Dave Govert had thought combines were too expensive when they cost “only” $100,000. That was 10 years ago. So you can imagine what he thinks of the $200,000 machines today.
Not that the Kingman, KS, grower/cattleman doesn't use the best combine possible for harvesting his soybeans, wheat and grain sorghum. He just shares the cost with a “partner” grower about 250 miles north in Nebraska.
Govert takes part in the “managed lease program” offered by MachineryLink, a company he helped start in 1996. Basically, the program allows growers access to first-class combines for harvesting needs without having to buy or maintain them the 10 or 11 months they aren't used.
“It's similar to a time-share vacation program,” says Govert. “A grower can have a combine delivered to his farm, ready to roll exactly when he needs it, then hauled away once harvest is complete.”
MachineryLink doesn't choose one color over another. Most combines are in either the John Deere 9660 class or the Case IH 2388 class. Cost is about $10-12/acre/year for a three-year lease period for corn and soybeans. It's about $8/acre for wheat depending on crop conditions and the size of the platform used on the machine. Contracts are set up based on about 200 separator hours for corn, soybeans and other fall crops, and about 100-125 separator hours for wheat.
“Our target per unit is about 2,400 acres for corn and soybeans and 1,600 acres for wheat,” says Govert. “Since many growers don't harvest that many acres, we promote that they share MachineryLink machines with their neighbors locally.”
In the MachineryLink program, a grower isn't responsible for maintenance or service on the equipment, other than performing daily maintenance, such as greasing and cleaning air filters as necessary. However, a customer is responsible for having liability insurance and property insurance on the machinery for the period of time it is reserved. “The company can help establish proper insurance coverage,” says Govert.
If maintenance is needed while the machine is in use, the local equipment dealer will most likely be contacted to make the repairs.
“We believe there is no one better to deliver service to a local community than the local dealer,” says Todd Branson, a MachineryLink regional representative in Norman, OK. “We have local agreements with them.”
There are several advantages of leasing combines or other farm equipment. Jann Stallcup, general manager of Allison Leasing Co., Lincoln, NE, says a lease program can provide improved cash flow when compared to loan payments or cash purchases.
“The first lease payment is usually less than a loan down payment and sales tax is collected over the life of the lease (not paid in advance),” she says. “In real dollars, lease payments actually decrease over time due to inflation.
Leasing permits acquisition or equipment now and preserves bank credit lines for other opportunities.
“This tends to expand your available lines of credit for future growth,” says Stallcup. “Lease terms are usually shorter than the depreciable life of the equipment, and lease payments can be treated as equipment rental expense, resulting in a faster write-off of equipment and tax savings.” Also, once approved, the terms and payments on a lease program are guaranteed. And even though interest rates may rise, lease payments will remain the same.
Ag Star Financial Services, Rochester, MN, is seeing more producers turn to leasing. “More and more growers are looking at leasing as an alternative to buying farm equipment,” says Terry Keller, an Ag Star senior leasing executive. “And we're seeing more growers going together to help break out lease payments. They spread out the cost of a lease between two or three operations.”
The popularity of MachineryLink has steadily grown. For 2004, more than 500 farmers will use its combines on about 2 million acres in 20 or more states.
“Many growers are looking for an alternative method of harvesting their crop,” says Govert. “If they're not getting maximum use out of harvesting equipment, they're not as efficient as they should be.
“Right now, machinery makes up more than 40% of a farm's production outlays (excluding land costs). If I'm not making payments on a $200,000 combine, I can put that money to better use in improving my cattle operation or other aspects of the farm,” he adds.
Govert notes that, if a grower suffers major crop destruction due to weather, disease or other disaster, the lease contract contain provisions to help ease his burden. But if you have bought a new combine, you will still be required to make payments on it.”
MachineryLink is starting a pilot program for tractor leasing. For further information on the combine or tractor leasing programs, visit www.machinerylink.com.
Are Rollovers Economical?
Growers who regularly use a combine 350 or more separator hours a year will likely be better off economically if they buy the equipment. That's according to Dave Govert, founder of the MachineryLink program.
A one-year rollover of combines, although probably not as common as it once was, is a route some larger growers take. Even if a combine has only 250-300 hours on it, expect a trade-in cost of at least $30,000 or more.
“We do some rolls, but not as many as before,” says Roger Spires, manager of Sloan Implement Co., a John Deere dealership in Virden, IL, near Springfield. “The 9600 series (in the $200,000 price range new) is the one usually rolled over. A rollover will likely cost more than $30,000 for a combine with 250 hours.”
At a Case IH dealership in Elkhart, KS, sales representative Al Fetterly sees several larger growers and custom harvesters sticking with rollover trades. The trade-in cost can vary from $60 to $100/hour of usage, depending on the number of units purchased.
“There can be multi-unit discounts in some cases,” says Fetterly, with Scott Power & Equipment Co. “One customer rolls more than four Case 2388 class combines, each with about 800 separator hours.”
That's a lot of money. But there is also the virtual guarantee of minimal maintenance breakdowns. “There are various company allowances and discounts that can sometimes make a rollover attractive to larger operators,” says Fetterly. “The customer who rolled over those four combines will probably do the same thing next year.”