Regina/ 14 miles South of Moose Jaw Saskatchewan | I think you have to start from a different angle when you're "penciling out" cost of machinery... You first need to look at what is your cash coming in - average (pessimistic) gross income....
... Next, what is the minimum machinery you need to produce that gross income - a lot of factors that come into play; what size of machinery do you need? - Does a 20' machine and the 120 HP to pull it get your field operation done in a reasonable time? - or do you need 40' and 300 HP? - How tolerant of breakdowns is your operation? Can you fix, or do you have access to non-dealership mechanic services? A lot of successful smaller farmers operate on the "Pair and a spare" model with older machines in our area... I believe a lot of producers also factor in the rate of a custom operator if they don't have access to a "used but good" solution
...So out of that you get a "net" income - what's the cost of operating used but good to produce your crop (pessimistic return) - hopefully what's left over is a positive number....
....The next thing that enters into figuring what you can spend on capital is that the Gov't will take a goodly sum of that net income - so you're left with say 60% of your net return. But a percentage of what you spend on your machinery is depreciated every year - so you can leverage some of what you would pay in tax against the cost of newer (not necessarily new) machinery... you might be able to even argue that your net income might rise a bit based on more timely field operations, better seeding equipment, etc...Over time you can use that depreciation to leverage you into newer machinery...
Our newest tractor is a 1989 model - it was purchased after a lot of handwringing & justification - to take the place of the 74, and 72 field tractors - that form the "pair & a spare" in our operation..... in another 2-3 years we might add something mid 90's to retire the 72....etc. The '89 seems like new to us... heck the 74 Stieger cleaned up pretty nice with a new cab kit & its pretty nice to run as well...
There's a lot of better & wiser farmers on this page that can offer better advice - but that's how we look at machinery costs....
FWIW
Doug W. |
How do you afford expensive tractors / machinery?
