Farm Equipment Purchases May Entail Detailed Discussions with Lender

Jim Patrico reported yesterday at DTN that, “If you plan on buying farm equipment soon, also plan on an in-depth discussion with your lender. That’s the gist of what Jerry Lehnertz, senior vice president of AgriBank Farm Credit in St. Paul, Minnesota, told DTN/The Progressive Farmer recently. Sure, loans for farm equipment are available at historically low interest rates, and prices on equipment — especially used machines — are at sharp discounts. But before approving a machinery loan, lenders want to hear more from farmers now than they did a few years ago.

“Reasons are obvious. With lower commodity prices and lower incomes, farmers will have to convince lenders that a new tractor, combine or planter has good potential for return on investment. That contrasts to the recent boom years when some farmers — and maybe some lenders — let exuberance override caution. Lehnertz said: ‘It’s human nature. When times were really good, there was a loss of discipline in putting pencil to paper as to what made sense for return on investment for new equipment.’

“In describing how we got to this point in the farm equipment buying cycle, Lehnertz recalled the recent past. In the mid-2000s when commodity prices spiked, ‘Farmers were aggressive in building their equipment lines, particularly tractors, combines sprayers and planters.’ Investment in machinery ‘per acre or contemplated bushels produced went up pretty dramatically, in some cases 20%-30%.'”

The DTN article pointed out that, “If a farmer financed more equipment during the boom than he now can justify, sizable payments and reduced income could be eating his business alive. ‘We are seeing some operations with pretty large dispersal sales of equipment; some are going out of business,’ Lehnertz told DTN/The Progressive Farmer.

“A more common scenario is that farmers are selling off that ‘extra’ tractor or combine that they bought during the commodity price surge. That will mean some inconvenience and perhaps more time in the field, but many producers can handle that. Of course, the price they get when they sell that extra piece of equipment in a saturated market will be significantly lower than they would like.”

Mr. Patrico added that, “Land values now are holding relatively steady, unlike in the 1980s, Lehnertz said. He expects to see some contraction in land values but not as severe as three decades ago.”

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