The answer may depend on how much productivity each repair is costing you.
“I’d be looking at costs on repairs and maintenance, how much downtime it’s costing you in the field, and how important that is to you,” Steve Swigert, agricultural economist consultant with the Samuel R. Noble Foundation of Ardmore, Okla., told Ozarks Farm & Neighbor.
West Central Region Agriculture Business Specialist for University of Missouri Extension Wesley Tucker told OFN whether you’re better off repairing a piece of equipment “will depend on the age and condition of the equipment as well as what it will cost to repair it.”
“A producer must just weigh their options of which is more cost effective in the long run,” Tucker continued. That also goes for upgrading: “A producer must just weigh the pros and cons over the long haul. Higher cattle prices have given producers the opportunity to invest in the long term productivity of their operations. Therefore many have been able to upgrade their machinery to newer machines.”
Swigert said the time for replacement is “highly variable, because it’s driven more by the amount of acres or the use of that piece of equipment, and the degree of obsolescence – how fast does it get to the point where the parts aren’t available, or the equipment is not used for its intended purpose.”
He said while major manufacturers have replacement parts going back to models produced in the 1970s, for companies with secondary farm lines or makers of auxiliary equipment.
“I think there’s a real chance that 10 years down the road, you will not be able to get parts for something that you’ve purchased,” Swigert said.
Many farming operations keep close tabs on the hours of use for each piece of equipment – especially key equipment, like a drill or the tractor that pulls it, or heavy tillage equipment, because their application is timing sensitive. Some pieces tend to last longer than others over the same length of time like the heavy tillage equipment, which might be going over a field three times, whereas a drill would be going over it once. Quality, of course, is also a factor.
How do you budget for equipment replacement?
“It’s on an individual basis,” Swigert said. “The things I would be looking at are, is there a need for it? Is there a new crop that I want to raise, but don’t have the equipment? Is it time to replace that piece of equipment, because repairs and maintenance make it a good decision to trade that equipment off or buy it? Do I have the cash flow to make the payments? Are there tax implications that will help me justify that purchase?
That brings us to Section 179 of the IRS code, which has been a savior to many farmers over the years; it allows accelerated deduction for new purchases of business equipment. The problem has been that farmers are unsure of what the maximum annual write-off will be. A temporary increase from the statutory rate of $25,000 to $500,000 has been in effect for several years, but the increase always sunsets within a year or two, and it expired Dec. 31, 2014. Congress may yet approve the higher level retroactive to the start of this year, as part of a larger package of tax breaks for various industries and individual households.
