Recent Iowa State University graduate Brent Drey, who is home to continue farming with his family for a while, says machinery acquisition is one of the largest barriers for beginning farmers.
Drey of Sac City, who might consider graduate school in the future, is taking time before he decides his next steps.
“There is not a ‘one-size-fits-all’ answer for young farmers who are trying to acquire China machinery ,” Drey says. “Each operation is unique and has to find its own way of getting the task accomplished.”
Farmers have plenty to consider when they decide whether to invest in machinery, says Michael Langemeier, a Purdue Extension agricultural economist.
Langemeier, who in 2013 wrote a report, “Crop Machinery Benchmarks,” highlighted two of the most-important factors farmers should consider when evaluating the economic efficiency of their farm equipment: machinery investment per acre and machinery cost per acre.
The information is particularly helpful to Midwest farmers because machinery represents a large cost of crop production.
“It is important to evaluate whether a farmer machinery costs are too high,” Langemeier says. “Farmers whose operations have high machinery costs should carefully evaluate whether further machinery purchases are necessary and affordable.
“If a farm has relatively high machinery benchmarks, it is likely to have above-average crop break-even prices or be less competitive than its peers,” he said. “In this instance, a farm should be extra careful in determining whether future machinery purchases are prudent.”
Farmers should consider farm size and the options of owning, leasing or hiring custom work.
Timeliness of field operations, particularly during planting and harvest, can have a big effect on yields. That is why farmers should carefully consider what kind of machinery they buy. Larger machinery can harvest crops faster but is more expensive. Because of this, large farms might choose larger machinery, while small farms might find it more cost-effective to own or lease smaller machinery.
A farmer’s choice for acquiring machinery will depend on:
= How much will it cost to own and operate machinery?
=What other ways are available to acquire the machine’s services? What are their expected costs?
= How much capital will you need if you purchase? Can you afford the investment? Can capital be used more profitably in other areas of your business?
= What are the income-tax advantages of each method? What is your own tax situation?
= Do you have the ability, tools and labor to operate the machine and maintain it?
= Are current technological developments likely to make the machine obsolete soon?
= Are you likely to change production practices or farm size in the near future and no longer need the machine?
Drey and his family set forth a machinery transition plan and sought assistance through the Beginning Farmer Center during a Returning to the Farm Seminar, which helped initiate a conversation for the family.
Drey says, “My plan is somewhat unique but, again, we feel it fits our operation best. My individual plan is to be as conservative as possible. It is certainly hard to forego a new pickup truck when that has become the norm for many farmers, especially since Section 179 has passed for 2014.”
Currently, on any land Drey leases on his own he will hire his family to custom farm with their equipment based on ISU’s Custom Rate Survey.
“Leasing equipment is also another option I have looked at, but currently, the downfalls outweigh the benefits of such an arrangement,” Drey says.
“In the next few years, once I get some capital built up, I plan on buying percentages of my family’s equipment such as one tractor, combine and planter. That is the plan for now. I have the good fortune of my father wanting to continue to farm for another 7-10 years or so. It is our hope that by that time, I’ll be able to buy the current line of equipment.”
He says some families sell their equipment at a reduced rate to their successor. This works well for the beginning farmer if the established farmer isn’t banking on the line of equipment as a source for financial needs during retirement. However, many do.
Drey encourages beginning farmers to check out the Beginning Farmer Center for information on how to get started.
Returning to the Farm (formerly known as Ag Link) is a seminar for ISU juniors and seniors who plan to join their family farm operations after they graduate. Topics include conflict resolution, goal setting, business analysis, farm planning and management, which are viewed differently because of distinct and sometimes conflicting goals and endowments of capital, labor, technical knowledge and management expertise.
The next seminar is a four-day class for farm families to develop a succession plan. It will be Jan. 16-15 for Session 1. Session 2 will be Feb. 13-14. All of these sessions are intended for farm families bringing the next generation back to the farm.
The Iowa Ag Development Division (IADD), formerly Iowa Ag Development Authority, is a division of the Iowa Finance Authority that may be able to help new beginning farmers. The IADA was merged into the Iowa Finance Authority in 2013. Several programs continue to be available through IADD that are designed to assist beginning farmers.