55 Years And Counting From The Tractor Seat

 By bill whitman

 What a fall we’ve had. 2024 will be known for its weather anomalies, low commodity prices, and input costs that don’t pencil out against the income received have made it challenging. That new tractor, combine, or other major capital expense we may have been looking at needs to be evaluated for timing. 

Several years ago, I compared a mythical farm that operated with leased equipment and another mythical farm that operated upgrading older equipment. The comparison was not particularly biased in its results either way. Both models allowed for an equivalent lifestyle for the farm family with numbers based on the acreage required to profit. In both models, the more acreage and lack of diversification increased the risk exponentially. Of course we weren’t using the current costs, inflation and interest rates in our comparison at that time. In theory it shouldn’t matter that prices are lower, inflation higher and interest rates increasing. In practical applications, it does matter.

I’ve always been a fan of thinking, “you fight harder when you have skin in the game”. I think you also take better care of things that you own as opposed to a borrowed mule. I’ve certainly seen exceptions to this adage across the country but as a rule, emotionally and even financially, you take better care of equipment which you own rather than lease. It goes without saying that the manufacturers that are leasing high-priced equipment have put a significant margin on the lease costs to absorb the depreciation and the wear and tear to the equipment at the end of the lease period. 60 years of experience with manufacturers tells me that we certainly do pay a premium to lease. A caveat to this is the “dollar out lease” in which you purchase the equipment for a dollar at the end of the lease. I understand that the IRS views these types of leases with a critical eye.

So once again, I urge you to take a close look at the real numbers involved in the lease agreements. In years where the margins are so slim and even taking us underwater for the year, taking a breath on new equipment is warranted. Utilizing rebuilt or quality used equipment for a year is a realistic way to recover lost dollars from a bad year. For so many, this is a novel concept because for the last 20 + years it hasn’t mattered because the money was there. How about now when the money isn’t? 

Another concern I have is how well the agriculture economy will be able to absorb the credit needs for the coming season? The realities of our economy require that the United States economy service the debt we have built up throughout Covid where massive amounts of money were spent (given) with absolutely no return on the investment. In what world does that pencil out? Even including, (what I consider smoke and mirrors), the gains from inflation, it’s a huge financial conundrum to face. A practical examination of our country’s assets, minerals and agriculture look to be the only equity assets we have left and we’ve been selling a good bit of those to other countries. Personally, I can think of a whole lot of reasons to restrict or stop that practice. I certainly understand the lure of money in desperate situations but isn’t that what Farm Service Agency is for?   

But you know what? We have faced much more difficult situations and still found a way to get through. Like most farmers, I am looking forward to and anxious for the new year. I have made some preparations to try and mitigate the effect of inputs without cutting back. I’m still looking at making some marketing adjustments, and of course knowing, yes knowing, that the Good Lord still supports America’s agriculture. 

IndianaAg@bluemarble.net