Minding Ag's Business
Marcia Zarley Taylor DTN Executive Editor

Thursday 11/29/12

Last Hoorah for Fast Depreciation

Record prosperity allowed corn and soybean growers to retool their machinery sheds the past five years and harvest tax savings to boot. In the first 9 months of 2012, Grain Belt growers with equipment purchases in the AgriSolutions AgIQ database had already spent an average of $263,000 on tractors, combines and planters--more than 40% above their calendar year record in 2010. (DTN graphic by Nick Scalise)

HADDONFIELD, N.J. (DTN)--America's prosperous corn and soybean farmers are doing their bit to jump start manufacturing. They are recycling the best crop farm incomes in 40 years by spending record amounts on farm equipment, a sample of operations from the AgriSolutions AgIQ database shows.

Records for 2012 aren't yet complete, but during the first nine months of the year, corn and soybean operators with equipment purchases spent an average of $263,000 apiece on planters, tractors and combines, AgriSolutions financial analyst Sam Bachman found. That's up from an average of about $159,000 for all of 2011 and $186,000 in 2010--and may not reflect major combine and tractor purchases typically billed at harvest or just before year-end, he added.

Obviously it's not the uninsured or underinsured farm operators who are on a spending binge this year, given the Grain Belt's most severe drought since the 1950s.

"But overall, crop farms are experiencing record incomes and are definitely shifting more money into iron this year," Bachman said. "They're seeing a real value proposition in new technologies like GPS-precision guidance that reduces overlaps on seed and chemicals." What's more, these figures don't reflect the trend toward more leased equipment, which allows growers to adopt technologies without the full expense of ownership.

Fears that Congress will continue to curb generous tax writeoffs for small businesses may also be motivating some of the equipment bonanza.

"Accelerated depreciation also has been nicely sized for the types of equipment farmers buy the past few years," Bachman added, although that's not necessarily the case starting in 2013.

To jump start the economy, Congress upped the limits on Sec. 179 small business expensing to $500,000 in 2010 and 2011. That has since slipped to $139,000 in 2012. As part of the so-called fiscal and tax cliff, the Sec. 179 limit will revert to an outdated $25,000 per year in 2013, unless Congress acts. The 50% bonus depreciation in effect for 2012 is also set to expire Dec. 31.

But for the most part, it's farmer purchasing power that drives equipment buys, with taxes as a secondary consideration, Bachman said. USDA's latest 2012 farm income forecasts expect row-crop farmers to show highest profits in history, even topping 1974 in inflation-adjusted dollars for the second year in a row.

"Higher spending each year on equipment is a reflection of higher farm profits each year," Bachman said.

To read and comment on all DTN Ag Business Benchmarks, see the Minding Ag's Business blog on the DTN homepage.

Marcia Zarley Taylor can be reached at marcia.taylor@telventdtn.com

Follow her on Twitter@MarciaZTaylor

(ES)

Posted at 5:49PM CST 11/29/12 by Marcia Zarley Taylor
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