To Lease or Not to Lease...That is the Question!

Introduction

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• Farm4Profit episode vs Farm4Fun Episode
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What’s Working in AG – Brandt – Hans

Brandt.ca

Estesperformanceconcaves.com

Main topic – Making Equipment Choices – Topic suggested by Listener Andrew Duff from NE Iowa

Buying new vs repairing and upgrading old vs leasing vs custom hire

• Guest – TJ Masker – TractorZoom - @AgTechTed
  • T.J. Masker - Senior Product Manager on the Product Team at TractorZoom helping them build farmer focused solutions. He graduated from Iowa State with a degree in Agricultural Business. For the past 10 years of his career he has been focused on helping farmers make more profitable decisions with data. Most recently, TJ was on the Product Team at Granular helping build Granular Insights and the data analysis tools utilized by farmers across the United States and Canada. Today he is here to help us prepared to make good equipment decisions.
• Where do we start?
  • You need to understand you goals and needs of the farm obviously.
    • We can’t go off just buying what the salesman has to offer.
    • How do we do this?
    • Why is this important?
      • Key qualities, skills, or information necessary?
  • Force yourself to not compare to the neighbors
• We’re going to try and give broad advice here, but for the sake of a good starting space let’s talk combines. One of the highest value pieces of equipment
  • TJ wrote an article for his blog about John Deere S670 Combines that we think will be a good jumping off point. Let’s state by talking trading combines, what do we need to consider?
  • https://agtechted.substack.com/p/b9de6d65-7c73-469e-9ace-3448dc969ff7
    • Usage
      • How long will you keep it? Years?
      • How many hours per year?
    • Current Market Value
      • How do we come up with a value?
        • Auction vs private sales vs trade
    • Interest Expense
      • What rates are you being offered?
    • Expected Repairs
      • ISU
    • Fuel Expense
      • Does your upgrade provide fuel efficiency?
      • “Uh Oh” DEF
    • Actual Depreciation
      • More on newer & lower hour’d machines
• That was trading to own as an option. What if we wanted to look at leasing equipment?
  • A lot of the same considerations apply……
    • Budget
    • Use
      • How many hours? Will you charge by the hour?
      • Run it and roll before replacing tires etc….
    • Interest rate, lease terms, fees
      • Are you limited by hours? What does it cost if you go over or don’t use them?
      • Is the residual or buyout going to be more than the machine is worth in the end or will you have the opportunity at equity?
      • Does it come with warranty – how extensive?
    • Tax needs
      • Section 179 deductions work for owning
        • Might not always be around, at the same amounts or apply in each state
      • Lease payments are an expense
    • Technology needs
      • Did you buy a new planted that needs something specific or more hyd capacity?
    • Cash flow
      • Typically leases have lower payments and provide an option for paying for equipment over a longer time
  • Negatives
    • You don’t truly build equity, get no depreciation, taxed as an expense
  • Positives
    • Can help the balance sheet out (Debt-to-Equity), helps cash flow, typically used to get into a piece of equipment you wouldn’t regularly afford.
    • Also known as a hedge against decreasing machinery values
      • Opposite of now
• Now what about owning or leasing compared to hiring someone to custom perform the farming task.
  • People can have everything done custom, is there anything that can’t be done?
  • Comparing costs
    • More than the sticker price needs to be included.
      • Maintenance, fuel, fluids, etc…
      • Support equipment (Sprayer needs tender and pumps-Combine needs heads)
      • Will you need Licensing or certification?
  • Cash flow needs
    • Can you cover the bill when the task is performed?
    • Does owning allow you to make a loan payment in a better time of year?
  • Workload
    • Do you have the support equipment?
    • Can you afford the size of equipment necessary?
    • Do you have the labor or time to do the task?
  • Quality
    • Can you do the best job?
    • Do you trust your custom operator?
      • Bushel yield loss combine, sprayer runs over crop, seeding on time, etc…
  • Negatives
    • Timing is typically out of your control and so is quality
  • Positives
    • Typically, the bill is less than the cost of ownership and helps on labor needs
• What about Joint ownership on equipment, partnerships, or exchanging services?
  • https://www.extension.iastate.edu/agdm/crops/html/a3-21.html

• Trust your Gut – what does this mean to you?
  • What worked once might not work every year or for each different piece
  • You know there are farmers out there who don’t feel they need any help, are doing just fine, and can do it themselves. What would you say to an individual such as that?
    • Is there anything else you would like our listeners to learn from our conversation today?
  • What do you see your top producing or top tier of clients doing? –Common traits
• Summary
• Challenge
• Submit questions and topic suggestions - Like, Rate, Review, Share

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