Are tractors and equipment a good investment right now?

[Hay Dude]

Strange times we live in. Collapsing dollar, rampant inflation for 2+ years….
My favorite is the celebration that inflation is only 3%
Sometimes it seems like money-making iron/machinery does seem like a better investment.

 

[sixdogs]

Yes, discretionary income is dropping but so are savings, credit and consumer sentiment. That's three strikes.

Someone who doesn't need the $$ but wants to buy something frivolous can easily set that money aside and have 5.5% more next year same time. Since they could afford to pay that much more next year, their willingness to buy today needs to be marked down 5% in price to make sense. And more $$ next year.

Considering the vast amount of toys on credit, a softening economy, tight loan standards and deteriorating consumer and investor confidence, things are likely still going south.


The thing I see is more people hiring hiring out work to the pros. You could just not buy equipment but instead hire it out, pay someone, probably have money left and be on the lookout for someone else in a credit squeeze with assets for sale cheap. Kind of a teachable moment.

 

[WinterDeere]

Other than two primary home mortgages in my life, each of which was paid off in 11 - 13 years, I don't finance anything. The savings of never carrying interest on anything stacks up appreciably, over the course of your ~50 working years.

On the flip side, in figuring the cost of financing, you can subtract the forecasted inflation that will occur over the financing period, to the interest you're paying on that loan. The dollars you're paying next year are worth less to you than the dollars you would've spent this year, unless you had them otherwise invested in interest-bearing assets.

In addition to the cost of financing, given that tractor prices tend to be relatively static over long periods (a 2015 Deere will cost you roughly the same in 2028 as it did in 2023), again inflation dictates you wait until you need it to make the purchase. It's been commented multiple times in this forum that, after the first few years, average inflation almost perfectly offsets tractor depreciation, keeping pricing relatively flat on a used machine of a given year.

 

[sixdogs]

Strange times we live in. Collapsing dollar, rampant inflation for 2+ years….
My favorite is the celebration that inflation is only 3%
Sometimes it seems like money-making iron/machinery does seem like a better investment.

Yeah, 3% inflation in the joke of the day. Or rather the joke's on us.

It seems the people adding up the inflation stats are the same ones doing the math on COLA increases for non-discretionary federal spending. The lower the inflation rate the less money you have to pay to retirees and medical plans and on and on and on. Follow the money.

 

[5030]

Typically, you depreciate a piece of farm equipment over a designated period of time so that once it is completely depreciated you can replace it with new. I depreciate everything over 5 years, buildings, tractors, trucks and equipment. Once it is depreciated, it is a dead expense.

So do I actually but... I'm not to purchase a new T4 tractor. Besides everything I put into them is still a taxable deduction. Implements, certainly, prime movers, no. Some things are worth keeping, some things not.

 

[2manyrocks]

The Conference Board revised their US economic outlook downward recently saying, "growth seen in many parts of the economy will gradually buckle under mounting headwinds later this year, leading to a very short and shallow recession." Economic Forecast for the US Economy

But we're sitting on the largest bubble yet so I wouldn't count on it.

 

[5030]

When it comes to 'experts' and talking heads, I count on nothing but what I actually see and encounter and lately it appears to be all downhill and picking up speed.

Go to the grocery store or feed store or for that matter, any retail outlet to see first hand.

The words inexpensive and low priced have become non existent today.

 

[WinterDeere]

The words inexpensive and low priced have become non existent today.

I think it depends on the time scale you're considering. In my view, things have become so inexpensive over most of the last 30 years, that this recent rise in consumer prices looks more like a correction, than anything else. Think about what your parents paid for appliances and televisions, in terms of hours or weeks of their salary, compared to how cheap they have been over most of the last ten years.

My FIL used to say "a television has always cost $700, but the value of $700 is a lot less today than it was in 1956."

So, yes... prices on food and feed have gone up a lot in the last few years, but overall our standard of living is way up on the decades-long scale, thanks to cheap offshore manufacturing of consumer goods.

 

[5030]

That 'siren song' of cheap offshore goods and Americans penchant for buying them will be the ultimate downfall of this economy.

I always say that 'the only thing made here today is babies and those are delivered with Chinese made surgical tools'

 

[WinterDeere]

That 'siren song' of cheap offshore goods and Americans penchant for buying them will be the ultimate downfall of this economy.

I always say that 'the only thing made here today is babies and those are delivered with Chinese made surgical tools'

I used to think the same, and my gut still pulls me this way. But I'm realizing also that it's not as simple as we'd like to believe, either. Manufacturing is where I've spent my career, but it's only one component of many in our GDP, which also includes natural resources, knowledge, services, etc. Finding the right balance between buying comfort and convenience on the backs of others, and a closed economy in which the affordability of goods and services would be much more exclusive to the wealthy, is a complex problem.

Even the morality of "on the backs of others" has room for debate, as it sometimes translates to delivering jobs and opportunities to others who may otherwise have less or none. Things are rarely black and white, and I'm not convinced our economy is going down the tubes. I do foresee an end to cheap Chinese labor in our future, whether ushered in by the free market or policy. I think it would be a good thing to get more of our manufacturing back within the USA, for reasons associated more stability and security of our economy and military supply chain, than any other factor.