8 farm equipment management strategies for the future

Narrator: We are grateful that you are joining us for another episode of the Ag View Pitch, as we know that your time is very valuable. Our team at Ag View Solutions is always here for you for any questions or comments that you may have. Please feel free to reach out to us at cbarron@agviewsolutions.com. And now here is your host, Shay Foulk.

Shay

Foulk: Welcome back everyone to another episode of the Ag View Pitch. Today you have Shay Foulk with Chris Barron. And Chris, today we wanted to have a conversation around equipment fleet management and long-term strategies. And, you know, I don't think I'm alone when I say that this is becoming more and more important every single year as we work with farm operations, and especially as these dollars get bigger. Is that right?

Chris

Barron: Yeah, I would echo that for sure. I mean, well, there's a lot of dollars relative to any operation, just the capital requirement that it takes for the machinery. It's easy to have millions and millions of dollars tied up. And if you had those dollars in the stock market, you'd want to know exactly what the rate of return is, and you'd want that information. And with machinery and equipment, that can be a confusing area for sure.

Shay

Foulk: As we move forward into the next, you know, 3 to 5 years, I think farm operations are really going to need to focus on this. And you've heard me say this quite a few times, but I think this audience listening needs to understand that From my perspective, at least, the farm operations that understand equipment fleet management in the next 10 years are going to be the same farm operations that are still farming in 30 years. Or another way to say that is, if you get this figured out by 2030, you're probably still going to be farming in 2050. And that's not a— it's not a doomsday scenario. But we see so many farm operations, particularly when we have economic downswings, that really kind of get strangled a little bit by the working capital and the amount of dollars and the decisions that go along with the equipment fleet management.

And so what we're going to evaluate here today is just kind of 8 key areas that farm operations are going to focus on more. And this is a two-way street for, you know, equipment partners that are out there and people that are dealing in the service industry to understand what the farm operation needs are. You know, how does this change in the next few years?? And what can they be doing to be more proactive and to get ahead of the curve to help farm operations out? And I'm curious on your perspective, Chris, you know, I was careful there to say equipment partners instead of equipment dealers. And I think there's a little bit of a mindset that needs to change on that. So talk to me a little bit.

When you think about the relationship with equipment company that's, that's buying and selling equipment to farm operations, How does that look in the future and why is it so important to continue to develop these relationships?

Chris

Barron: Well, what I would say to start with is, you know, for perspective, the machinery and equipment is either the second or first most largest line item expense that everybody has. And so whether you're on the, you know, you're selling the machinery or you're buying the machinery, it needs to be a comprehensive plan. And the only way you put together a comprehensive plan is having the dealer and the consumer on the same page with a longer-term plan than just, you know, what they're going to do this year. You know, it's, it's looking at that over a long period of time and asking, you know, what are your goals? And, and understanding what the goals are for the operation over the next couple of years. All of us are guilty of having bought a piece of equipment, I would imagine, unless there's an exception out there.

But, you know, you buy a piece of equipment and 2 years later you find out, well, that's not what I want. I wanted this other thing instead. And a lot of times those things are, you know, can be avoided if there's just a better plan. You know, if you, if you sit down and say, okay, how does, how does buying this power unit affect the overall plan? Or how does this piece of tillage equipment, or, you know, or a scraper or whatever it is that you're going to buy, how's that affect the rest of the organization and the business? And I don't think we spend enough time doing that, you know. And to your point, making sure that the dealer and the consumer, the farmer, the customer are on the same page, and it's a team, you know, it's a team type thing. They're together. It shouldn't be an adversarial, you know, communication.

In my mind, it should be something that everybody's on the same page with long term.

Shay

Foulk: For sure. And to your point there, the time that we spend on equipment decisions is probably minimal compared to some of the other things that we do in the operation. Think about how much time we spend on chemical plans or fertilizer plans, what our seeding prescriptions are going to be. And those are all important, but the dollars that are at risk, sometimes it's, it's more of a challenge. And like you said, it's the second or first largest line item expense. And often the most misunderstood. And as a result of that, a lot of farm operations just choose to not manage it maybe as intensely as they could be. So what we're hoping to do is provide a little bit of strategy, a little bit of outlook, uh, not only in this podcast. We have a series of articles that are going to be coming out here addressing some of these issues.

And then we'll mention it again at the end here, but we have developed what we call just a machinery management, uh, handout or machinery management program that will help farm operations kind of kickstart and think about what they need to be doing for better equipment management as we move forward. So the first area that we want to look at out of these 8 is more and better service that is going to be required from equipment dealers. And this is not just specific to the equipment industry. Chris, you and I are seeing this everywhere from seed companies to ag retail locations, even to lenders and those who are dealing in the finance industry. So when you think about that better service, what does better mean, first of all? And when an equipment dealer hears those words, you know, what should their initial reaction be when they think they need to be providing better service?

Chris

Barron: Well, to me, that's code for understanding, you know. So if you don't— back to what I was just saying, if you don't understand what the customer wants in 3 years, it doesn't matter what you get them in this year because things are going to change. You know, if you're, if you're a hunter and you're out, you know, hunting some sort of, you know, pheasants or whatever it is, you don't shoot where the bird's at, you shoot out in front of it a ways. And it's the— that's the analogy I would use is, you know, you better understand where the operation's going. And the only way you do that is understanding their, their business, understanding their system. And I think that's really— that's, that's what better is. And then You know, the service is, is just an absolute.

You know, you— it's, it's being there, it's having the service when there's breakdowns, and being available and having good techs and all that kind of stuff is, is critical because your, your sales team is only as good as the service behind it.

Shay

Foulk: So absolutely. And we see that more and more often that a lot of farm operations might not necessarily work with Juice who is closest geographically to them anymore. You know, they're going to find whoever it is that's providing the best service, right? That's going to be there to answer, uh, service calls. And more importantly, you know, I just had this conversation with a neighbor down the road here the other day. He goes, I just need someone to pick up the phone.

He goes, you know, that's 60% of the battle, that if I can get someone on the other line to just help me troubleshoot, regardless of, you know, how much business we do with them right now, He goes, I've made a transition to a completely different equipment dealer simply because they picked up the phone, they provided the online or virtual service that I needed, and I realized that I could work with them even though they're 25 miles farther than the closest dealership. And it was just a better fit for their operation. So again, it's, you know, the equipment dealers are just as susceptible to everybody else in the industry of providing more service.

Chris

Barron: I think we're in an environment too where there's less loyalty to a certain brand of equipment too, you know, which ties into that service thing. The service drives the sale more than the, than the, um, you know, the brand of the, of the equipment. Because we see that, you know, traveling all over the US working with producers. I mean, they're, they're loyal to who's going to give them the best service for sure.

Shay

Foulk: Let's move into the second one here, and, uh, market value equipment appraisals. Now that's a lot of words at once. So what does that mean? That just means an annual equipment appraisal of what the machinery fleet is actually worth. Now, Chris, I was giving a presentation here the other day and someone kind of looked at me funny when I said that. And I, I took a step back and I said, okay, just so you understand, we're not looking at every single asset item that you have listed on your balance sheet. You know, a lot of people have 200, 300 pieces of equipment if you're counting everything from the heater that you have in your shop to the augers to the forklifts to whatever else. What we're talking about here is the primary pieces of equipment that are used to put the crop in and take the crop out.

So talk to me a little bit about why you think this annual equipment appraisal is so important from the farm operations perspective and why equipment dealers or equipment partners out there want to get on board with this process.

Chris

Barron: Yeah, so again, just like you said, you know, that annual appraisal is really critical for a bunch of reasons. Number one is So that you as the owner of said equipment, let's say there's a $5 million or $1 million, whatever it is, in almost every operation there's a lot of dollars there. And if you don't do an annual appraisal, you don't know what your depreciation truly is. Or like in this last year from, from where we're recording right now, we're in the midst of some pretty intense inflation. And so it allows us to see what the value of that equipment is So that becomes part of the equation and whether or not you're going to trade something or, you know, you might have something that, you know, a power unit that's 5 years old that just went up in value by 20%.

Maybe that's, that's a sign that, you know, maybe that machine could be traded if the new stuff's only gone up 14% and there's a better trade deal. And so you don't know any of that stuff until you do the appraisal. And then like you said, you know, it's, it's really about putting those big ticket items on there. Because then that leads just to better planning down the road as you decide, you know, what things, you know, it's that fleet replacement that is driven from that appraisal. You know, it allows you to know where you're at. And then one last thing I would say too is a lot of times banks don't really look at an appraisal from a business that has a lot of machinery and equipment on it.

As much as they'll just take and depreciate it 10% on, on their balance sheet every single year to a point where eventually either have a zero value on something that's actually worth a couple hundred thousand dollars a lot of times, or they have to reconcile that about every 5 years. Well, rather than reconciling that every certain time frame or ending up with a zero value, that appraisal tells you what the value of that equipment fleet is on an annual basis, and it just gives you 10 times better information.

Shay

Foulk: One other thing that I want to maybe describe to a lot of the equipment partners, equipment dealers that are listening to this podcast here, is a very practical example. So Chris, when you and I work with farm operations, we like to dial everything back to a cost per bushel, okay? And on this cost per bushel, if we use a farm operation, uh, that has an equipment lineup and they think that equipment's worth, you, you know, $2 million market value, or excuse me, $2 million, but the market value of that equipment is actually $1.6 million, just as an example, if they have it overstated on the balance sheet. When you carry that through to an operation, that 40% difference could be anywhere from 20 to 30 cents per bushel when you dial it back to a cost of production.

A lot of times we see that equipment being in the range of, you know, 60 to 85 cents per bushel on the cost of production. So what does that mean for the farm operation? You know, if they're over-inflating their cost or over-inflating the value of their equipment and they're, they're building that into their equipment rates, they could have a cost per bushel that's anywhere 20 to 30 cents difference. And in today's volatile markets, for one, and two, in a year in 2022, and we're probably going to see it a lot more moving forward of higher input cost, we really don't have that room for error when it comes to our marketing decisions. And so I just kind of wanted to relay that practical example of having the equipment stated. And, and it seems like a pretty big difference, that $400,000, you know, from $1.6 million to $2 million.

But that's not uncommon for us to see that, that people tend to overvalue their equipment and they don't have a true market valuation on it. And it can make a huge difference as a line item expense and ultimately as the marketing expense when it comes to the farmer having to make key decisions. Any other thoughts on that?

Chris

Barron: No, I just echo what you just said. I mean, it's, it's, it's 100% right. I mean, people either have their equipment valued way too high or way too low, and somewhere in the middle are the facts. And then if you don't, if you don't, if you aren't disciplined to do an appraisal every year, and you don't have to hire, you know, some big appraisal firm to come in and pay big bucks for it, it's, it's, you know, get a hold of that equipment, dealer that you work with and just have them stay current and then share that information back with them. You know, it's good to get a couple of them, get, you know, two different equipment dealers to come in and take the average value, but then share that back with them so they have the incentive to do the appraisal in the first place.

And it doesn't have to be perfect, it just needs to be consistent, because if it's consistent, you do it the same way, same time every year, then it starts to tell you what the value of your machines are actually doing over time based on the utilization. So it's, it's just, it's a really good practice to get into, and it's just amazing to me how most people don't know that. But I can also tell you, the clients we work at— work with that do that would never go away from doing it. Once you start doing it and you get a couple years into having an annual value of what that stuff really is from a market value perspective, it's like this is pretty awesome information to have, and it's two-way street for the dealer and for the farmer.

Shay

Foulk: Yeah, and just for the dealers out there, this is, this is going to be expected. You know, we've seen more clients demand this, more clients need to understand it. On a 2,000-acre corn crop operation that's pulling in 400,000 or more bushels, a 30-cent difference can be the difference in $100,000 to $120,000 in marketing. So you can be the person, you can be the successful tool that helps the farm operations make these key decisions and then becomes that trusted equipment partner. Mm-hmm. All right, let's move on to the third one here. So 3 to 5 year equipment outlook. Chris, this is actually the first article in the series that we're referencing here. We'll be sure to post those links in the podcast description here as well. But this 3 to 5 year equipment outlook is actually a really powerful tool when it comes to capital replacement and equipment management.

Can you just give a high-level overview on, you know, how you work to develop this and how it's been implemented, not only in your farm operation but also with other farmers that we work with across the country?

Chris

Barron: Yeah, I'll just speak as a farmer first. I mean, it settles a lot of debates and arguments within our family operation where, you know, one person wants to buy a planter, one wants to buy a tractor, one wants to buy a combine. You know, how do you prioritize stuff? And until you map out a plan that's more than just the here and now, all of a sudden you can look at it and say, okay, here's how many dollars we got to spend each year. And then you can, you can, you know, connect that to, you know, how many— how much capital can we afford to spend each year? Some years it's, it's less than others, but, you know, if you can budget X amount of capital that you can spend every year— so let's say, for example, you say, well, we can spend $200,000 per year over the next 5 years.

Well, you just taken on that tool, you just go in, you punch in the years, you, you put your primary machinery and equipment on that list, and you just start, uh, initially just adjusting when you want to think you want to trade certain things. You start plugging things in, and, and it's a little bit scary at first because it's like, well man, that's going to cost a lot to trade this stuff. Well, you're going to have to trade it at some point, so you can either be you know, oblivious or happy, I guess, or informed. And it causes you to be informed on what you're going to need to do, and it helps you prioritize things.

And then too, you know, a lot of times we have, you know, husband and wives or, you know, family members that are doing the bookkeeping and somebody else that wants or has a need or a want on the operational side, and there's a little dysfunction sometimes back and forth, like, why are we buying this? Why do we need this? You know, and those conversations need to be had a year in advance, not when all of a sudden something's broken, we need to trade something. Let's, let's have— let's plan, you know, let's put that, that plan out there. And it just, it makes it—

Shay

Foulk: not just for tax planning purposes either, right? Because that's what we see at the end of the year. People have those equipment purchases and they say, well, we need to spend some money to avoid tax repercussions. And while that's probably okay from a tax purpose, in some cases it's not necessarily the best decision-making process that goes into your equipment fleet management.

Chris

Barron: Yeah, exactly. Yeah, because a 1-year, a 1-year plan is only good for 1 year, you know. So you gotta, you gotta, you gotta think ahead. If you're planning on being in business in 5 years, you better, better figure out what the plan is to get there.

Shay

Foulk: Yeah. Uh, the other thing that I would mention on this tool, so basically what it is as an overview, uh, you can email us and we'll, we'll send it out to you. It'll also be part of that machinery management handout. It takes each of your primary pieces of equipment, so your planter, tractors, uh, drills, combines, grain carts, whatever it is, and it forces you to take a look at the 5 years ahead. Okay, 2022, '23, '24, '25, '26 for this scenario. And it says, okay, well, when are we gonna make a change on that corn head, for example? Well, we're gonna use it for the next 3 years and then we need to trade it in 2025. Or on that combine, you know, we're leasing it right now, are we going to buy it out at the end of that period?

And so then it It's really simple, but then it just calculates all those dollars and it says, hey, this is what our planned capital expenditure is for the next 3 years or the next 5 years. And you start looking at those numbers and we're all guilty of this a little bit. We're like, well, we're going to, you know, probably need to upgrade that planter in 3 years. And yeah, we got it. We got that lease buyout on the combine in 2025 and we got to trade that corn head. And then all of a sudden it's 2025 and you got $750,000 sitting there. And so it can also help from planning purposes, you know, to either move some of that capital expenditures ahead or closer to us, you know, maybe you need to make that change in 2024, or push it a little farther behind. But you want to be careful that you're not just bulldozing all those expenses forward.

But it pretty quickly gives you a clear picture of what the future looks like. And it also maps out a good discussion and dialogue with the equipment partners, the equipment dealers, or just within your own farm operation of here's the changes that we're going to make. What's the input? What's the feedback? How do I need to be thinking about this differently? It's, it's really very powerful.

Chris

Barron: And what you're planning on doing the next 3 to 5 years shouldn't be a secret for the re— for the, the equipment dealership. If they know what's going on and they're watching for that year-old power unit you want, or that, you know, figuring out when that next price increase is going to come in and get you, get in front of that or whatever, you know, it shouldn't be a secret. It's, you know, it's a collaboration like we talked about in the beginning. I mean, between the farmer the, the customer, the equipment dealer, and then it's just, it becomes a win-win for everybody.

Shay

Foulk: Yep. So the fourth point here, proactive equipment management and suggestions, this ties into that piece that you just said. But we've seen a lot of times where if a, you know, equipment company knows what the farmer is planning on doing, they could even have their, that power unit already sold, you know, with communication of course, but they could have your power unit as a farmer already sold have the new one ready to go for you and create opportunities not only for cost savings and effective management, but maybe you're able to run it for the rest of the season or maybe someone else is able to get that unit a little bit quicker when you're done using it and they can coordinate freight. There's just a lot of really beneficial forward-thinking strategy with the communication in that process.

Chris

Barron: For sure. Yeah, that just goes on to say that collaboration and the communication part of it's key.

Shay

Foulk: So the fifth thing here, rate management and cost per acre. Chris, you and I spend a lot of time working with farm operations on getting their rates dialed in on a cost per acre or a per pass basis. And this is crucial when it comes to understanding how your equipment needs to cash flow as its own entity within a farm operation. And, you know, partners, equipment partners or dealers might look at that and say, well, is that really any of my business? And what I would offer there is that it's a great opportunity to have a discussion when, you know, Chris, you as a farmer come in and say, hey, you know, we're thinking about making a change on this planter, we're not sure if it's the right decision for our long-term strategy.

If you can sit down with them and say, well, here's the alternative, you know, you could keep running this piece of equipment, and then you're going to have a higher cost of opportunity at the end of that period for a new machine. Or you can run it now. Maybe you've had an increase in acres, maybe you gain more efficiency, maybe you decide I'm probably going to pick up a little bit of yield on going to this new machine. So equipment dealers and partners could really get a huge benefit out of running these scenarios and being that resource with farm operations. Chris, what do you think is the most value in understanding your equipment cost on a per acre basis?

Chris

Barron: Well, I guess on, on that, I mean, it's, it's a mindset to start with because I think a lot of times people will go and, and hit the easy button and go to, you know, a university number— with all due respect to university numbers— in terms of costs on a per acre, per hour basis or whatever it is. That's the easy button. The problem is, is your numbers on your individual operation or for your individual customers is going to be their numbers. And so if you don't dial in your own numbers, all you're doing is estimating, and you're probably going to be off to some degree or a big degree. And so that's, that's really, to me, is the threat of, you know, having your second largest line item expense, um, at the mercy of somebody else's numbers.

And so I think the biggest benefit to it is knowing your numbers and knowing exactly what is either your largest or second largest line item expense really dialed in. And I, I've always enjoyed when we've sat down with clients and first put their first couple of passes in there, and then they start to see the— how they can manipulate scenario planning with, you know, if I traded, or if I picked up more acres, or if I ran, ran this machine more hours, or whatever it is. Um, that's the key, you know, that's the key to good decisions, because you cannot improve something that you cannot measure. And So often machinery being the second largest or largest line item expense doesn't get measured like it should, and therefore it's hard to improve. And so that's to me the benefit.

Shay

Foulk: You know, an example of this too, for the equipment partners and dealers that are listening to this, I want you to think about operations that you work with, and there's both ends of the spectrum. And you might have a farm operation that's farming a few hundred acres, it's running older equipment they're efficient with what they do, they take good care of their equipment, you know, their cost per acre could very easily be the exact same as someone that is operating, you know, one large piece of equipment on their lineup, you know, for a harvest pass, whatever it is. You know, there's a farm operation out there, maybe they're running 5,000 acres with one John Deere X9 or whatever it is as an example. They could actually have the exact same cost per acre, but neither one of them probably understand what that looks like.

And you can be the intermediary to service all of your clients and service all the farm operations, provide them this value and perspective, and be part of the solution. Now, Chris, there's some equipment that doesn't necessarily fall into that rate management and a cost per acre basis. You know, there's stuff for, for tiling and land clearing and, uh, you know, snow pushing, waterway, you know. How do you think about some of that stuff maybe on like an hourly basis, or, or how should farm operations and dealers be thinking about that?

Chris

Barron: Yeah, some of that's just experience too. I just use just a specific example of like a backhoe, you know. If you got X amount of capital invested, you just divide that hourly that, you know, how many hours you're putting on per year divided by the cost of operation. And then there's a labor coefficient in there too, though, that, you know, is the, is the labor included? That, and that holds true with the, with the rates that we do too, you know. Are you, are you running 3 smaller machines and, or are you running 1 larger machine like you said? And that's different by area of the country. And from our perspective, from what we see, and you see it too, Shay, I mean, it's You know, some operations can't get labor, and so you just got to go big, big, big.

And, you know, and some of these machines, you know, like back to the backhoe or forklifts or those kind of things, you just got to look at the hours that are being put on it and, and divide that by the cost, and then that gets you to your hour of cost. And then at that point you decide, you know, do we need a, do we need a margin on it? Is that something that, you know, that we expect the machine to, to generate additional revenue, or do we need it to cover cost? But you can't measure unless you measure those things you don't— you can't make that decision because you don't know where you have to start with. So I think the biggest thing, biggest message there, just make sure you're measuring what you're doing so that you can get to a rate, right?

Shay

Foulk: Point 6 of 8 here is better understanding of farm operations. We've talked a little bit about communication and dialogue, but what we see a lot of times, Chris, is when people are unhappy, they tend to not necessarily express it, and then, and then they leave as a result of that. So there might be unmet expectations out out there, or lack of communication that's occurring. And when, when you think about this from a relational standpoint, and it being a two-way street between farm operations and equipment dealers, it is so important to keep that door opening, keep that door open and have a really clear understanding of, you know, who are the decision makers in the operation? How would you prefer to be communicated to? What can I provide for you in a better way for your farm operation.

So Chris, what have you seen be some effective ways of communicating between dealers, and maybe what are some of the watchouts that have not gone as well?

Chris

Barron: Yeah, good point. I mean, I've had a lot of years of working with farmers on machinery and equipment decisions and that kind of thing, and, and I've watched a lot of communication back and and forth between the dealer and the, and the farmer. And I've been involved in a lot of that. And it's interesting because, you know, it comes right back to what we were just talking about a little bit ago. You know, you better understand what the longer range plan is and make sure you're a part of the solution instead of part of the problem. So are you there trying to understand how they're thinking the way they are, or are you there trying to talk them into something that you have on inventory? You know, And just because there's something on inventory doesn't mean that's what you should sell, or also doesn't mean that's what you should buy.

It again comes back because it's a good deal, you know, it may always— you hear that from certain people sometimes, you know, well, it was on sale, so, you know, well, that doesn't mean it was a good buy. And so I think we got to make sure that, that we are cognizant of that. The other thing that I would say too, that's a big one, is You know, and this is for anybody that's selling equipment, and, and if you're buying it, listen to this too because you've probably had this experience. But you know, when you're talking to a couple of decision makers, theoretically, in an operation, one of them is the final decision maker and one of them is the influencer.

And you better be really careful if you're, if you're the one selling stuff that you understand who the influencers in the operation are because just because it's the decision maker and you offend the influencer by not giving them the same amount of eyeball time or making sure that they understand the benefits of what it is you're trying to show, you know, and not just the features, but what are the benefits of, of said opportunity or machine or whatever it is, and communicate that really well with everybody in the operation. Because, um, you know, you might have the person that writes the check, but the person that runs the machine is going to influence the decision and might go a different direction, and and you're caught off guard because you maybe didn't communicate to the right person.

And so I think that's something for all of us to always keep in mind when we're, when we're working with customers.

Shay

Foulk: I think understanding what changes are coming up in an operation too. You have some operations that are looking to just stay where they're at. They want to be more efficient with what they're doing. They want to maintain their acreage. They don't want to add any complexity. They want to have good service and good machines. They don't necessarily need the newest. Then you have operations that are, you know, really have built a launchpad for their rocket ship of growth and they're ready to start taking on more opportunities. They're going to need to intensely manage their equipment. They're going to need a little bit more time and effort than maybe some of the other people. And that's what they expect too. They need someone to grow with them in the operation.

And then the alternative is, you know, maybe you have some people phasing out, looking to transition., you know, looking to downgrade their fleet or, or just maybe better size manage is how I should say that. You know, there's opportunities to work with everybody in those categories, but if you're just treating them, you know, Farmer A is Farmer B is Farmer C, you're probably not going to treat any one of them like they should be treated. So take that time to understand what that picture is and position yourself to be the most help and the most value and, and any of your, your sales and your communication is probably going to come along with that, right?

Chris

Barron: Yep.

Shay

Foulk: Seventh one here, 7 of 8, is margin enhancement. So Chris, you and I look a lot at, uh, you know, things that are set to make operations better, and it can be everything from a chemical product to, uh, fertilizer application, planter equipment, something that you put on the combine, something that you use in the office to make your life easier and life better. Margin enhancement comes in a lot of forms, and we always joke with people that, you know, if you could margin enhance your, your way to everything that the dealers out there or that the salespeople sold you, you'd be raising 1,000 bushel corn and you'd be the richest person alive. There's a lot of different opportunities, but the key here is associating a value or certain dollars with the decisions that you're making instead of having a true emotional decision.

And sometimes that emotional decision can really, uh, cloud, you know, what we need to be evaluating more closely. So talk to me a little bit about, uh, margin enhancement and, and maybe just a couple different scenarios that you've looked at over the years on that.

Chris

Barron: Yeah, to me, it— the margin enhancement thing is, is really a prioritization type tool, you know, it's figuring out if, if you— if, if a decision gets to that tool where you sit down and you say, okay, I'm going to spend X amount and I'm going to get XY benefit out of it, um, it's, it's because it's, it's reached that priority list of something that you're actually willing to spend, you know, X amount of dollars per acre, X amount of dollars, you know, on a, on a per hour basis, whichever it is. But You know, when you look at that and you say, okay, let's use the acre situation, you're going to spend $3 an acre on something over a period of time, you know, what, what's the benefit? Are you getting 2 bushel, 3 bushel, 4 bushel? And, and what we look at is what does it take just to cover the cost?

And if we can, if we can identify that, then we can identify whether or not it's a, it's a good deal. And then if it ends up being something that's generating an extra you know, 5% on those dollars spent, or an extra, you know, $8 or $9 an acre, that becomes the gift that keeps on giving, right? It's something that you've just made a change that's repeatable, and that is a lot of times also scalable. You know, it's something that you can do over more acres or over more volume. And so you got to get to a point though where you can decide what those enhancement potentials are, you know, and, you know, what are those things that we can buy? Because like you said, you can, you can spend, you know, all kinds of money, spend a couple thousand bucks an acre if you wanted to, but it's probably at some point isn't gonna give you the return you need.

And so it's prioritization, but it's an excellent tool. It's a really good way to eliminate some arguments between people too. Let the numbers drive the decision as opposed to, you know, saying, you know, one person, you know, wants this versus that and And a lot of times there are some intangibles too, you know. Timeliness is a hard one to put in there. So you also almost got to be making sure you're thinking through those intangibles— the timeliness, the quality of life, or the, you know, the, the comfort zone or whatever, you know. If it's kind of like back in the day when auto steer came in, you know, a lot of people are, well, I can steer it. Well, you can, but you can run 3 hours longer because you, you're not wore out as fast or whatever.

So A lot of times there's those intangibles that are hard to put a number on, but you have to write them down and they got to go on the, on the pros list because there's cons to everything and there's pros to everything, and it's really got to be documented so you make good decisions.

Shay

Foulk: And we never ever see conflict when it comes to decision making on margin enhancements, do we?

Chris

Barron: Yeah, right. Just, uh, yeah, where do we spend the money? We only got so much, where do we spend it?

Shay

Foulk: Yeah, you know, and, and the other thing that goes along with that too not only from a margin enhancement decision, but in having a professional discussion. And so, you know, removing that emotion not only provides an opportunity for equipment partner relations, but, you know, our motto is, "In God we trust and everybody else bring numbers," right? So it's important to weigh those intangibles, but sometimes those intangibles drive a lot more emotion. You know, this tool provides an opportunity to evaluate those numbers really, really closely. And then, you know, make decisions based off of that. So that's going to be in the second article that we're kicking out. It'll be linked in this podcast again, but be sure to check out that margin enhancement calculator.

The final point here, and I would say these aren't necessarily in order of importance, but just 8 things that we think are crucial to understand as we move forward for equipment partners and farm operations. But this 8th one is lease management. And this has been a really interesting one to watch over the last few years. Chris, you and I have seen a lot of change in this area, a lot of unique deals, unique opportunities, and higher level of management than maybe we've seen in the past. Talk to me a little bit about how at least management may have changed over the last 10 to 15 years and how farm operations need to think about it in the next 5 years.

Chris

Barron: I'll start out with the advantage of, of the, of some of the lease programs before I pick on it. But, you know, the— there's been some advantages to it because if, if an operation picks up another couple thousand acres or another thousand acres or even another 500, needs another machine, and you've got principal and interest payments or you've got other capital commitments, the lease is a good way to add additional equipment in the midst of growth. So there are some, some times and there are some periods of time depending on what the economy is doing where a lease you know, a lease on a power unit or a combine or a backhoe or a dozer or something or whatever might make sense.

Um, the caution I have with lease, you know, with a lease is to make sure that you, you do your, your due diligence and you run the scenario over the length of the operation and ask yourself, am I, am I, um, am I eating up equity or am I gaining equity? And what is you know, what is a likely scenario at the end of the lease? And then again, you know, what's my plan 3, 5 years after that too? You know, am I going to buy it out? Am I going to— and all those factors really, in my mind, before you make the decision, have to be analyzed so that you make the right decision. And then you come— you complicate things with, um, here as of late, based on this recording, where at this time that we're recording this, you know, we're in the midst of some pretty intense inflation.

And so, you know, it's made some of these leases not look quite so good because, especially the leases that are set up that aren't really gaining any equity, you know, it's a, it's a cheaper deal, it didn't cost you as much, but you've either eaten up equity that you had to start with, or, you know, you, you didn't have any and you still don't have any, and the money you're spending is, is just basically getting that machine for that use. And I'm not saying that that's bad. I'm just saying that in this environment with, with inflation the way it's been, we're seeing a lot of used equipment, um, you know, that's increased in value as much as, you know, 17, 18, 19%, and you don't get any of that gain on a lease. You know, it's a, it's a set deal.

And so, and, and, you know, it's not saying that you can predict the future either, but I think it's, it's really critically important that if you're going to either lease or purchase something run a side-by-side on it and think about, you know, what are the implications after the contractual agreement, whether it's the lease or you're going to buy it and decide that you're going to replace it in 3 years down the road. What's the difference between the two? And do the math from the very beginning of the, of, of the ownership to the end of the ownership, and then extend it out to the next thing. What are we going to do after that when that machine is gone? And that helps to make sure that you've done all your due diligence.

Shay

Foulk: Man, that's awesome stuff. Just taking a second there to soak that in because there's a lot of gravity that goes behind what you just said there. To your point on the equity management right now, I was talking with a gentleman yesterday and I guess I termed it as unearned equity loss or equity gain that has been unrealized almost over the last couple years. By these leases being terminated with a period of inflation that we've realized. And just kind of a cautionary tale. I mean, there is some significant risk involved with those leases. And like you said, it just depends on operation by operation what is a good fit. The other area too, Chris, I would mention is we see people that are trying new things.

So, you know, whether it's a strip till or a strip freshener or a new management practice, maybe a liquid application or whatever else, that maybe a lease is a good option if they're not sure if it's a long-term solution, that you don't necessarily want to have equity tied up in a piece of equipment from that standpoint. Um, but yeah, I mean, there's a lot to consider here. One thing that I would, I would ask you, and I'll play the devil's advocate on this a little bit, and You can, you can shoot me down or, you know, defend, defend the equipment partners out there a little bit. But we have so many farm operations that come to us and they're like, I have no idea if this lease is a good deal at all.

So are the equipment partners not doing a good enough job explaining the differences between the leases versus an ownership strategy, or where does the disconnect come in where we're getting so many of these phone calls, in your opinion?

Chris

Barron: I think it still comes down to the very first thing we talked about in the podcast. It's having a comprehensive understanding of the operation and the long-term plan. And if you're doing your due diligence as a service provider, you're the one selling the equipment, you better understand the plan. The problem is, in defense of that though, is sometimes the farmers don't know their plan. And so that's right, you know, and so It comes right back to, you know, we're tying it up with what we started with. You know, it's having a long-term plan and mapping it out. Strategy does not happen on its own. You know, you have to implement it. And so you can think about it in your head, but you know, it's really got to be down on paper and it's got to be multiple people understanding it so you can challenge each other.

And, you know, I think a lot of times as producers, sometimes we're we're guarded with information. We don't want to share too much, but you can only get information back if you have some level of vulnerability of sharing with, you know, what the financial goals are of the operation and what financial commitment you can make over the next couple of years and letting the dealer know that from a farmer's standpoint. So in defense of the dealers a little bit, you know, they can only help you to the degree they understand what's going on. But to the defense of the farmer, the, um, the retailer, the salesperson needs to be asking a lot of questions too though, and not just there to sell stuff but there to understand what the needs are. Do that, do that needs assessment, right?

You know, ask lots and lots of questions because then you can get them the right piece of equipment and they're probably going to buy more stuff from you because, you know, you're, you're asking all the questions and you're there to, to go deep and understand the business as opposed to to just sell stuff.

Shay

Foulk: There's probably an equipment retailer listening to this right now wanting to reach through their phone and strangle me because of what I said there. And I knew you'd defend them, Chris. So I promise I was playing devil's advocate there. I wasn't trying to throw anybody under the bus. So I appreciate that, that perspective. And kind of what I heard you say there is, you know, transparency, having a good plan in place and developing that strategy. And let's, let's have an open conversation behind and between everybody involved there.

Chris

Barron: Yeah, and, and a lot of times I'm not a fan of a lease, but on the same token, I'll tell you, there's a lot of times when a lease makes sense. And so that's why it's, it's, it's, it's not a turnkey answer. It's, it's, uh, it's called due diligence for a reason. You gotta, you gotta work through it.

Shay

Foulk: Absolutely. So, you know, to kind of wrap up here, there's two key points, three key points I wanted to hit on. The first one There's going to be 3 articles that are going to be linked in this podcast. One looking at 3 to 5-year equipment outlook, one looking at margin enhancement strategy, and the other one, the third article, looking at, you know, equipment rate management and how that needs to look moving forward. So if any of these topics kind of pique your interest, I would encourage you to look into those, read them, you know, learn up on it a little bit and see how it could affect either your business or your farm operation. The second thing that I would add is we do have this machinery management program.

It's essentially just a compilation of 15 to 20 pages of material that I've put together based on the discussions, Chris, that you and I have with farm operations all the time. And this is probably the first time we've put it in a comprehensive packet. But there's a lot of complexities that go along with it. There's a lot of strategies that go in here. And, you know, I say at the beginning of this packet, if you're not willing to do more work or spend more time or look at things more closely, this probably isn't for you.

Chris

Barron: You.

Shay

Foulk: But it's worth checking out. And you can, you can reach out to us, you can email us, it's going to live on our website too, that we can go ahead and link in here as well. But definitely check that out if any of these topics hit home on your end. And then finally, the third thing here, Chris, is just, is there any other things that we haven't covered when we talk about the farm, farm relationships, or the dealer or partner relationships that that you think are important when you look at the next 5 years for everybody here to understand?

Chris

Barron: Yeah, the only other thing I can think of that we didn't hit on is just making sure from the dealership side of, you know, and it doesn't matter if it's a short line dealership or it's a big, you know, full-blown power units and harvest equipment and construction stuff, whatever. I think the importance of making sure that the service division is connected to the sales division and there's not a disconnect. Because we see that happen occasionally with— when we see it more so from the farmer side where they get frustrated with a dealership and they quietly leave to the point that you brought up earlier. But that usually happens because there's an internal disconnect where the, the sales— salesman makes the sale, you get the sale done, but then there's, there's not the service.

Or the other way around, the service division is pretty good, but you know, it's, it's time to, to move on and do some things differently. And, and so I think that's just one thing that I don't think we mentioned is the importance of that, because that's, that's the correlation we see and why we don't see loyalty to one particular brand or another in any given region. You can, you can tell who the best dealers are in an area based on, on what, you know, 80% of the people— it's the 80/20 rule— 80% of the people are buying from that really good dealership. And, and, uh, you know, that's that's really relevant, and we see that over and over and over again. So that should be a good message, I think, for people to recognize, whether you're on the consumer side or you're on the sales side of it.

Shay

Foulk: Absolutely. Well, I think it's about time for us to wrap up here. I just, you know, thank you to everyone for taking the time to think through these concepts. It's key. It's so important to business operations. That's why Chris and I wanted to take the time to have this conversation and to maybe bridge the gap and create a little bit more understanding between the equipment partners out there and the farm operations and what we all need to be thinking about as we move into the next 3 to 5 years. Hopefully this information helps drive better business strategy and planning on both ends of the spectrum. Again, check out the articles, they're going to be linked in the podcast here. And we're going to have more topics similar to this coming up on the Ag View Pitch. As always, thank you for listening. And we will catch you next time.