Practicality first when buying new equipment

Many factors come into play when deciding to purchase new farm equipment - and it doesn't always depend on what happened during the last harvest.

Cervus Equipment and Rocky Mountain Equipment stated they saw increased earnings in 2017, partially attributing success to a good harvest. Combined with manufacturers' incentive payment on sales of new equipment in 2017, Cervus says there was a 20 per cent increase in new equipment sales over 2016.

Brian Sewell of Sewell Grain Farms in southern Alberta recently upgraded his air seeder to one that had section control technology and a larger tank to improve efficiency. The upgrade comes on the heels of the lowest production he has had in 20 years due to dry conditions last year.

Cost saving considerations

Sewell says whenever they are looking to buy a new piece of equipment, they think about cost savings and stick to a general rule.

"Say we are going to spend $100,000 upgrading," Sewell explains. "If we can't save eight to 10 per cent on that investment or get a return on it, we don't normally buy anything. We typically like to hang on to our equipment for a while and get the most amount of acres we can out of the investment."

In this case, he says they looked at the numbers with section control and efficiency and figured it would work even in a year where the harvest was not good.

Sewell Grain Farms grows yellow peas, canola, barley and wheat.

Buying versus leasing

There's a lot to consider when heading into town to upgrade your equipment, whether you are buying or leasing.

Lance Stockbrugger, who is a chartered accountant and farmer from Englefeld, Sask., says leasing is a relatively new tool for producers and a majority tend to stick to the 'tried and true' practice of buying.

"They understand it, they own the piece of equipment they understand there are no surprises, they don't have to give it back in a certain time period, they want to keep it for a long period of time," Stockbrugger says.

Stockbrugger says it's about peace of mind because they know what's all involved when they own a piece of equipment versus when they lease, which they might not understand everything. 

Varied conditions

Time will tell how 2018 earnings compare to 2017 as many farmers saw tough growing and harvest conditions in 2017.

Producers across the prairies described last year's harvest as spotty, with some areas challenged at harvest and others having a good year - all depending on how regions were impacted by weather - a thought echoed by Paul Heglund who farms in the Rural Municipality of Reno in southwest Saskatchewan.

Heglund says he knows of several areas that had dismal crops and where prices have been weak, adding he sold last year's crops at prices three-quarters of what he did the year before. However, he says that hasn't stopped some farmers he knows from buying equipment.

Heglund says he tends to base his decisions on replacing equipment when they do not operate efficiently, like he did when he replaced a few tractors a couple of years ago.

Sewell adds it's important to take the emotion out of the decision to purchase new equipment and stick to the financial facts of the farm. Working with a strong management team also helps in the decision-making.

Bottom line

When it comes to farm equipment investments, a variety of factors go into the decision-making process. Farm plans and dealer incentives have a role, as does the choice between leasing and buying. Overall, there's no single template to use when deciding on whether to get new equipment.

Article by: Craig Lester