Tough Farm Challenge Offered for 'Smaller' Operations

Farmer Iron

It's easy to concentrate on big farms when talking about a combine or tractor purchase, what's the future for smaller operations?

Published on: December 28, 2011

What I'm about to say may surprise many but a 1,500-acre cash grain farm is slowly slipping into the "small farm" category. Given the size of equipment today - not the biggest stuff but the more-efficient later model machines available - it's possible to farm this much land yet still need a job off the farm.

Our European farmer friends are often surprised by this. Fred Yoder, a forward-thinking Ohio farmer and member of the National Corn Growers Association leadership team, once told me that during a European trip the farmers were surprised he had an off-farm business (he sells seed) with a farm that size.

We're thinking in new ways these days as farmers retire and new, younger farmers come in with new efficiency models. But that leaves a significant challenge: what kind of new equipment is right for this size operation?

There are mid-size tractors and tillage tools that work great for a farm this size, and they come from every major player. Even Kubota, long known for its compact tractors, plays on this stage with its M series. So there are tractors, planters and tillage tools out there with shiny new paint, but combines have migrated larger. The Class V combine is still available from the major players, and offers you some options for efficient grain harvest.

But the economics may be changing. Efficient equipment still pays for itself, but if you think a $200,000 combine is too rich for your blood, why consider buying one? Instead, look at partnering with a neighbor to co-own the machine; or consider a leasing service such as MachineryLink (full disclosure, they are a sponsor of the 2012 Farm Futures Management Summit).

Or you could just lease as needed from the local dealer's inventory of late-model used machines, but the idea that you can invest that much money in a machine that might only run 200 hours a year is a stretch for your budget and your balance sheet. If you like to buy new iron your choices may be changing.

Before you start commenting away about equipment being too big and too expensive, consider the average size of farms today is on the rise. We need to cover more acres in an  hour than ever before, and you can't do that with a Class V combine (sure they're great like their big brothers but how much can you afford to tie up in a machine that might see little use). A machine still has to pay for itself to be added to the operation.

A short-term lease, which can be expensed in the same year, has tax advantages too. And you're not over-expanding your equity position which can significant impact your return on investment. Of course, if you feel you can afford the new combine, that's your call (I would never argue with that).

However, as the "1,500" size farm gets considered more in the smaller size category, it'll change your economic position too.

As 2011 winds down and 2012 with its elections and a promise of some very tough arguments over farm policy arrives, equipment purchasing may be the simplest thing you do. Take a look at your equity position and that farm balance sheet, and try to think in new ways about equipment acquisition - you'll find you have a range of choices.