Should Farm Equipment Purchases be Planned?
25 February 2019
By: Brent Adams
Most financial planners agree that having an equipment purchasing plan in place to help better direct farm finances will ensure a healthier financial picture.
However, according to the results of the recent Fastline Equipment Purchase Behavior Survey, 65.4 percent of respondents say they do not make equipment purchase plans, but rather purchase equipment as needed.
A total of 826 people responded to the nonscientific online poll, which was conducted via email Nov. 29-Dec. 9, 2018. Forty-nine people did not answer the question.
Just 2.3 percent of respondents said they purchase on a regular schedule, such as a new tractor every three years.
A total of 18.3 percent said they set an annual budget based on anticipated purchases, while 14 percent said they wait for tax information and make decisions based on returns.
Wyatt Fraas, Assistant Program Director with the Center for Rural Affairs, cations farmers against letting tax outcomes dictate farm finances.
“Taxes are one of the things that drive an awful lot of farms, but when you rely on taxes, it’s difficult to know what the (farm’s) true financial picture is,” Fraas said. “Taxes shouldn’t manage the business, and your goal shouldn’t just be to avoid taxes.”
Also, tax refunds should go into savings accounts of CDs to help with the long-term funding of the operation. Too often, farmers take that money and immediately purchase property they view as an investment, such as a land or equipment. Then, when crop prices decline or they incur unforeseen expenses, they don’t have enough cash on hand to address those issues and are forced to sell assets.
“You have to have flexibility for downturns,” Fraas said. “And those times will come. You have to be prepared.”
In a separate question, 55 percent of 807 respondents said equipment purchases are included in their annual budget, and 52.3 percent said equipment repair is included in their budget.
“The majority of people who buy from us are buying as needed,” said Ben Garton, chief marketing officer for Garton Tractor Inc., which sells tractors, implements, utility vehicles, wheel loaders and heavy construction equipment through 10 California locations. “A lot of that is tied to government programs that subsidize 60 to 70 percent of the cost of a new tractor.”
He added that he believes some consumers who are in the market for equipment are holding off to get a better handle on the direction of the economy before taking the plunge on a major purchase.
“I think a lot of people are uneasy about the economy,” Garton said, adding that in his region, the depressed dairy market has prompted some consumers to hold off on purchases. “The word on the street is that things will be good for another year and then they may be iffy, but we’re just kind of waiting to see how it all plays out.”
FARMERS KEEP FINANCIAL MANAGMENET IN HOUSE
A closer look at who is managing farm finances might provide insight into why more detailed financial planning is avoided or overlooked.
According to the survey results, 80.8 percent of the 803 responders said someone in the immediate family (the respondent’s spouse or a child) keeps track of the financial records of revenues and expenses for their farm operation. Another 15.4 percent said an accountant handles those duties, while 3.8 percent answered “other.”
Fastline asked respondents to use a sliding scale to rate how confident they are with their financial practices. When the results were tabulated, the 803 respondents reported they are an average of 79.3 percent confident with their approach to handling their operation’s finances.
Fraas suggests farmers enlist the help of a qualified tax accountant or financial adviser who has experience working with farmers.
EQUIPMENT PURCHASES A MAJOR CONCERN
While equipment purchases are handled many different ways on the farm, survey participants said those purchases remain a top financial stressor on their operation today. Of the 807 respondents, 58.7 percent said equipment costs are one of their top three stressors. That was followed by commodity prices (54.9 percent), seed cost and chemical cost (tied at 28.6 percent) and other input costs (24.2 percent).
Although equipment costs weigh heavy on the minds of many farmers, of 10 different financial stressors, lending interest rates were near the bottom of the list at 13.3 percent. Only 107 of 807 respondents said interest rates are one of their top three financial stressors.
One reason could be because funding methods for the majority of the respondents’ equipment purchases are as diverse as the respondents.
A total of 51.6 percent of 826 respondents said they use a mix of funding that “depends on many factors.”
Nearly 23 percent said they use cash all at once, while 12.7 percent said they use manufacturer financing and 11.3 percent said they finance purchases through a local bank. Another 1.8 percent said they used “other” means of financing, such as credit cards or AgDirect, an equipment financing program offered by participating Farm Credit System institutions.
PURCHASES A MIXED BAG
According to survey results, 60.4 percent of respondents said they buy a mix of new and used equipment, depending on many factors.
Just 2.3 percent of the 826 who responded said they buy everything new and 17.1 percent said they buy everything used. 18.4 percent said they buy new small items such as attachments and buy larger used items such as tractors. 1.8 percent said they buy used small items and new large items.