New machinery prices have been rising around 4% per year for at least the last decade.
As the Director of Farm Operations at AcreTrader, I hear a lot from farmers about where they experience financial pressures and what concerns are driving their decision-making. Cost increases across the ag industry are nothing new, but what we’re hearing suggests that supply shortages we’re facing in various aspects of our lives are very much impacting the ag industry as well.
One component that has a major impact on farmer costs per acre is equipment, which has been on a historic upward run in prices along with land, rental rates, and commodities. New machinery prices have been rising around 4% per year for at least the last decade. This mirrors the cost per acre of power and equipment, with capital recovery costs growing by around 70% over that same time period.
It’s actually not high prices that are hurting farmers so much as low availability
As a result, many farmers are seeking to expand the acreage within their operation to maximize return on equipment costs.
But it’s actually not high prices that are hurting farmers so much as low availability. Many would buy if they could, but severely limited supply of equipment —both new and used equipment, as well as parts—is hampering investments this year.
The steel and electronics shortages are largely to blame, and it’s subsequently led to stiffer competition and higher prices for used equipment. It’s not uncommon to face dealership delays of at least six months, and decades-old tractors with middling hours are selling for record prices at auction.
In response, new cottage industries trading in used machines and parts are springing up around the country, and it’s hardly surprising that the Right to Repair movement has seen significant momentum of late.
Text continues underneath image
Certainly, these hot markets present serious challenges, even with the prospect of strong commodity prices this year. But machinery isn’t the only culprit. According to Purdue University’s bi-monthly Ag Economy Barometer, farmers were less optimistic in June about their financial prospects than they were earlier in the year. Most operators we talk to feel the squeeze most deeply in the cost of inputs.
Owned machinery, just like land, ties up capital that could be used elsewhere
Like every other expenditure, machinery is an individual calculus that comes down to efficiency on a cost per acre basis.
Owned machinery, just like land, ties up capital that could be used elsewhere. We’ve heard people in the industry opine that farmers should just rent these days. Some even generalize that the less you own, the more profitable you can be.
Equipment rental is relatively uncommon; what we see much more frequently is custom hiring. The constraint of both is competition at key times during the growing season. For many farmers, it’s still easier to own equipment, much of which is only in use for a few weeks of the year while it depreciates the rest of the time.
What makes equipment ownership profitable is efficiency – not with respect to time, but to cost. One owner of a serviceable 16-row corn planter we spoke to stated he wasn’t interested in upgrading to a 24-row because, as he bluntly phrased it, “My time is worth a lot less than that planter.” What did interest him was upgrading to more acreage.
Text continues underneath image
The most common issue we hear from farmers is that they own the equipment necessary to work many times the acreage they have access to. Many equipment owners have branched out into custom work themselves.
An option for farmers to use their machinery more efficiently by farming more acres is to scale up via rental or lease constructions, such as via AcreTrader.
If anything is true in 2021, it’s that there is no typical farmer, and costs of operation will look different for every farm out there. With increased machinery costs and backlogs creating uncertainty, farmers are looking for innovative ways to make their businesses more efficient. For some, that means farming more acres with the equipment they’ve got.
The general attitude we encounter when speaking with farmers about farm expenses is, “If it’s not equipment, it’s going to be something else.” I am inspired by farmers’ resilience in the face of a lot of uncertainty. They’re always ready to tackle the next challenge that comes their way.