Depreciation: Hours Matter!
Like 2017, 2018 will present similar profitability challenges. In order to have a profitable year, every seed, gallon of chemical and water, pound of fertilizer, and machine hour will need to be maximized. Profitability will hinge on how each is respectively planted, applied, harvested, and ultimately marketed. Like you will read in this flyer, machine optimization plays a fundamental role in maximizing efficiencies. With increased efficiencies come increased profits. These profits can come in the form of seed savings, not over applying chemical and fertilizer, and regulating water application based on soil type and field conditions. These material reduction play a profound role in On-Farm Income. Like seed, chemical, fertilizer, and water machine hours can be decreased as well. This article will outline a simple way to reduce the hours of non-revenue generating machine hours.
I will use a 8370R with 906 hours as an example. JD link is nothing new and has been a standard option on John Deere Equipment since 2012. Since JD Link is a standard option there is no additional hardware or software need. It is all part of the machine from the factory. Along with machine performance, JD Link tracks machine hours and how they are used. This illustration is the lifetime JD Link Data for hours of use. The statistics I want to draw attention to is the number of idle hours. This tractor has 906.7 total hours of use. It has set at idle for 227.6 hours. If you do the math this tractor has idled for 25% of its life. This machine will be assed with the number of hours on the meter at the time of trade. The total working hours of the machine will be the same regardless if the machine is at idle or not. The difference in hours could easily equate to $15,000 - $20,000 in total trade difference alone. This 8370R will do the exact same amount of work but, instead would have 679.1 hours. The salability of the machine goes up and so will the trade value. The other cost savings is $772.50 at $2.50 per gallon in fuel savings. I understand there are reasons why the machine will set at idle during the work day. The point I am making is hours matter! What would the impact be if idle hours were cut in half? It would have an effect on resale of the tractor as well as the trade value.
If you would like to hear more conversations like these tune into Moving Iron Podcast which can be found on iTunes, Google Play, Stitcher Radio, TuneIn Radio, and SoundCloud. You can also visit my website, www.MovingIronLLC.com, where you can find recent Blog Post from the Moving Iron Blog, past and current episodes of Moving Iron Podcast, Morning Market Roundup with Chip Nellinger, and the Tax Tip of The Week with Glen Birnbaum. So until next time, let’s go move some iron.