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An Examination of Farmer Equipment Purchase Strategies

Gregory Ibendahl

Summary

There are several purchasing strategies farmers can use for their owned equipment. Farmers who practice a cost minimization strategy will tend to purchase equipment on a regular basis. This strategy will result in a more consistent yearly purchase amount. Farmers who practice a cashflow strategy will base their purchases on their level of net farm income. In those years with above average net farm income, farmers will purchase more equipment than in years where net farm income is below average. This strategy helps with cashflow and can also help farmers reduce taxes in high income years. Anecdotal evidence suggests farmers practice a cashflow strategy.

This poster uses Kansas Farm Management Association (KFMA) data to examine farmers' equipment purchase strategies to determine if farmers buy more equipment in years where net farm income is above average. The analysis will use a subset of grain farms that have 20 or more years of data. The analysis will be based on correlating net farm income to equipment purchases and also correlating equipment purchases to the relative net farm income from the most recent three years of net farm income.

Results should show if farmers do practice equipment purchases based on a cashflow strategy and if this strategy leads to an increase in overall levels of farm equipment.

Details

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