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How to Start a Farm Equipment Replacement Plan
Make a plan for when and why to replace aging farm equipment to keep your operation running smoothly.
Ben Rice | Agriculture Industry Representative
The equipment you use on the farm most likely makes up the largest investment of your operation. Even when you stick to a dedicated maintenance schedule, at some point you’ll need to put together a farm equipment replacement plan.
Why should you consider replacing farm equipment?
There are several reasons to start working on a farm equipment replacement plan. First of all, the cost of ownership increases with older equipment as it requires more frequent and larger repairs. You should also take reliability into consideration – you need to know that you have equipment you can count on in the middle of your busy season. New equipment comes with new technology, which can be a game-changer for your operation in terms of efficiency and productivity. You may also notice that you have a legitimate need for new equipment on your farm based on your tasks, your productivity, and your efficiency.
When should you replace aging farm equipment?
Many factors go into when is the right time to replace a piece of equipment, and the final formula is really up to you. Here are a few things to consider:
- Maintenance costs
Track your maintenance costs – when these start to get higher and higher you will want to look into replacing vs. maintaining as far as long term costs go. Newer equipment helps you avoid breakdowns in the middle of your busy season or harvest. You don’t want equipment left in the field or out in the rain because of constant maintenance. I can’t tell you how many times I’ve had to repair our hay baler ahead of a late afternoon southern thunderstorm! - Large component failure
When you start seeing larger components break down, such as transmissions or engines, it’s time to do a cost analysis on whether it’s worth it to replace the equipment. - Used equipment values
Watch used equipment values to maximize your opportunity. - Seasonal timing
Consider replacing equipment either ahead of your busy season or immediately after your season ends. This minimizes the impact of changeover in equipment and gives you time to acclimate to any new technology or controls without the added stress of working through harvest. - Bonus depreciation deals
Watch for bonus depreciation deals. This is a tax incentive that allows you to immediately deduct a large percentage of your equipment purchase. Be sure to check with your accountant for applicable rules. - End-of-year tax benefits
Consult with your accountant or financial advisor if you’re considering taking advantage of the tax benefits associated with buying equipment at the end of the year. - Gut feeling
When you operate a piece of equipment every single day, you know every sound by heart. That also means you know when something’s off. Trust your gut when it tells you it’s time to think about new equipment.
Choose Your Replacement Strategy
How do you decide on your equipment replacement strategy? Should you add equipment as your farm grows, or replace equipment as needed? My family bought more acreage this year and we are working on adding new equipment, next year we’ll focus on replacement. Here are some different approaches to consider for your farm equipment replacement plan:
- Replace often
When you replace often, you always have equipment under warranty. This keeps your maintenance costs low, but is a strategy that’s probably best for larger operations. - Replace 1-2 pieces per year
This strategy spreads out your spending. Instead of having to replace a whole fleet of equipment at once, you plan out which ones to replace in specific years based on any number of the factors I touched on earlier. - Replace only when you have extra income
The thing to remember with this strategy is that you can’t predict when you’ll have good years or bad years – or when you’ll have extra income or not. Equipment needs sometimes can’t be put off. For the longest time, this is how my family had to run our farm purely because the tobacco industry was so volatile. Luckily, stocker calves have been slightly more stable in recent years. - Maintenance strategy
You can also opt for a strategy of repairing instead of replacing equipment. Either way, you’ll need to be prepared for the costs associated with the strategy you choose.
What are my financing options?
At Caterpillar, we have national offers on equipment and attachments as well as leasing, loans, and more via Cat Financial. You can set up annual or monthly payments and include seasonal skip payments if needed.
Be sure to also do your research on farm machinery programs through your local extension offices that can help with purchasing new equipment through grants or loans.
- The USDA Alternative Farming Systems Information Center has resources to help you find federal grant and loan programs for farmers, including specific resources for veteran farmers.
- The USDA Value Added Producer Grants can help you if you’re looking to add production to your operation. This program requires a 50% match from the awardee. This is a competitive grant, so be sure to work with your local USDA representative for more information.
- Farm Service Agency (FSA) offers 12 month operating loans that can be used to purchase farm equipment.
Be sure to set some time aside to consider why and when you should replace your aging farm equipment, then put some thought into your farm equipment replacement plan and financial planning. This kind of business planning is essential to keeping your operation running smoothly for years to come. If there’s anything we can do to help, please contact your local Cat dealer or request information from Cat Financial directly.
Ben Rice
Agriculture Industry Representative
Having spent his formative years on a tobacco farm, Ben Rice went on in the agriculture field to earn degrees in Agriculture Business Management and Agriculture Science from North Carolina State University. Rice now brings his invaluable expertise to Caterpillar as an industry sales and service representative.
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