[brandonswia]

Re: Running costs of combines

Let's say it cost $204,000 for a new combine and my trade-in was worth $180,000. That's $24,000 net and if I ran it over 2000 acres I would come up with $12/acre. In general, most combine warranties run for one year here.

Brandon

 

[larry]

Re: Running costs of combines

Quote:Brandon,

Thanks for that but the $12 is not the actual cost is it?

Over here we would do it as follows:

$204,000 purchase price after discount run over 5 years
$40,800/year
$6528/year in interest

Total $47,328/year

over 2000 acres is $23.66/acre

Add in your labour at $1/acre
Insurance at $1/acre
Maintenace $4/acre on a package from the dealer

Total fo about $29.66/acre

Then after the 5 years if the combine was still worth $70,000 this equates to a saving of $7/acre which reduces your operating cost from $29.66 to a true cost of $22.66/acre which is currently £13.17/acre (sterling) which is very respetable in the UK at the moment.

When you say $204,000 to purchase what size of combine is that? Thats about £120,000 (sterling) which would buy you a new John Deere CTS or Lexion 550 or NH CX860 in the UK.

Most just really care about the cost of running for one season. When I look at the price of a combine, I just look at the difference, in this case $24,000/yr. I will roll for a new one the following year, cost it out over the acreage it will cover and be done with it. Little investment, little equity, very limited obligation to the health of the combine (under warranty). Sure, you get nailed on the first combine you buy, but once you get in the habit of rolling after the a couple years of ownership the manufacurers fincance company ususally comes up with creative ways over the course of about three or for rolls to finally whittle the inital cost to away to nothing more than a zero equity annual rental payment. Big dealers started the rollover programs. Manufacturers supported them for quite a while untilt he cost of carrying lease returns on the books took its toll. But, most big dealers can continue doing it as long as they can effectively remarket the used product. I can't remember the last time I paid a realistic rpice for any piece of farm machinery. It's not my fault. My dealer is after me to trade before I am ready so he can resell my one year old (sometimes less) piece of equipment and put me in a new one for next to nothing. Do the list prices really mean anything?

 

[larry]

Re: Running costs of combines

Quote:Muddy,

I agree list prices mean nothing at all. For example we have just been quoted for a new JD 8530 tractor. Its list price is £125,446 ($215,767) but the price after the discount is £81,539 ($140,248). Why the dealers cant just say in the first place its £81,539 is beyond me.

However I am still having a bit of trouble understanding how you do your combines. I think and please correct me if I am wrong, is that you are effectively buying a machine but being given a guranteed buy back price after 1 or 2 seasons, which is effectively a 'hire' in the UK.

Combine hire in the UK generally goes on acres to cut. So a 2000 acre farmer would pay about £25,000 ($43,000) to hire tha machine for 1 year. This works out at $21.5/acre or (12.50/acre) which is good value.

However if we bought a combine and then sold it after a year or two then the depreciation would make it an expensive hire. e.g. A lexion 580TT in the UK would sell for about $292,400 after discount. In the first year it would loose 25% of its value taking the value down to $219,300 after I season, which means it cost $73,000 which over 2000 acres is $36.5/acre to keep it for 1 season.

In the UK if farmers buy combines, well machinery in general now, they keep it for 5 years because its to expensive to change early than that.

If I have understood correctly your effectively getting a combine for $24,000 per year?

Or are you paying an extra $24,000 to trade up? e.g. let me use round figures for simplicity: You pay $200,000 for a new combine, run it for 1 season then pay another $24,000 to trade up to a newer machine.

Do you not take the money you have lost on the first combine into account?

Thanks,

Lee



In year 1, I bought the combine at a negotiated price and term. Part way through year 1 or season 1, the same dealer offered to trade me out for a new one because he had a customer wanting a 1-year old machine with similar hours to what I put on a year. Therefore, the dealer guranteed me a trade-in value, adjusted the financing and I had a new combine the next season. After about 3-years of doing this, the intial payment washed out and guaranteed trade-in values have continued each year and I receive a new combine every season. Now, this doesn't happen to every customer (depends on the dealer), the key is that you need to get inital cost to a point where it justifies the annual roll. Otherwise, you basically are doing nothing but paying on interest with the original principle price looming out there somehwere that will eventually need paid. Most of these types of transactions are brought on by the dealers who are strong in remarketing 1-year old equipment.

 

[larry]

Re: Running costs of combines

Quote:Muddy,

I must be stupid because I still dont understand how it works.

You say after 3 years of doing it the initial payment washed out? do you mean you paid the original combine off?

If so and that combine cost $200,000 dollars that means you've paid $66,666 dollars per year for it.

I would make normal payments over the terms of the purchase agreement and the dealer would come in and offer a good deal, throwing in all trade-in allowances (zero profit) and program money and I continue to make annual payments as I have always, I just get a new combine because the value of my 1-year old one is worth more to the dealer than selling me a new one. You have to have a dealer who is strong in remarketing used products. There is a huge demand for 1-2 year old premium farm machinery (combines and MFWD's) within the mid-west US. second and third owners represent the bulk of farming operations and thus opportunity.