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Combine buying: can you justify?

Consider these factors when deciding whether to trade combines this year Buying a combine this year, whether new or used, may seem to fly in the face of good judgment.

Corn and soybean prices are at historical lows. And government payments to date have not made up the gap in revenue. Strapped for cash, many farmers are putting off replacing machinery until conditions improve.

This trend is reflected in the 471/2% drop in new combine sales, year-to-date reported in July by the Equipment Manufacturers Institute.

However, there are factors that may justify a combine purchase in these unlikely times. And they are based on economic principle.

So, what are those factors? Size. Dr. Howard Doster, agricultural economist at Purdue University, says the biggest reason farmers trade combines is that they can use a bigger size. You need one large enough to harvest your entire crop in a certain number of days. Otherwise you run the risk of crop losses.

This factor caused Elmer Rahn to purchase a '94 model 9600 John Deere at an auction this year. He had recently acquired an additional 600 acres and knew he would need a second combine as back up to his current 9510 to get his crop harvested on time.

"No matter if corn is $2 or $4 a bushel, you have to get it harvested in a timely manner or all you're doing is adding to your problems," says Rahn, who farms 3,600 acres of corn and soybeans outside of Chadwick, IL.

The allowable harvest window varies by region and crop. For corn in eastern Illinois it is 30 days, Doster says. For wheat in Kansas, it is more like 10 days, 14 days at the outside, according to Dr. Terry Kastens, agricultural economist at Kansas State University. If you go beyond that, you can generally afford to move up to the next larger size.

Age. Age of your combine is another factor that may justify a trade. The older the combine, the higher the risk of breakdowns.

"Thus, at some point you get worried about the cost of losing two to three days or 10% of your suitable harvest time, and you decide you just can't afford that kind of risk and so you make the trade," Doster says. "It may be you just can't fix it one more time."

At what age breakdowns start to occur varies depending on the part, the combine make and model and how the machine is cared for. Agricultural engineers use a figure of 4,000 hrs. for the life of a combine when calculating repairs and point out that there are tendencies for breakdowns of some major components at various places along that age range.

Both age and size played into Keith Brown's decision to trade his 4-row 6620 John Deere Sidehill for an 8-row 9500 this year. "My older combine was undersized and getting old," says Brown, who farms 1,800 acres of corn and soybeans in the rolling hills of western Iowa.

His older machine had 3,500 hrs. on it, and repair and upkeep costs had hit $3/acre. In addition, Brown was putting 325 hrs. on it in a season. He knew he needed to be at 225 hrs. for a timely harvest. The lag cost him field loss and grain quality last year.

"We got a snowstorm on November 6th and still had a lot of corn in the field," Brown recalls. "So the morning of November 7th, I said 'that's the end of this. I have to get something bigger and better.'"

Brad Wade of McLean, IL, used the same factors to justify trading for a brand new 2388 Case IH this year. "We try to get about 5,000 acres through two machines a year, and we just can't afford downtime," says Wade, who grows corn, soybeans and specialty crops with his dad and a hired hand.

Wade trades every year regardless of economic cycles. He says this strategy keeps their combine costs per acre relatively stable other than an annual 3 to 4% price increase for the new model. In addition, they have no repair bills because the machines are under warranty. "So that's one way we justify it," he says. "We also do quite a bit of custom combining, which helps make our payments."

Trading annually also keeps them current with the latest technology, such as yield monitors and global positioning. "We map everything with combines, so that is another piece of the puzzle," he adds. "You could upgrade the older machines, but it comes with the new ones."

New feature. Maybe a new combine offers a benefit you can't get with your current combine. For example, maybe it provides better fuel economy, higher capacities or better threshing for a cleaner grain sample.

Whatever the new feature, it may justify a trade, Doster says. However, the benefits must more than cover the costs for the trade to be worthwhile.

For Kent Ott, the feature that warranted a trade for him this year was tracks. His current 1688 Case IH didn't have them, so he traded it for a brand new 465 Caterpillar in the middle of wheat harvest this past June.

"We have faced a terrible wet situation here in south central Kansas with not being able to get our wheat harvested," says Ott, who farms a total of 4,000 acres. "So this is giving us the ability to get our crop in."

His local dealer financed the purchase and deferred interest for two years.

Ott says the new combine will help him combat similar situations this fall on his corn, soybean and grain sorghum acres. He also expects it will provide higher harvesting capacities and will do a better job of threshing than his previous combine for a cleaner grain sample.

"We are looking at the purchase in the long-term, not just this one year," Ott says. "Farming has gone in cycles, and we think we will cycle out of this one."

Combine values. A final factor that cannot be ignored is the market for used combines this year. Used combines are in good supply and in good condition due to a flurry of trading that took place in the past two years.

Indiana auctioneer Ted Everett says the quality on the market now is the best he has seen because trade-in values have been higher in the past two years, and farmers were able to trade for a lesser amount more often.

"A lot of them have been trading every year for new ones and lower hour ones, and they keep the hours down on them," Everett says. "They just don't run them as long."

In June, Everett called at one of the largest combine auctions in U.S. history in Monrovia, IN. Nine John Deere dealers from two states had pooled their used inventories and moved close to 100 combines at prices 10 to 15% less than what dealers were offering.

Everett believes prices have pretty much bottomed out, and says now is the time to buy if you're in themarket for a used combine.

Rahn bought his John Deere at Everett's auction for $51,500. It had 1,200 separator hours on it. The auction price was $20,000 to $25,000 less than what two local dealers quoted him for similar combines with similar hours.

"I went to the auction thinking that if I could buy one around $50,000, I would take the chance because I've got $20,000 in gambling money there," Rahn says. "I could buy parts and still not be any higher than the local dealer."

Many dealers, desperate to cut the glut in used inventories, have slashed prices and are offering low-interest or deferred-interest financing and warranties on used combines.

"Dealers are dealing," says Brown, who bought his used combine with 1,200 separator hours on it from his local John Deere dealer. He paid a boot price of $60,000 and was able to lock in on a low-interest loan for four years. "And even with a five-year-old machine, I got a full one-year warranty."

Decide you can't afford a trade this year? Here are some alternative ways to get your crop harvested on time with the combine you own now.

Maintain good rapport with your dealer. Know where combines are so you can line up a replacement if you need one. "If something breaks, you want to have that choice of replacing it versus fixing it," Purdue's Doster says.

Carry a parts replacement kit. Most dealers sell them. Stock it with high-wear items and carry it on the combine so you can fix problems in the field. Get your combine thoroughly inspected first and have technicians note which parts are about to go. Either replace those parts or include them in your kit.

Replace worn parts. Bearings, belts, pulleys and other high-wear items all should be replaced if badly worn to lower the chance of breakdowns.

Share your neighbor's combine. Maybe you can buy a new combine with your neighbor or trade labor for use of theirs.

Hire a custom harvester. If your combine lacks the capacity you need, harvest what you can yourself and hire out the rest.

Buying a used combine can be considerably less than a new one, because you are not paying initial depreciation, according to Dr. John Siemens, agricultural engineer, University of Illinois.

"It's similar to buying a used automobile," he says. "Someone else is paying that initial depreciation when it is new."

But there are risks. "You need to be a pretty good judge of used equipment as far as evaluating its worth," Siemens adds. "Particularly, reliability. What will the repair costs be for the combine during the next several years?"

Because of those risks, Siemens recommends used combines for smaller farmers who put on fewer than 175 hrs./yr. For larger farmers who put on more than 200 hrs., a new combine may the better choice because the risk of repairs begins to get too high and the fixed costs can be spread over more acres.

Kansas State's Kastens quotes similar thresholds. "Farmers can often justify buying new if they put more than 250 hours a year on a combine, 300 for sure," he says. "You can buy a pretty good used, like a one year old, if you go a few hours less than that."

However, you have to own a new combine longer than you would if you bought a used one to get a comparable return. "If you are putting on 250 to 300 hours and buy a one-year-old machine, you can trade that every two to three years without any problem," Kastens explains. "In other words, run it up to 1,000 hours in three years and trade it. That is a very good scenario for a used machine.

"With new, you would have to own it a little longer to come out on it."

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