Optimum age for trade?

jwcinpk · Jun 17, 2006

In talking to a farmer local he told me that he trades his equipment every 4 to 5 years (to new) because he can trade as cheap as he can keep the old going and seldom has to worry about a breakdown. Looks like he would lose a bundle on trading. I can see he would'nt have to worry about breakdowns. What do you guys think?
I know on my 3 year old Mahindra I was expected to take a 35% (roughly) loss on a new trade. How could anyone afford to lose 35% every 4 to 5 years? I know this gentleman is not rich and farms a lot, I am just trying to capture his logic!

Farmwithjunk · Jun 17, 2006

Most farmers that trade frequently are taking advantage of tax breaks to offset some of the difference in trade-in vs. new tractor (combines ect.) Bigger, high horsepower equipment is in a different realm than smaller compacts and utilities. And it helps a great deal if that farmer is trading a POPULAR piece of equipment. Some brands trade better than others, as well as some implements trade better.

There is no "golden rule" so far as I know when it's time to trade. EVery tractor, every tractor owner, and every tractor dealer has it's own set of "rules" when it comes to REAL trade or resale value.

Something else to keep in mind. The "curve" on which trade/re-sale values are based will curve downward somewhat for a few years. In time, that curve turns north and the value starts to INCREASE (if the tractor is kept in average to good condition). My old Massey 150 (1972) was around $5000 new. I thought about trading it back in the 80's. I was offered $3200 then. I looked at one for sale near here a few days ago. It was priced at $6500. It sold before I even had the chance to look at it. Good USED tractors hold a strong resale (most brands anyway).

A great deal of what a dealer will offer for a trade has to do with his business, and how they move used units. Some dealers would rather NOT handle used tractors. They see it as "competition" against their NEW units on the lot.

So, no "carved in stone" answer to that question.

jwcinpk · Jun 17, 2006

This guy has all Deere equipment. I can't see where he would be taking advantage of tax incentives because he doesn't work a full time job. Just the farm. Fairly small operation in the world of farms. 100 - 200 acres plus maybe 100 more leased. Strictly a beef cattle operation. Rolls about 500 rolls of hay every year, but that's about all.
Has anyone traded 4 -5 year old equipment recently? and if so what kind of trade did you get?
I was actually looking at his 5420 cab, but he wants more for it than I can buy a new Mahindra 7010 cab for.

Birdhunter1 · Jun 17, 2006

When farming for a living and you have a breakdown when you need the equipment or machine and you can loose an aweful lot more than just the harvest or hay crop that you need to get in.

I know a farmer that trades his combine in every other year in a lease program ($25,000/year) and he gets one that is one year old, so the oldest his machine ever gets is a max of three years then it's gone and a 1 year old replaces it. Is it worth it??? Another friend of mine just spent about $30,000 on his combine (CASE/IH 2188) over the winter, when a rotor goes bad it ain't pretty! You do the math, farmer #2 owns a well taken care of machine while farmer #2 is in a newer machine and probably won't have the expnesive repair bills when it gets some age on it.

Like someone said, alot of it goes along with what tax breaks they can get and what their accountant tells them they need to spend before the end of the year. Another way to look at it is if you buy a new truck and keep it till it's got 150,000 miles on it at 10 years old or you trade it at 50,000 miles after 4 years..... what will you get a better trade in deal on on the new one?

cowboydoc · Jun 17, 2006

jwcinpk said:
This guy has all Deere equipment. I can't see where he would be taking advantage of tax incentives because he doesn't work a full time job. Just the farm. Fairly small operation in the world of farms. 100 - 200 acres plus maybe 100 more leased. Strictly a beef cattle operation. Rolls about 500 rolls of hay every year, but that's about all.
Has anyone traded 4 -5 year old equipment recently? and if so what kind of trade did you get?
I was actually looking at his 5420 cab, but he wants more for it than I can buy a new Mahindra 7010 cab for.

We usually trade all of our equipment about the same, sometimes sooner depending on use. At five years we usually get close to what we paid for the equipment because the newer ones are more expensive. On average we probably lose about 10-15% from what we paid new on trade.

dgl24087 · Jun 18, 2006

Full time farms are businesses. Businesses get tax incentives for investing in new equipment.

cowboydoc · Jun 18, 2006

dgl24087 said:
Full time farms are businesses. Businesses get tax incentives for investing in new equipment.

There are no special tax incentives for full time farms. It's the same as any other business that buys equipment, you depreciate it out pure and simple but there sure are no extra incentives.

plumboy · Jun 18, 2006

He may have been talking about the accelerated depreciation that ended in 05 I think.But in all reality that deal is pretty good if you took advantage of it and traded again as soon as the equipment was depreciated out.As long as you do good in trading with the dealer and you keep your machine in good condition.Farming and construction are hard on equipment,and if you are doing a good volume in either you can most certainly take advantage of trading off on a regular basis.Need a good relationship with a dealer and excellant credit if you finance so you get the best rates,0% hopefully,but then your interest is tax deductable also.Having new/newer equipment is a perk of having a good business,and its usually the downfall of a bad business.

cowboydoc · Jun 18, 2006

plumboy said:
He may have been talking about the accelerated depreciation that ended in 05 I think.But in all reality that deal is pretty good if you took advantage of it and traded again as soon as the equipment was depreciated out.As long as you do good in trading with the dealer and you keep your machine in good condition.Farming and construction are hard on equipment,and if you are doing a good volume in either you can most certainly take advantage of trading off on a regular basis.Need a good relationship with a dealer and excellant credit if you finance so you get the best rates,0% hopefully,but then your interest is tax deductable also.Having new/newer equipment is a perk of having a good business,and its usually the downfall of a bad business.

True plumboy but ANY business could have taken advantage of that. It wasn't just a farm/ranch tax break. You could use it for vehicles too if you had a business.

plumboy · Jun 18, 2006

Not sure why that came across as only for farmer/ranchers.

rdbigfarmboy · Jun 18, 2006

It depends on a lot of factors. Cash flow, profit, useability, parts availability, condition, and do you like it.
I use a 1978 model hay baler GEHL 1500A and roll about 500 rolls per year. I recently switched to new 4wd drive tractors. Generally tax breaks in farming just dont cut it unless you have some off farm income to hide. Farming on any scale is not that profitable. And the actual saving by tax break is spend $1 to save maby .30 depending.
Around here anyone buying lots of new stuff is trying to hide non production income or a new comer wanting to make the cover of Progressive Farming. I like new stuff but I cant make the payments.

MessickFarmEqu · Jun 19, 2006

farmers are also experts in working with other peoples money... its the only way you can afford the millions of dollars in equipment that it takes to run a full time operation. By flipping machines from year to year you can take advantage of the super low rates offered by the manufacturers.

cowboydoc · Jun 19, 2006

Generally tax breaks in farming just dont cut it unless you have some off farm income to hide.

Not necessarily. We have had significant farm income the last five years, especially from the cattle side of it.

rdbigfarmboy · Jun 19, 2006

What level of cattle profit are you seeing. I generally see about 110 to 150 per breeding cow after all expenses both long and short term not counting my labor. I generally sell calves in the 500 to 600 # range.

cowboydoc · Jun 20, 2006

rdbigfarmboy said:
What level of cattle profit are you seeing. I generally see about 110 to 150 per breeding cow after all expenses both long and short term not counting my labor. I generally sell calves in the 500 to 600 # range.

In this market you're only seeing a $110 profit?? Our registered cattle the last three years average has been $600 profit/cow at the registered sales. At the sale barn for culls and unregistered cattle that don't go to the registered sales our average has been $1.46/lb and we're averaging $949 per calf and about $400 profit on the registered culls and unregistered stock. Our average expense per cow is about $32/month and then $14/month per cow for capital investment in land and machinery. If you can't make more than $110 profit off of $1.46/lb cattle then you need to rethink your business plan, your type of cattle, or you are really upside down in debt.

rdbigfarmboy · Jun 20, 2006

Yes
that explains it. The last 2 or 3 calf sales were in the 1.10-1.29 area. The only time I see calves near 1.50 recently is the light weight 300-400#.
I have no debt am totally green. I do admit my grass cost (fertilizer, seed, lime) are too high some thing like $200 per cow per year. Hay cost me $20 per roll to grow and thats too much.
Locally there are so many registered breeders around I dont know how they make it. Several are quitting and cross breeding. It is very difficult to find clean young herd bulls.

HayDR · Jun 21, 2006

Cow-Calf operations are profitable if you control what you spend. You have to live within your budget and new paint often a pride thing has broken many a farmer. Farming pays off in the quality of live and increased land values over time. There are some years you can make a handsome profit and other years you just try and survive. Live within your budget. Watch the successful producers in your area and copy them. And one more thing, WORK in the operation so you really know the difference in wants and needs.

rdbigfarmboy · Jun 22, 2006

Yes
Very true . I was making about 100 more per cow 4 years back before the cost of fuel and everything related went up. Cattle prices were about the same and I made around 250 per cow selling mixed angus salers brangus black calves in the 500 to 600# range.
As far as buying equipment its based on need and function. I bought 2 of the Rural King chinese tractors last year. The fotons run well on used cooking oil.
So I have a plan for dealing with purchased fuel cost thats dont buy it. Doesnt fix the $46.00 per acre pasture fertilizer situation.
Many in the area did not fertilize at all for the last 2 years.

Hard Knocks IV · Aug 9, 2006

I'm way behind you guys I have a cow/calf-- meat goat operation make about
400 bales a year with 2 NH 851 balers that cost me $1300 combined. Bale with an Oliver 1650 ($3000) rake with a Yanmar 330 ($2300) NH 256 rake ($2000) mow with Zebra 3520 and an Allis Chalmers 82T mower ($3000/both)
and load bales with an Oliver 1365 ($1000)