Growers of all types are faced with equipment valuation questions. Questions like lease vs. buy? New vs. used? And when to sell? Are examples of questions that every farmer has asked about their equipment. A factor that can aid decision making for farmers asking these questions is the Total Cost of Ownership.Measuring total cost of ownership can vary depending on many factors that can be considered as costs. For the analysis here we’re looking specifically at price and depreciation based on average engine and separator hours between new and 3 year old combines. Total Cost of Ownership could include fuel, crop type, maintenance, soil type, labor, and many other factors unique to a particular grower’s operation – but to keep this simple we’ll stick to new price and depreciation of 3 year old John Deere S690 Class 9 Combines.
In the graph, the red line shows the average new price* of a John Deere S690 combine in the 2012 through 2015 model years. The green line shows the average used price* of a three year old S690 in 2015 through 2018. The gap between the two lines represents the depreciation after 3 years with average use.
What is interesting here is as the price of the new equipment has increased by an average 2% per year the value of a 3 year old unit has decreased by 2%. The difference between the normal depreciation and the price of the new model shows what would be a $52,000 increase in Total Cost of Ownership when buying new in 2018 – assuming all other factors remain equal for the next 4 years.
But don’t throw out the option of buying new just yet.
Many growers justify purchase of a new unit purchase and the increased Total Cost of Ownership because of factors like the efficiency of new technology on the machine and warranty considerations. A new unit with a warranty serves as insurance that harvest happens on time even if equipment problems occur.
Furthermore, will other factors remain equal? As any farmer or stock broker can tell you, past performance is no guarantee of future results and commodity prices have a large impact on how these trends play out. But considering Total Cost of Ownership can help make good equipment decisions.
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*As reported by equipment dealers across North America and normalized by Iron Solutions.