Equipment replacement options
Jul 7, 2004 8:40 AM, By James Marshall, Rob Hogan, Scott Stiles, and Kelly Bryant
LITTLE ROCK, Ark. -- Time is money. No truer words are spoken among farmers, especially at the two key times in production agriculture. The problem of having enough equipment to get the job done in a timely manner and having too much equipment sitting idle during off-season is a difficult line to straddle. Factoring uncooperative weather into this equation adds to the dilemma.
According to experts, significant yield losses occur with each passing day beyond optimum planting time, and harvest delays can cause additional yield losses.
Volatile weather during harvest time encourages farmers to begin harvesting as soon as practical. Once harvest begins, producers work tirelessly to protect crop quantity and quality. In this race against time, planning can be the key to success.
Farmers today need enough equipment to get their crops planted and harvested within a short time. The simple solution would be to have a lot full of equipment. The problem with this solution is justifying the cost of something that may be used only three weeks per season.
Producers struggle with this decision every year. “Should I buy another combine to shrink my harvesting window?” or “Should I start harvesting earlier to take advantage of the possibility of better weather?” The impact of the wrong decision can be severe.
Fortunately, there are some options that fit somewhere between these two choices.
First, the 2003 Tax Relief Reconciliation Act has two provisions which can assist producers in purchasing new equipment. The first provision is The Capital Depreciation Bonus. Second is the Section 179 Expense Deduction. Farmers can discuss these provisions with their accountants to determine potential benefit to their operation. The benefits have already prompted several producers to purchase new equipment.
With new equipment purchases, equipment dealers are seeing an influx of quality used equipment on the market. A late model used machine with low operating hours may be the answer. Financing may be available, depending on the dealer.
Shopping for used equipment has been made easier with online services. Some offer free registration and can search for machines by model, year, specification, geographical region or any combination of these four categories.
Two such Web sites can be found here: http://www.fastline.com/ and http://www.farmprogressfinder.com.
Leasing new equipment may fit the bill if purchasing a new or used machine is not in the cards. Dealers will have specifics on manufacturers’ leasing options. They can also answer questions to help determine if leasing is the right choice.
One benefit of leasing is avoidance of a large capital expense. Another benefit is the available selection of newer equipment.
With higher fuel economy and better harvest efficiency, newer equipment can usually lower expenses in repairs and/or down-time. Justification for this option is that the producer is paying just for use of the machine rather than paying for the machine itself.
Another avenue producers may want to investigate for short-term equipment needs would be a rental agreement. In some circumstances this may prove the best alternative. Some dealers offer a rental arrangement on selected equipment.
Terms for rental rates vary by dealer. Often the dealer will have a minimum hour requirement and sometimes a maximum time limit the machine can be rented. Selection of equipment available to rent is usually smaller as well. This choice should be considered mainly as a short-term fix for insufficient harvesting capacity.
With pressure to compete in today’s agriculture, producers should research options to satisfy their equipment needs. Finding the option that best fits your operation can make a world of difference.
James Marshall, Rob Hogan, Scott Stiles and Kelly Bryant are University of Arkansas Extension economists. Comments or questions? Call 870-460-1091 or eamil: bryantk@uamont.edu.e-mail
