5 questions to ask before making an equipment purchase5 questions to ask before making an equipment purchase
Equipment ranks as the second largest expense in the cow-calf enterprise. Before you buy more, ask yourself these five questions.
April 14, 2020
As I brainstormed today’s blog, a myriad of topics surrounded COVID-19 came to mind.
Should I talk about how Michigan has banned the sale of non-essential items including seeds and garden supplies and what that means for us as free Americans?
Should I cover how strong leaders can effectively guide their team to follow safety protocols to keep themselves and their employees safe?
In light of plant closings, should I address how COVID-19 is not a food-borne illness?
Should we address, once again, mental health and how stress can manifest in different behaviors and provide resources to help us cope?
Or should we take a breather from the heaviness of this pandemic and talk about a hobby and favorite past-time that I know many of you enjoy?
Let’s go with the last option, and we can circle back on the coronavirus conversations another day. I don't know about you, but I need a breather from the pandemic for a moment.
So what’s this past-time I’m referring to? It’s that time of year again. In addition to calving and breeding seasons, it’s farm auction sale season! And while we may be required to practice social distancing right now, the popularity of online sales continues to grow.
In his spare time, I can often find my husband Tyler in his office, scouring his favorite auction sites for potential deals on equipment and tools he might need for the ranch. And now more than ever, the opportunity for buyers and sellers is great to find great deals on steal purchases or bring in extra cash for iron that you no longer need.
So, when is the right time to buy? And do you really need that piece of farm equipment?
Aaron Berger, University of Nebraska Lincoln Extension beef educator, recently addressed these questions in an article titled, “Ranch Equipment - Needed or Nice to Have?”
In his article, Berger writes, “For a cow-calf enterprise, the second largest expense after grazed and harvested feed is often overhead expenses related to labor and equipment. In ranching, an overhead expense is one that doesn’t change very much based on the number of cows that are in production. For example, the pickup, tractor, ATV, trailer, feeding equipment, and working facilities used to care for 150 cows would also likely be adequate to care for 500 cows.
“On a cost per cow unit basis, spreading that equipment cost over 500 cows versus 150 cows drastically reduces the equipment cost per cow. This is commonly referred to as economies of scale. Equipment expense is one that frequently seems to creep up for many ranch operations over time. The cost of equipment today in relation to the value of production from cattle that it is used to care for can be staggering.”
Berger says we must consider the real cost of equipment, using the acronym, DIRTI, which stands for depreciation, interest, repairs, taxes and insurance.
He explains, “An exercise that can be eye opening for many ranch owners is to total up their equipment inventory and look at the capital investment as well as annual ownership costs involved in having that equipment. Breaking out the equipment used by enterprise on the ranch to be able to specifically examine equipment costs committed to cow-calf production can provide understanding as to where costs are occurring. For many ranchers, the equipment costs for cow-calf production, when evaluated on a per cow unit basis is a big expense. It is also one where there is often opportunity to reduce costs.”
As auction sale season gets hopping, the temptation to upgrade and add to your fleet of equipment may be great; however, take a pencil to paper and really look at the true costs of doing so before you pull the trigger, or click the button on the online auction sale.
To really know whether it’s the right purchase to make, Berger says producers should ask themselves these five questions:
Is this piece of equipment truly needed, or is it nice to have? What is the cost of “nice to have”?
If unneeded equipment were sold today, how could the money from the sale of that equipment be used to strengthen and build the business?
How could the cow-calf production system be changed in a way that could reduce or eliminate the need for equipment currently being used?
Has equipment technology changed so one piece of equipment could replace what two or more pieces of equipment are currently being used for?
If the equipment is used rarely or infrequently, could it be hired, rented, or shared with another owner?
As Tyler and I work to tighten our belts to weather through this pandemic, I will most certainly be sending him this list of questions to hang in his office! I hope this list helps you as you wade through the steals and deals on your local online auction sites.
The opinions of Amanda Radke are not necessarily those of beefmagazine.com or Farm Progress.
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