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Owning Machinery Series, Part I

Equipment purchase considerations during tight profit margins

Published on 6/18/2018

Editor’s Note: This is the first installment of a four-part series on owning machinery.

“Five years ago producers didn’t hesitate trading in for the latest farm equipment,” says Iowa AgDirect Territory Manager, Chris Steinkamp. “But as profit margins have slipped, their buying habits have become a lot more focused on satisfying needs instead of wants.”

Owning machinery requires walking a fine line between performance and profitability. While there’s no one-size-fits-all solution for evaluating equipment needs, producers can use the following tips and trends to help guide their next big iron investment.  

Explore all equipment avenues

From dealers to auctions and private party transactions, producers have a lot of options when searching for the best equipment bargains. According to Steinkamp, buying activity among these sales segments has shifted, creating new opportunities for savvy buyers and sellers.

“We’ve seen the private party and auction business pick up,” says Steinkamp. “Some of it is due to producers not getting as much trade-in value from equipment dealers as they have in the past, but there are also some producers looking to eliminate a piece of equipment and they are turning to alternative markets to sell those assets.” 

“Producers should educate themselves on what deals are out there and keep an eye on each of these avenues as they consider equipment purchases this year.”

Control costs, consider resale value

Maintenance, repairs and warranty coverage are another set of factors that frequently influence producers’ machinery buying habits.

“There are a lot of producers who haven’t traded in the last couple of years, and as that equipment is getting worn out, producers are starting to watch repairs and other costs associated with machinery going out of warranty,” says Steinkamp. “Some producers will be basing trade-ins on limiting those costs.”

One northwest Iowa dealer says that in addition to maintenance, resale value has also played a significant role in local trade-in and sales activity.  

“Some customers don’t want to worry about having as many wear parts. As a result, we’ve experienced stronger demand for tractors and harvest equipment over implements and planters.” says West Bend Red Power Store Manager, Joe Montag.

“We’ve also noticed tractors having more appeal than other equipment sectors because of their utility from one farmer to the next. Due to size and cost, some of the larger planters and combines have a limited pool of secondary buyers, so tractors have become popular because of their resale value.”

Focus on cash-flow

When it comes to equipment financing, Steinkamp says finding the right options often starts with a conversation about cash-flow.

“As margins have tightened, customers have become more focused on comparing payment options, calculating cost per acre and structuring their financing to meet their cash-flow needs,” he says.

“At AgDirect, we have a lot of options we can put in front of producers in addition to the traditional loan products they are accustomed to seeing, and we have many tools and resources – including our AgDirect Mobile app – to help them determine what they can comfortably afford.”

Making an equipment purchase this year? Contact your nearest AgDirect territory manager or the AgDirect Finance team at 888-525-9805.  

Learning Center

Agriculture is constantly evolving, which is why AgDirect® works to help you make the right decision for your operation when it comes to financing ag equipment.

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