Every significant purchase a farmer makes is measured against its ROI. While equipment isn’t always an annual purchase, one ag lender says there are things a farmer can do to ensure equipment purchases add to a farm’s balance sheet rather than subtract profits. Alan Hoskins, president of American Farm Mortgage, says there are three ways farmers need to evaluate equipment purchases.
1. Pencil Out Profits from an Equipment Purchase.
“I enjoy listening to farmers explain how a piece of equipment is going to make them money over and above the cost of the equipment,” Hoskins says.
For example, if a farmer is looking at trading a combine he sees his profit improving thanks to newer technology. If a farmer is considering buying a planter with RowCommand, for example, what will that technology mean in terms of cost savings for seed?
“There’s increased revenue opportunities associated with the trade farmers need to factor in, not just the price of the trade itself,” he adds.
2. Weigh as an Investment Versus a Cost.
“If we were having this conversation 25 years ago, we’d be talking about guidance and we’d say, ‘how much longer could you run today with guidance? Because you have a guidance system today, it is obviously so much more than that,” Hoskins says. “It truly is about the investment versus the cost because we’re talking about revenue opportunities today that candidly just didn’t exist 20 years ago.”
3. Decide on Purchasing New Versus Used.
“We’ve seen equipment values rise dramatically over the past four to six months simply because of commodity values,” Hoskins says.
If a farmer is running new equipment, it’s important to be mindful of their cost per acre versus what it might be if he ran equipment that was one or two years old.
“One of the things that’s really coming into play, however, is the availability of both new and used equipment, which changes the conversation a little bit,” Hoskins says. “Today that decision of whether or not to trade may need to be made a little bit quicker than what we’ve historically seen simply because the supply of really good equipment is so limited today.”
