Why has the cost of farm equipment skyrocketed? Blame Uncle Sam.

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Inflation and global supply chain challenges are driving up the price of just about everything.

For farmers, the situation is even more complicated. The cost of equipment has jumped, but demand remains very high.

So why are farmers paying so much for equipment?

The reason can be traced back to the US tax code, which allows farmers to deduct a portion of their income when they incur expenses for the purchase of equipment.

This is not good news for Brock Keesler this year.

“At first I don’t have the capital that the big boys have,” he said. “I don’t have access to banks. Banks won’t lend me much money for used equipment, ”Keesler said.

Today he’s participating in an auction in Monrovia looking for a new combine and head unit for next year’s harvest. There are about half a dozen machines he has an eye on.

For new farmers, he said, “it’s pretty much a cash and carry base. It limits your growth a lot.

Even if he could access credit, Keesler would likely have a hard time finding anything new until next spring.

Dylan McClure is the Parts and Sales Representative for Stone’s Farm Service in Greensburg. Many of the tractors on his lot are already sold pending final parts that have yet to be shipped.

That includes the biggest here and one of the biggest in Kubota’s fleet, a 150-horsepower model that’s been waiting here for weeks for a set of twin tires.

“It’s not Kubota’s fault, but you know you get to choose when you want it to ship and a lot of these models are coming out in June 2023, February 2023,” McClure said.

Short-term gain pushing some farmers to roll the dice in 2022

He and other dealers say the issues of acquiring steel and computer chips for the larger models make it even more difficult to provide the kind of service they’re used to.

While these types of supply chain challenges affect everything from your morning cup of coffee to your car, the situation is unique for farmers.

Many bought this year’s seeds, fertilizers and other inputs long before inflation affected prices. That, coupled with a strong harvest this fall, means many farmers are sitting on above-normal profits.

Buyers and experts alike claim that the price of used equipment at auction is up to 30% higher.

“Farmers have disposable income, so they have money to spend it and the tax laws really, really encourage the purchase of equipment,” said Gary Schnitkey, professor of farm management at the University of the Illinois. “Manufacturers are struggling to keep up with demand.

Schnitkey says the price of new equipment rarely goes down. An analysis he compiled in October found that planters’ costs had increased by almost 17%. The price of tractors, combines and plows had also increased.

“Part of this is due to the supply issues associated with the manufacturing of the chips. [and] chip shortages we’ve seen, ”Schnitkey said. “There are these issues and then there are just the workforce issues, which impact everyone.

Keesler bid on several pieces of equipment, but ultimately the prices were beyond his budget.

“A year ago it was probably 30% less than today,” he said. “But just because of the current farm economy, and it seems like everyone has a lot of money if you find some really used equipment that pays the best price.”

Keesler and others claim that some low-hour equipment pays as much, or in some cases more, than when it cost to buy new just a few years ago.

As prices skyrocket, experts know prices are ‘out of touch’

While almost everyone agrees that this situation is unlikely to continue beyond 2023, the market is currently showing little sign of cooling.

“At the moment, we have nothing. We’re out, ”said Kurt Everett, buyer at Ted Everett Farm Equipment. It’s one of the biggest farm auctions in Indiana and it’s where Keesler picked up his combine. “In another 60 days, we have to fill this batch again,” he said, pointing to a largely empty batch that was filled with hundreds of pieces of equipment a few days earlier.

“Is it possible? I don’t know, I hope so. We always say it won’t, and we always managed to do it, but it’s getting more and more difficult.”

Many farmers are already seeing the end of this profit boom. Inputs such as seeds and fertilizers cost two or three times more than last year.

But right now, in the short term, many are seeing dollar signs. The price of corn has increased 75 percent since March.

“When guys start to see that ROI for corn, even in the second-hand market now everyone thinks they want to be a big farmer and make some money,” Keesler said. ‘he had diversified his operations in anticipation of a downturn.

Everett is also worried about what might happen when the market slows down.

“It’s wild. It’s crazy, “he said.” We’re way out of here on limbo, just waiting for this thing to break, and I just hope I don’t have a bunch of inventory when that is breaking.”

Everett knows that he and the farmers attending his auctions are paying too much for the equipment, but he’s not planning on stopping.

“Absolutely, yeah, and I’m paying too much for stuff,” he admitted. “Everything is irrelevant. Will he come back? I do not know? I wish it would go back to how it was before, but who knows?

In the meantime, Everett says he will continue to scour dealerships in Indiana and neighboring states to hold auctions, a task that is becoming increasingly difficult.

Keesler is not giving up hope either. He will resist paying too much, but insists he will keep looking. Otherwise, he’ll have to tinker with his current combine to make sure it’s ready for harvest next year.

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