep notes while you are operating equipment to find the biggest bottlenecks, mismatched equipment and needed replacements or updates, suggests Chris Barron, Iowa farmer and financial consultant for Ag View Solutions. Then choose one or two pieces of machinery to update per year.

With this strategy, you can annually spend roughly the same amount on new equipment. “This avoids having to make a very large cash outlay in any one year,” Edwards says. “However, it also could result in replacing machinery before it is really necessary.”

Replace When You Have The Cash

Of course, your working capital availability is a huge factor in purchasing new equipment. “Everyone has a finite amount of cash available for capital improvements,” Barron says. “Determine your number and stick to it.”

The biggest disadvantage of this strategy, Edwards says, is that it is very hard to predict when extra cash will be available. Also, a machine might become unreliable before you have sufficient funds to replace it.

Keep It Forever

This is likely the most cost-effective strategy, yet it could be risky in terms of downtime. Also, you must be willing to use less than the latest technology, Edwards says. Some older items can be relegated to less critical uses, such as keeping a second planter for a backup unit or using an older tractor for jobs such as powering an auger or moving wagons.