Machinery Costs

[oil barron]

he will never get this ................ lost count of how many times I've explained

Such logic is a tractor sales mans dream ! ....... look sir we can px your Fendt agains this here Massey at such amazing low cost to change, your Fendt has been almost free to own so get out now while the going is good


.........and the spiral of doom decline of an industry as the ££'s get sucked out continues without some even realising it

Of course you are correct in accounting terms. But looking at cost to change helps balance out the timing aspect. Folks trading in tractors in 2022 probably had amazing depreciation values. It might be a bit of a shock when those tractors bought in 2022 come to be traded in though.
It’s also what matters for cash flow forecasting which is the majority of farmers concern over book profit.

 

[oil barron]

Commercial property certainly has, plenty of none ag business look for at least a 20% ROI

Got to look at the depreciation of the building though with commercial. That isn’t a factor with land.

 

[fudge]

Got to look at the depreciation of the building though with commercial. That isn’t a factor with land.

Have to agree. Also commercial property is riskier for me than agricultural land therefore a rational investor would want a higher return. That’s the point it, really comes down to perception of risk, if farming goes tits up, as it has done before, all this metal will be worth a whole lot less.

 

[warksfarmer]

Of course you are correct in accounting terms. But looking at cost to change helps balance out the timing aspect. Folks trading in tractors in 2022 probably had amazing depreciation values. It might be a bit of a shock when those tractors bought in 2022 come to be traded in though.
It’s also what matters for cash flow forecasting which is the majority of farmers concern over book profit.

Cost to change should never of been ‘invented’. It muddys clear waters and has been used to oversell machines for years. By all means trade something in but be clear in your mind of the actual selling price of the trade so you know what that’s cost to run and then be clear what the replacements full purchase is. If you start financing the ‘cost to change figure’ then you’ll never get a clear picture of costs - ever.

 

[warksfarmer]

all this metal will be worth a whole lot less.

It’s starting to happen I think.

 

[fudge]

It’s starting to happen I think.

You buying or selling?

 

[Clive]

Got to look at the depreciation of the building though with commercial. That isn’t a factor with land.

in reality building don't really depreciate, just on paper / for the tax man

commercial property around here is certainly worth significantly more than it was a decade ago so as well as dive ROI there is also capital appreciation to consider in reality

 

[Clive]

Have to agree. Also commercial property is riskier for me than agricultural land therefore a rational investor would want a higher return. That’s the point it, really comes down to perception of risk, if farming goes tits up, as it has done before, all this metal will be worth a whole lot less.

very few business I can think of ,or have ever been involved in,that are as high risk as farming. !! .......... although landownership isn't farming so I do agree land investment is lower risk that property investment and the ROI is somewhat reflected in that reduced risk

 

[Clive]

Of course you are correct in accounting terms. But looking at cost to change helps balance out the timing aspect. Folks trading in tractors in 2022 probably had amazing depreciation values. It might be a bit of a shock when those tractors bought in 2022 come to be traded in though.
It’s also what matters for cash flow forecasting which is the majority of farmers concern over book profit.

cashflow is important (more important that profit ultimately, but too many farm bossiness are run on cashflow alone ......... you have to be profitable as well to be sustainable or all you are doing is eroding capital, this is whats has been happening to a lot of UK farm bossiness for years IMO. but lucky for most their historic land investment has been keeping up and filling that gap / funding the farming "hobby" and keeping the bank happy

 

[fudge]

Ultimately separating farming from land ownership is a false divide. Of course some farming businesses don’t own land, but many landowners choose to farm their own land. Indeed the biggest farming businesses in our area are owner occupiers and many large landowners are taking rented land back to in hand farming. The two are economically interwoven, rather than land ownership being a business and farming a hobby.

 

[oil barron]

cashflow is important (more important that profit ultimately, but too many farm bossiness are run on cashflow alone ......... you have to be profitable as well to be sustainable or all you are doing is eroding capital, this is whats has been happening to a lot of UK farm bossiness for years IMO. but lucky for most their historic land investment has been keeping up and filling that gap / funding the farming "hobby" and keeping the bank happy

I’m not sure re-mortgaging or increasing your overdraft based on land values is considered cash flow ? If you look after true cash flow the earnings will take care of themselves.

 

[ollie989898]

most tractors have reasonable cost of ownership using your depreciation calculation method i.e allowing machinery inflation to inflate your 2nd hand value but not accounting for it, if you dont want to do the cost to change calculation at the very least you should adjust the prices for inflation in your calculations and see what its really lost, yes fendts are more than other brands you seem to only quote JD which is again a premium price tag, case, nh etc(theres a long list) are significantly cheaper

The value of what a new asset may or may not cost in future when the time for replacement comes is immaterial. Do you value all your fertiliser expenditure at what it cost you to buy or what it would cost to replace it using next year's prices? That is the basic argument you are making.

Each asset is individually accounted for in it's own right: it has a purchase cost and an eventual sale or disposal value. What replaces it or even if it is replaced is immaterial.

 

[ollie989898]

Ultimately separating farming from land ownership is a false divide. Of course some farming businesses don’t own land, but many landowners choose to farm their own land. Indeed the biggest farming businesses in our area are owner occupiers and many large landowners are taking rented land back to in hand farming. The two are economically interwoven, rather than land ownership being a business and farming a hobby.

That isn't true- lots of farmers operate on land that they do not own and do so very successfully. I have no doubt that there are people who own land or who farm and they may consider one or other or even both a hobby but that is their concern.

 

[fudge]

That isn't true- lots of farmers operate on land that they do not own and do so very successfully. I have no doubt that there are people who own land or who farm and they may consider one or other or even both a hobby but that is their concern.

Of course it’s true. The decision making is inter related. Even farmers who are tenants or 100% contractors are influenced by the circumstances shaped by owner occupancy. Don’t believe me? try bidding for land against the “big boys”. Er do you actually do any farming? Or know anyone who does?

 

[Clive]

I’m not sure re-mortgaging or increasing your overdraft based on land values is considered cash flow ? If you look after true cash flow the earnings will take care of themselves.

wasn't suggesting it is, it's the anatomy of a slow death f or at best existence or many bossiness that can mask lack of actual profitability

running a business on cashflow does not always mean profit and can in fact impact profit significantly - for cashflow I would have sold all my what at £160 in 2022 but for profit I would have sold it all for £300 plus ....... for example

 

[Clive]

Ultimately separating farming from land ownership is a false divide. Of course some farming businesses don’t own land, but many landowners choose to farm their own land. Indeed the biggest farming businesses in our area are owner occupiers and many large landowners are taking rented land back to in hand farming. The two are economically interwoven, rather than land ownership being a business and farming a hobby.

I would argue the absolute opposite

Many landowners do not farm (investment)

and many farmers do not own land (traders)


mixing of investment and trading and trading income in the same set of accounts blurs reality or can enable a "head in the sand" outlook

Off course not ALL farming is a hobby - there are plenty who can make good profits farming and certainly have done the last few years, there also plenty that don't

 

[fudge]

A balance sheet and a p and l are two separate bits of paper, I think we can agree on that.

 

[oil barron]

wasn't suggesting it is, it's the anatomy of a slow death f or at best existence or many bossiness that can mask lack of actual profitability

running a business on cashflow does not always mean profit and can in fact impact profit significantly - for cashflow I would have sold all my what at £160 in 2022 but for profit I would have sold it all for £300 plus ....... for example

I’m pretty sure holding on to 2022 wheat rather than selling for cash flow would have made you worse off. Although someone was telling everyone to hold at £300 AYO!!

 

[oil barron]

I’m pretty sure holding on to 2022 wheat rather than selling for cash flow would have made you worse off. Although someone was telling everyone to hold at £300 AYO!!

Only joking Clive. Don’t sell my data to the Russians.

 

[fudge]

I’m pretty sure holding on to 2022 wheat rather than selling for cash flow would have made you worse off. Although someone was telling everyone to hold at £300 AYO!!

The internet is full of shyte!