GRDC Planter workshops (April 2024)
During early April AMPS coordinated 4 GRDC planter workshops (Westmar Gurley, Mullaley & Warren). These workshops were designed to give farmers a practical ‘hands-on’ look at the pros and cons of various planter bar and air cart configurations, as well as information on equipment calibration, crop establishment & financial decisions.
Agripath was pleased to present a segment on the financial considerations for winter crop planters. We prepared a comprehensive booklet for participants but we did also develop several ‘Rule of thumb’ metrics that we have gained from our database of 300 clients.
Rule of thumb 1: Planter value per crop area
Example:
$500,000 (planter) + $500,000 (tractor)
= $1,000,000 / 3,500 ha = $285/ha
Range for this area ~ $150 - $300/ha
Rule of thumb 2: Yield loss for each day past the recommended planting window
Based on research we work on an average yield loss of 50 kg/ha/day (past window) with a range of 20 - 100 kg/ha/day.
What size planter width do you need to meet your sowing window?
This question is based on a number of parameters:
· planting window (days)
· Area to be planted (ha)
· hours worked per day (hrs)
· planting speed (km/hr)
· Paddock efficiency (%)
What is TPML?
At Agripath we have developed a financial metric called TPML -Total Plant, Machinery & Labour costs.
TPML includes:
· Depreciation on machinery
· Wages
· Repairs & maintenance
· Any contracting costs
This metric provides a sound way of analysing the costs associated with operating the business, comparing using all of your own labour and plant, with partial contracting and up to 100% contracting.
Rule of thumb 3: TPML costs as a % & $/ha:
Assuming Crop Costs = $650 - $850/ha
TPML: 30% - 40% of direct crop costs
TPML: $200 - $350/ha
Planting related costs: 30% - 40% of TPML
Planting related costs: $60 - $140/ha
The chart below displays the various cost components to grow a crop of wheat in NW NSW on a year by year basis from 2013-14 to 2022-23 (TPML is the light blue section).
Machinery acquisition considerations
1. Interest rates are a major consideration:
· Dealer arrangements can be cheaper at times in comparison to banks.
· Equipment finance interest rates have risen steeply in the past 18 months (>7%).
· Existing bank loan facilities may be cheaper.
· Check cashflow implications on your budget.
2. Equipment purchased that has been written off under the 100% instant asset write off rule will be deemed taxable income when sold. Please consult your accountant prior to sale.
3. Chattel mortgages are common. The equipment is the security for the loan, however despite this lenders still take chattel mortgages into account when looking at balance sheets for future borrowing.
· Generally the GST component of the purchase is claimable as an input tax credit up front.
· Because you own the equipment it appears on your asset sheet.
· Depreciation and interest are claimable for primary production.
4. What is a balloon/residual payment?
This is a residual amount that is left not paid on the equipment at the end of the loan. Whilst it increases the amount of interest you pay a balloon payment reduces the principal component you have to pay at each installment leading to a lower annual payment.
The balloon % should be conservative to ensure that the sale market value of the tractor covers the balloon.
Example: Equipment finance with & without a balloon
There is an annual cashflow saving in repayments of ~ $42,000/yr or ~ $210,000 over 5 year.
However the balloon payment of $240,000 would be payable at the end of the loan.
If you expect to own and use an item for > 5 years it may be better to pay off the item and own it fully.
For short lifetimes (<5yrs) & high annual hours items such as tractors, it may be appropriate to use a balloon that reflects the change in value from new to used.
The repayments then only reflect the depreciation over the period of the loan. The market value of the tractor at the end of the loan covers this payment. and you upgrade to a new machine.
It is always advisable to discuss this with your accountant before making a purchase.
If you would like any further information, feel free to contact us.