Todd A. Lone

Document Type

Thesis - Open Access

Award Date

1985

Degree Name

Master of Science (MS)

Department / School

Economics

First Advisor

Larry L. Janssen

Abstract

Changing conditions in the agricultural economy have resulted in increased variability of net farm incomes. In this environment; careful planning of machinery investment decisions can yield major benefits to farmers. Therefore, the overall objective of this study is to develop a machinery selection and financing model to assist farmers in southeastern South Dakota with these types of decisions. The specific objectives of this study are: 1. To determine the optimum machinery complements for farms of different size and crop enterprise combinations in southeastern South Dakota. 2. To examine the impacts of alternative financing, acquisition, and tax strategies on least cost machinery complement decisions. The scope of this study is limited to family farm operations in southeastern South Dakota, more commonly called the cornbelt region. However, not all farms in this region require the same machinery complements to produce a crop most efficiently. Different sized farms have different equipment needs. The same analogy is true of farms producing different crop enterprise combinations. Some· farm equipment can be used. in the production of various crops whereas other crops require special equipment unique to their production. Farm cropping combinations will determine the type of machinery needed and farm size will determine the size of equipment needed. Along with farm size and crop combinations, the wide variety of machinery alternatives and final commodity prices will also influence machinery selection decisions. Due to the constantly changing nature of the credit system, knowing the optimal financing alternative at the farm level can lead to a successful farm operation. The options of machinery purchase and lease can have different net present value (cost) figures when compared to each other. Recent tax credit and depreciation policy changes by the federal government will have differing effects on each financing alternative. The farm operation that only considers the effect of tax changes on the purchase alternative could pay more than if the lease alternative, with a purchase option at the end, were chosen. Short term financial agreements with higher interest rates may be viewed as less attractive when compared to longer agreements with lower interest rates. Some people prefer the longer agreements because annual payments are lower even though they are paying more money overall. These people prefer the lower payment amount because it is less of a burden on cash flows. Other people do not worry about cash flows but prefer to get out of debt as quick as possible. Still, some people purchase equipment without analyzing the situation closely and realize they could lessen cash outflows by leasing. A financing system compatible with cash flow projections of the farm operation will greatly reduce the possibility of an excessive burden on cash flows.

Library of Congress Subject Headings

Agricultural machinery -- Economic aspects -- South Dakota

Format

application/pdf

Number of Pages

117

Publisher

South Dakota State University

Rights

No Copyright - United State
http://rightsstatements.org/vocab/NoC-US/1.0/

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