Minding Ag's Business

Farm Income a Downer? Try Machinery Sharing

Corn incomes slid from a high of $72 billion in 2012 to a likely $46.4 billion in 2015, USDA says.

USDA revised projected 2015 farm incomes down from earlier forecasts this week, mostly on worsening prospects for livestock producers, USDA’s Economic Research Service said.

But falling prices in 2015 will affect every major commodity sector, from grains to beef, dairy and hogs. Net farm income could be down about 38% from 2014’s estimate. If it reaches the forecasted $55.9 billion, net farm income would be the lowest since 2002 (in both real and inflation-adjusted terms) and a drop of 55% from its 2013 high.

Revenue for King Corn has tumbled particularly hard since its peak in calendar 2012. Corn revenue had spiked to $72 billion in 2012, then crashed for three consecutive years to an estimated $46.4 billion in 2015, a fall of 36%. Many long-term forecasters expect little chance of recovery until at least 2018, barring a weather disaster someplace in the world.

That's left many growers scrambling to renegotiate cash rents and trim their fertilizer and seed bills. Realigning machinery expenses may be next in line, given the rapid growth in equipment expense this past decade. University of Illinois farm business records show power costs have escalated from an average of $58/acre for central Illinois corn growers in 2006 to about $118/acre today.

"Unfortunately, we're not surprised by the [USDA] numbers, but we believe we're in a transformative time for the ag sector," says Jeff Dema, president of grower services for FarmLink, the parent company of MachineryLink. That company first launched short-term combine rentals 16 years ago. Now Dema believes a new MachineryLink service unveiled this fall could help farmers squeeze more revenue from their machinery fleet and grant under-powered users access to more affordable technology. He calls it part of the sharing economy, something akin to the popular "Airbnb" forhome rentals, but this timefor farm equipment.

U.S. growers hold $244 billion worth of farm equipment but only generate an average asset turnover of about 34 cents on every equipment dollar, Dema says. "We're painting a picture of an asset-heavy, income-light commodity business."

The old model of using a $250,000 combine only 7% of the year "is running out of gas," Dema adds.

MachineryLink's new service (www.machinerylink.com) adds equipment "sharing" to its regular combine lease program. Users can rent anything from sprayers to tractors to drones direct from the equipment owners, including both dealers and farmers.

Owners post specs and rental rates for their surplus machinery online and users book just for the days they need equipment. MachineryLink confirms insurance coverage, including transport, and collects payments up front. It also establishes protocols for who pays for what if something needs repair or replacement.

Owners pay the company a 5% of transaction fee and users 10% (including transport).

Dema claims their online rental prices remain very competitive with what you could pay going direct to your local equipment dealer. In fact, over 50 ag retailers have signed up on the site since last summer, including Deere's largest dealer; individual growers have been able to post since late October. While still in a draft mode, the site has over 300 pieces for rent at the moment.

It's too early to assess if the model works, but farmers are interested. "Machinery expenses are often the second largest line item in farm budgets. And In places like the Dakotas where rents are more reasonable, they're number one," says Chris Barron, a Rowley, financial consultant and farmer. "Models like MachineryLink offer an opportunity for a lot of growers to mitigate their overhead expenses. They need to be looking at anything to enhance revenue opportunities on that investment."

The biggest hurdle to machinery sharing is that farmers are fairly protective of their "stuff,"Barron adds. "They won't want to send something they consider a member of their family off to war, but some growers won't have the option."

NOTE: Chris Barron and other speakers will share more ways to managetight 2016margins at the upcoming DTN-The Progressive Farmer Ag Summit in Chicago Dec. 7-9. For details go to www.dtnagsummit.com.

Follow Marcia Taylor on Twitter@MarciaZTaylor


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