B2BMonday, October 1, 2007 9:28 PM CDT

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THE FARM: Consider future equipment needs

By Joe Springer

With summer winding down and fall harvest set to begin, corn and soybean producers in Illinois are about to get very busy.

They are going to be harvesting their crops, making input purchasing decisions and many will be looking at the equipment needs they will have for the upcoming year.

Purchasing equipment is somewhat similar to purchasing a car or equipment for business purposes. In most cases, the producer has an existing piece of equipment that they trade with a machinery dealer for a new or used piece of equipment. Deals are negotiated between the sales person and the producer.

The dealership also has a service department to perform repairs at the dealership shop or in the field. The relationship between the producer and equipment dealer can be long-term, and in many cases is based on the service department’s performance. As agriculture changes, more and more producers are beginning to shop strictly for price, but a large percentage still make purchasing decisions based on the relationship with a dealer.

There are many reasons behind a producer’s purchase or trade of equipment. Many seek to replace a worn out machine, upgrade to a newer model or need a larger or additional machines to accommodate their growing business. Other reasons for trade include keeping up with the latest technology or changing the scope to their operation.

Many operations follow a plan for replacing machinery so they are not incurring a large cost all in one year. It is very prudent to form a plan for the purchase of machinery. This helps in the budgeting process and the financial success of the operation. Some larger operations run over a large number of acres and push machines to maximum efficiency. These producers often plan on annual trades.

The size of the operation often influences the decision to buy new equipment. Producers who farm on a small scale tend to purchase less frequently. Typically, they only trade when the existing machine wears out or has costly repair bills.

Larger operations tend to trade more frequently and to newer models in order to keep up with technology and have their operation running as efficiently as possible. These larger operations also tend to increase acres every year and need to become more efficient year after year. The bigger operations use the machines for more hours, and seek new equipment to fend off break downs. The new models allow them to run at optimum levels of efficiency with the latest technology.

The equipment ranges in price from $5,000 for smaller implements and up to several hundred thousand for large tractors and combines. When the price increases, producers typically finance or lease the pieces of equipment for cash flow purposes. The financing is typically done with the manufacturer, such as John Deere Credit, or a local lender that the producer uses for other financing needs. Many lenders also have a point of sale program that machinery dealers can use as an alternative financing option when they sell equipment.

Producers should do research before buying machinery. If the producer has a realistic idea of what their existing piece of equipment is worth and have a trade difference in mind, negotiations at a dealership will go much better for them. The producers need to look for financing options that best suit their needs. For instance, if the producer is on an annual roll they would want to find the cheapest one year financing available.

There are many different financing options to choose from and by working with a dealer or lender, producers can find one that best suits their needs. Negotiating a fair purchase price and finding proper financing, along with developing and following a machinery replacement plan, are important components for a successful operation.

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