"With all of the automation coming … and the cost of repairs and parts … along with cost of new machinery, it’s getting ridiculous,” said Robert Blair during the Ag Equipment Intelligence Executive Briefing virtual event held last month. The Idaho grower added, “The cost of parts is really starting to drive some of my decisions, as well.”
The discussion involved whether or not farmers are looking toward leasing vs. buying their ag equipment these days. Mitch Lazenby, a producer from Alabama who was also involved in the conversation, agreed, saying, “We’re really leaning toward the lease side of things.”
According to various reports, the rising cost of new farm machinery along with the rapid development of precision technology are giving growers reason to pause before signing a check or taking a loan for several hundred thousand dollars. Leasing what they need, particularly when it comes big equipment, is beginning to look more attractive for a growing number of farmers these days.
This is evident when you look at how leasing is growing on the books of some of the major equipment makers in recent years. According to an Oct. 14, 2019 report in the Wall Street Journal, “Transaction records show that more than one-third of the financed purchases of Deere high horsepower tractors and construction equipment is being leased to farmers and builders.” Nearly 80% of those leases were for farm machinery.
That same report pointed out that Deere’s chief rival, CNH Industrial has also significantly increased their leasing activities, as well. “More than 40% of the high-horsepower tractors CNH has sold annually in the U.S. since 2014 have been leased, up from 25% in 2012.”
Another grower who participated in the Executive Briefings farmers’ panel was even more adamant about his view on leasing vs. buying. Illinois producer, Monte Bottens, said, “I can grow and expand quickly, and not have to worry about my balance sheet. I figure I’m losing $100,000-$200,000 a year of stuff sitting in a barn. That's the dumbest thing in the world. I don't want to own a tractor in 5 years. I'm [moving] from an ownership basis on a tractor to a lease basis.”
Bottens then asked the other growers: “If it cost you half as much per acre to get it done, and it freed up $2 million worth of working capital, so you could double the size of your operation, would this change your [buying] habits?” Consensus among the panelists was “Absolutely!”
Technology is also playing a growing role in the buy or lease argument and has some farmers thinking (dreaming?) how things could be in the not too distant future. “From an autonomous standpoint, on the farm level, I don't know if it's going to be in the next 5 or 10 years, just because of the nature of things. As machinery prices keep going up, farms get bigger and we're having this labor crunch,” said Blair. “At some point in time, we're going to see a move to autonomous vehicles. You can run 24/7 if you have everything plugged in. You have one person managing or a team, a couple of people managing 3 or 4 tractors and you're maximizing that.
He added, “The other thing is, with the autonomous technology, farming might become a for-service business where you have teams of autonomous vehicles come in and do the farming, do the planting, the cultivation, the fertilizing and such. Just because of where machinery prices, repair prices, parts and everything is going. It makes sense, but I think it's going be a long way down the road. There is another part that's hindering it. Every farmer I know loves their tractor time.”
But Bottens believes there will be less and less of the traditional approach to farming “as we become more businesses instead of owner-operators. This is the current trend. That part of it, that mindset is going to have to change. That'll come with the next generation of farm kids.”
He visualizes a big role for autonomous vehicles in farming “where you can have 2 or 3, 8 row planters running 24/7, vs. one 24 row running 14-16 hours and they’ll be lighter weight, 100 horsepower and under. I think we’ll see more swarm type of an approach. It's going to require a significantly different way of thinking then farmers owning the equipment.”
Bottens also see a diminishing of traditional loyalty in farm equipment, which, he said, will be increasingly evident in the next generation of farmers, as well. “I'm not sure that opening up the shed door and seeing green and yellow wheels and getting that warm fuzzy feeling in your heart is going to pay the bills in 10 years,” says Bottens. “If it's zebra colored, who cares? Get the job done. I think it's what the economics will say. I don't think the brand will matter as much. Now, if the brand purposely delivers greater value, then absolutely, brand is important.”
Blair sees it as more of matter of being loyal to the dealership, than necessarily a brand of equipment. “Our farm is a calico farm. A little more toward the green side of things, but it comes down to relationships and the dealership itself. As far as that goes, you're looking at price, but most of all functionality. What do you want that tool to do for you on the farm? I think it comes down to that network and the relationships between the dealership.
What would make him switch? ”I really don't look at the color of the paint, I look at the functionality. What role does technology play in it? For example, I like Ag Leader yield monitors and their software. As far as loyalty, we have a lot of options we didn't have a quarter of a century ago. The coming of the internet started that change. From a dealer perspective, from a manufacturer's perspective, I think it's going to come down to service, and what type of value you are going to give to a farmer.”