Machinery Matters: Trading Tactics and Tech Advances in Agriculture with Matt Ramage

[00:00:08.170] - Chris Griffin
Welcome to Back to Your Roots, a podcast that provides insight into all things farming, financing and farm life guiding you back to your roots.

[00:00:17.590] - Chris Griffin
Thanks for joining us today on Back to Your Roots, I'm your host, Chris Griffin. My counterpart and who you're normally used to hearing is Mr. Jordan Turnage, and he's out today, so I'll be riding solo. And we've got Matt Ramage. He's the Vice President of Sales at Hutson Incorporated. And we'll be discussing a little bit about equipment trading and some other ins and outs of that. So we're glad to have you, Matt, and glad to have you here.

[00:00:40.490] - Matt Ramage
Thanks, Chris. I appreciate it.

[00:00:42.500] - Chris Griffin
Tell us a little bit about yourself and how long you've been at Hutson and a little bit about that.

[00:00:47.440] - Matt Ramage
Sure. So I was born and raised in Paducah, Kentucky, on a farm, and we were a small row crop farm. I had a passion for agriculture, attended Murray State University and went on to work for an ag retailer called Southern States Cooperative. And there's not many southern states cooperatives around anymore. There was a lot more back in the day, but I really got interested in agronomy and ended up getting a job with a seed company, Syngenta seeds. Did hybrid corn research for a while and then they closed our breeding effort in Henderson, Kentucky, actually sold out to Becks hybrids. And I was in the process of looking for place to work and got an opportunity with Pete Clark and Rick Murdoch at ad connections and did software food safety record keeping for a while and then went back to what I loved, which was really agronomy with an agronomy consulting firm that was based out of Canada, and then did some consulting with that firm through Hutson and deployed agronomists with John Deere dealers and then got the opportunity to go to work for Hutson. And that's what I do today, is help with sales.

[00:01:55.410] - Chris Griffin
I always think it's interesting when we get people in here, and I think for our younger viewers, the path is never straight. It's just like how I ended up here. It's like, well, how'd this happen? I'm like, well, let me tell you the full story on how I ended up here. So it's always interesting to hear people and the jobs they're in and kind of what happened and the path that took you on. And it's always an interesting story there.

[00:02:17.240] - Matt Ramage
It's very evolutional. And the other thing that you have to consider is everybody asks like, oh, you really like equipment? No, actually, I hate equipment. I just like equipment sales. I think it's a necessary evil. It's a tool in the toolbox for someone engaged in production, agriculture, and that's really all it is. And it comes back to return on investment, and that's what really matters.

[00:02:39.020] - Chris Griffin
And so how long did you say you've been in Hutson again?

[00:02:41.090] - Matt Ramage
I've been there eight years.

[00:02:42.100] - Chris Griffin
Okay. Do you work here in the Paducah? At the Paducah location?

[00:02:45.350] - Matt Ramage
I work out of the Murray office.

[00:02:46.520] - Chris Griffin
Okay.

[00:02:47.040] - Matt Ramage
My office is in Murray, but I'm basically in every store of the stores in the south. Twelve stores in the south on a daily basis.

[00:02:53.410] - Chris Griffin
Okay, awesome. Well, kind of explain for the listeners, especially when they maybe don't understand equipment sales or maybe don't have an ag background, explain to the listeners kind of what equipment trading is and why someone would want to trade their equipment here and there.

[00:03:07.960] - Matt Ramage
Sure. So, again, appreciate Shea reaching out and the opportunity. And Chris, you hosting, but the first thing I got to say is all of my views are expressly my opinions, and in no way are the opinions of any past, current, or future employers. So, obviously, when it comes to equipment, we are generally talking about a depreciating asset that has tax implications. And you should always consult an accountant and a tax professional before you do anything. But I think the number one thing about equipment trading is risk mitigation. You have to mitigate risk today, the cost of major repairs, transmission failure, for example, is $40,000. An engine, a remanufactured engine today is over $70,000. And we have customers every day at Hutson that have catastrophic failures, and they're like, that costs, what is the cost for the repair? And it could be $90,000 for repair. So you have to consider what's the age and hours on my equipment and what is my risk, and how do I mitigate that risk. And I think by trading into equipment that has the capability of being warrantied certainly provides some risk mitigation. And then the other thing is the efficiency and productivity of equipment.

[00:04:32.860] - Matt Ramage
Today, as technology changes and more technology is available on the equipment, we've got a less stressful life for the producer or the operator that runs that piece of equipment, and then we've got the efficiencies that result in that return on investment where you actually have higher yields because of proper spacing of seed, proper spacing of the rows, more efficiency at the combine level because the technology is there to look for, what is the combine doing wrong, what to miss about the settings of the combine. So there's just so many things that you can gain from efficiencies.

[00:05:11.390] - Chris Griffin
Well, I know we were kind of talking before we came in here, and I'm just talking about myself as a loan officer here. And I've got, maybe my experience in ag isn't as deep and not as tried and true as some of our other ag loan officers. So when you talk about the innovations to somebody who's a novice or knows nothing about ag, explain what some of those innovations have been over the recent years, and maybe some things that are on the horizon that might be coming up that would make, obviously, farming a lot more efficient, cost effective, and time saving.

[00:05:43.660] - Chris Griffin
Yeah. We always consider technology to be an improvement in our lifestyle. No matter if you're going to buy a computer or a phone, you're looking for something that is going to improve your lifestyle. And I think the biggest revolution that has happened to agriculture is auto steer. It's that simple. And the ability to not have to depend on your brain and your muscles to make sure that you are planting tillage appropriately, and it saves on fuel efficiency also. So that was obviously a big advancement. But now the rate that technology is changing is so unbelievable. So when we think about technology adoption today, it's exact emerge planners, which is brush belt delivery of seeds so that the seeds are all spaced equidistantly. And then we have exact apply sprayers that make sure with a nozzle control that beats like at the beat of a hummingbird wing, that you're not over applying some crop protection product. And then with combines, we've got this thing that we call auto maintain or combine advisor that's constantly looking through cameras at the grain that's in the grain system, that's flowing through the grain handling system of the combine, and making adjustments to make sure that you're not getting too much foreign material, that you're not cracking grain, and making those adjustments to improve your return on investment.

[00:07:13.430] - Matt Ramage
But what is coming for the future is really the revolution of all of this together. And we just got through last Thursday meeting with a customer. So Hutson, as a dealer, will be receiving one of two in North America fully autonomous combines for 2024. They are truly model year 2025 combines, but the requirement with the customer is that they operate this combine fully autonomously for at least 50% of the time. Which means that this x nine combine, this monster combine, will be started and operated a minimum of 50% of the time from their phone.

[00:07:54.090] - Chris Griffin
Well, when I hear that, a lot of the things that I hear is overspray. So it's like, even from a cost perspective for the farmer, they're not wasting things, their time on evenly spacing and using the right amount of seed and all those different things. To me, it's not just a matter of, hey, it's a lot less brain work in a lot of ways that can ease the stress off of them, but from a bottom line perspective, it's making their bottom line more efficient and using their inputs more efficiently as well. Absolutely. It is crazy. Like I said, I've been here for, it seems like forever, but only been a year and a half. It seems like a lot longer than that. But the things I've learned since I've been here, just talking to some of my farmers, talking to people in the office, it's unreal and it's been amazing to me. Like you said, where it's going in the future, just like with anything else, I mean, you think, oh, that's not feasible. But then you look ten years ahead, or you look ten years back and you're like, some of the things that we have now, we would have never thought we would have had.

[00:09:02.930] - Matt Ramage
And the other thing is being in the eastern corn belt, we're talking about Illinois, Kentucky and Tennessee producers. The majority of these producers are family farms. They are family operations. When I go and say, hey, I need you to take on the responsibility of running a fully autonomous combine for a year, I am speaking to two brothers and their families are dependent on the income from that farm. So it's very family oriented and there's a lot of technology, and the adoption of that technology is a challenge because family farms, right, you're making family decisions and you're trying to improve your livelihood and your lifestyle and your free time so that you spend time with your family. So it's all really important.

[00:09:48.330] - Chris Griffin
And I have a funny story. So when I first started working, know, obviously didn't know a lot about ag. I grew up in Paducah, and so I remember we were doing a training, and the training was to do a loan for a piece of equipment. Now we were going to do a combine. Well, the number I threw out, I quickly got ridiculed by everybody because as somebody who didn't have as much of an ag back, knew people in ag, but maybe didn't have that ag background. So explain to the viewers, I think, that people who aren't familiar with ag, I don't think they realize from an ag perspective in a farmer operated deal how much it actually costs that farmer or that owner for equipment like a combine or sprayer, just kind of give us some examples. You don't have to go into detail with Hutson, but just kind of a range of what you would expect on certain prices for that.

[00:10:45.870] - Matt Ramage
Right. So I think the biggest thing we have to consider, again, what I said in the beginning, we are talking about a depreciating item. Constantly depreciating. It doesn't matter if you get in the cab and operate the machine or not. It is depreciating every minute of every day, no different than a car or an atv. And so these machines, the new machines greater than $1 million, combine greater than $1 million as an initial investment that truly probably depreciates over a ten year period of time. So when you're thinking about what is my true depreciation cost, my depreciation cost is probably $100,000 a year on a new combat. And it's not just that. Now I've got to go to River Valley AgCredit and finance it, and now I've got to pay the interest on top of that $1 million depreciating item. So, yeah, if the efficiency is not there and the return on investment is not there, there's a lot of things that don't add up financially.

[00:11:45.010] - Chris Griffin
And I know you kind of talked about, and obviously I kind of want to back up. I know, still advise get with the CPA and things like that. But in your personal opinion, I know you kind of mentioned a little bit about equipment trade, but how often do you recommend trading equipment? Is there a certain amount of hours? When is it more beneficial to a farmer compared to another? In different scenarios like that?

[00:12:08.990] - Matt Ramage
And certainly there's no hard and fast and accurate way of creating a trade cycle with equipment. But the one thing that I will say on behalf of any equipment dealer, we have our hands tied when it comes to warranty. So when you want to think about risk mitigation, we generally are not going to get hung out there more than five or six years on a warranty. So if you can stay up to date with technology on a five or six year trade cycle, why not? But the reality is, at the speed that technology is changing, you're really getting left behind if you go more than two or three years with a trade cycle. Now, again, a lot of this comes back to that depreciating component. So you don't want to have negative equity. Okay. A lot of times you can trade up and improve your equity position by making a trade up. Maybe instead of making a payment on an older piece of technology, you could trade up and improve your equity position. So there's a lot of things that have to be taken in consideration. And then obviously there is this thing called life.

[00:13:22.670] - Matt Ramage
And we deal with lots of family farms that are. The wife goes to work full time, she can't run the grain cart anymore. Now all of a sudden something like an autonomous combine that calls the cart seems to make sense.

[00:13:35.990] - Matt Ramage
And we've seen this.

[00:13:36.660] - Chris Griffin
This blows my mind when you say that. It's like I just envision, I don't.

[00:13:40.340] - Matt Ramage
We've seen a lot of family farm operations that embrace technology and larger equipment because of the fact that the kids are gone. The wife has the opportunity to take a nice job in town and she's got that desire and she leaves the farm. And now the technology is the next phase of the farming operation for that same return on investment. So there's a lot of things that come into play with trade cycle.

[00:14:11.400] - Chris Griffin
Well, and I would say too, and I don't know if you have trouble with this, but I know a lot of people really get set in their ways and they're used to certain things. And so I know probably sometimes it's like you probably are having to sell that new equipment to maybe somebody who's used to doing a certain way. And if you can show them the benefit of it, that's right, the long term benefits of it, then a lot of times it's probably a much easier sell and easier to convince them, I would assume it is.

[00:14:37.030] - Matt Ramage
Yeah, we are selling a solution. You're exactly right. We're selling a solution. We're not selling equipment anymore.

[00:14:42.500] - Chris Griffin
Well, that's with a lot of you're helping them solve a problem and not really selling actually a piece of asset or doing a loan or whatever that is, you're helping them hopefully solve a problem. So when you're evaluating a trade, and this is also something that's pretty interesting because I've gone through some valuation training myself and just from a loan officer perspective and learned a lot from that and looked at some used equipment. We use a piece of software that we pay a subscription to that we can look at recent sales and auction sales to try to evaluate some stuff. But when you are particularly looking at stuff and evaluating a trade, what are some key things that you're looking for when that piece of equipment is brought in?

[00:15:19.620] - Matt Ramage
Of course, the primary factor in evaluating the value of a piece of equipment is hours and age. How much has it been used and how old is it? And reconditioning certainly plays a part in that. So I always suggest that 25% of the value of any piece of equipment is based on quality, has it been greased? Has it been taken care of? And quality of a piece of equipment can involve storing inside. That makes a big difference. If something is stored inside, the physical appearance of paint has an impact on value of equipment. People are not looking for faded, rusty equipment. That's just not the desirable thing. So that's definitely a consideration. But then I wanted to talk about, there are lots of means to go out and try to determine values via online portals. Right? You mentioned that you guys might use a particular portal you pay access fee to. But there is a North American Guide that's actually hosted by a company based in Franklin, Tennessee, of all places, really. But they actually obtain somewhere in the neighborhood of 1.4 million data points every year just on sales data. What's something sold for?

[00:16:40.820] - Matt Ramage
Sold at auction, sold through a retailer. All this sales data, and they compile that information, they create a guide that gives you an estimate of what a piece of equipment is worth based on hours and age.

[00:16:54.460] - Chris Griffin
Almost like a Kelly Blue Book.

[00:16:55.740] - Matt Ramage
Absolutely. Iron Guides, a company named Iron Solutions based in Franklin, Tennessee. Iron guides. And that is a north american standard that lots of people consult. So there is that capability to go out and seek and search. And obviously auction values are a good core way attending an auction, especially something that has something in the auction or watching online, that has something similar to what you have a very good way to understanding wholesale values too.

[00:17:27.220] - Chris Griffin
Well, I think like you said, doing your research like that, a lot of times before you get to the dealership, at least you would have a decent idea. But just like anything else, I think that goes without saying. If you maintain something, take care of it just like a vehicle, if you go to trade it in, if it's set outside and you never got the oil change, it's not going to hold its value as well. So it's a good piece of information there. As far as a consumer, and I know you kind of talked about one of them already. Are there any others besides the iron, what did you say? Iron guide. Good resources to utilize to determine kind of a market value and different things like that.

[00:18:05.680] - Matt Ramage
Yeah, there are a number of publications out there and online websites. I think, unfortunately, we have a lot of people that consult the advertised prices, for example, on a Machinery Pete or a Tractor House. Those websites, those are advertised prices. Those are designed to have negotiating room in them. They are not real prices.

[00:18:29.170] - Chris Griffin
They're kind of inflated.

[00:18:30.200] - Matt Ramage
They're inflated. Have some room because you may not like the trade value that you're going to get. So they've got that room built in so that they can negotiate. But the other thing that I think we have to consider also when you start thinking about seeking and searching what other values are looking like in auctions or on a website, is geographical location matters a lot when it comes to a piece of, you know, historically, we in southern Illinois, Kentucky and Tennessee have seen very good values. And the reason is the majority of the operators are owner operators. When you go into Mississippi, Arkansas, and especially California, you have no owner operators or very few owner operators.

[00:19:25.660] - Chris Griffin
So you're saying the person that owns a farm typically isn't operating, operating the equipment. So just like anything else, that person not knocking renters, but it's kind of like if you got a renter in your house, they're not going to take as good a care of it. A lot of times as the actual homeowner.

[00:19:41.530] - Matt Ramage
They may hear a squeak or they may feel a vibration, and they may not even report it because it's 8 hours in a shower. They're worrying about getting 8 hours in a shower. That's right. Service and caretaking in environments that aren't primarily owner operators is a little lax.

[00:20:02.790] - Chris Griffin
Well, and you were talking about different geographic locations. I know. Recently, we just did another training just here recently. And when you looked at places like Iowa and places like that, the same piece of equipment in that area compared to our area was considerably higher.

[00:20:19.580] - Matt Ramage
Absolutely.

[00:20:20.040] - Chris Griffin
And can you kind of explain what would cause those differences to just the average viewer listener that's listening to this?

[00:20:27.870] - Matt Ramage
So, you know, I oftentimes remorse at the fact that my stupid ancestors came through the Cumberland Gap and stopped in Livingston County, Kentucky. Why didn't they keep going to Iowa?

[00:20:40.410] - Chris Griffin
Could just gone just a little bit farther.

[00:20:41.940] - Matt Ramage
They could have went to Galatin County, Illinois.

[00:20:44.130] - Chris Griffin
What are they thinking?

[00:20:44.980] - Matt Ramage
I don't know. I don't know what's wrong with them. But as you move west into that corn belt region, you can generate more revenue on a per acre basis due to yield potential. And so a farming operation can be one fifth the size and generate the same amount of revenue as in Kentucky or Tennessee. So you have more owner operators, smaller acreage, and generally less hours of usage per year, and so more time in between seasons to do proper maintenance. And I think we see more better maintained units come from those smaller farming operations that are owner operator farming operations in the Midwest. It's not to say that there aren't major corporate farming operations in the Midwest, but it all gets kind of mixed in and that general value is higher.

[00:21:46.260] - Chris Griffin
Well, it's funny because like I said, when I started here, I wanted to learn more about ag. So there's a few little snippets on YouTube. You can watch like 30 minutes episodes. And it's like some guy that owns a farm out there and it's kind of just like. It's pretty interesting. But their weather is so much different in the wintertime. They don't have any other option but to keep it inside and basically tinker on stuff. All they're maintaining. That's all they can really do at that point. Exactly. And so I can definitely see what you're saying there because obviously our growing seasons are a little bit different here. Obviously, yield per acre is a big one.

[00:22:18.250] - Matt Ramage
It is.

[00:22:18.570] - Chris Griffin
Which we learned that the other day, or I did not those other ag loan officers, but the new v loan officer did. So clearly that makes sense. And you kind of talked about the hours that's on there. And I know it's not hard and fast, but when you talk about hours, is there a number there? And I know obviously there's paint and there's rust and other things that are involved. But is there typically in your experience, kind of an hour there where when it gets over those hours, it definitely depreciates in value considerably faster?

[00:22:53.410] - Matt Ramage
Yeah, absolutely. When you get a piece of equipment and it doesn't matter if we're talking about 50 hp tractor, 100 hp tractor, a 500 hp tractor, a combine, a sprayer if it has an hour meter and it's propelled. Right. It's a self propelled unit. When you get to 3000 hours, the number of people out there looking for that type of piece of equipment is very small and it becomes challenging once you exceed 3000 hours to find that niche, that person that's looking for that. Now, does that piece continue to depreciate? No, it generally stays stagnant. So we oftentimes kind of laugh about the fact that 3000, 4000, 5000 hours doesn't matter.

[00:23:41.900] - Chris Griffin
Kind of all the same at that point.

[00:23:42.810] - Matt Ramage
It's all depreciated out. Right. Your risk is high if you're the owner of that piece of equipment and it's generally all depreciated out. Your biggest concern, obviously, with owning $,3000 or greater hour pieces of equipment is exactly what we started talking about is that $4,000 transmission, that $90,000 hydraulic system on a combine, a $60 or $70,000 engine. Those are your big concerns.

[00:24:09.110] - Chris Griffin
Well, you say that sometimes when you're actually sitting down and weighing the numbers, at that point it's like, okay, am I going to spend the $90,000 on this hydraulic system or am I just going to trade up and get a new one? It's like at that point it's probably worth it just to do the trade up and move on and let somebody else fix it and trade and sell it and has a used piece of equipment. Another thing that I've learned and I want you to kind of elaborate on is I know that add ons on equipment is very important. So you could take a basic model. I learned this on my channel evaluation training. You can take a basic model. But that basic model could change tenfold based on things that have been added. Modified. Anything like that. So you can kind of explain that and what those add ons would look like.

[00:24:57.140] - Matt Ramage
Yeah. Absolutely. In the business of production agriculture we wish that everything that we needed to do happened between 8:00 a.m. and 5:00 p.m. I don't know why but it doesn't work out that way.

[00:25:12.450] - Chris Griffin
Yeah.

[00:25:12.880] - Matt Ramage
So when people start thinking about production agriculture and you're talking about options. That's what I call them. Options on a piece of equipment. If I'm not going to be able to do all my work between 8:00 a.m. And 5:00 p.m. I may want better lights. I may want those really nice led high definition lights. And so just that option alone from a factory on a piece of equipment can be anywhere between $3,000 $6,000. So when you start thinking about those options that have extremely high value with the hydraulic demand of a lot of the new technology that we have today on planters. High volume hydraulic pumps is one of those options. It's not cheap but it's one of those options. And then you think about comfort. Okay. When we think about tractors and comfort you can get independent suspension. It's hydraulically managed independent suspension. And when you have suspension it's generally $20,000 added to a large tractor. So those options are so critical. One of the latest advances is improved cabs. Less noise and massaging seats. Massaging seats.

[00:26:25.440] - Chris Griffin
Got to have that.

[00:26:26.010] - Matt Ramage
You got to have that.

[00:26:26.730] - Chris Griffin
Got to have it.

[00:26:27.390] - Matt Ramage
Now I have had some people say it's a little rough for me. It's too hard on me. I don't know how to control that. I don't know how to set the settings. It's either massage on or off. If it's being too rough on you just turn it off.

[00:26:44.480] - Chris Griffin
When you're talking about that. I'm sitting here thinking about vehicles. I'm thinking like you go to price out a new vehicle, and it's like, oh, it's only 45.

[00:26:51.400] - Matt Ramage
That's right.

[00:26:51.940] - Chris Griffin
And then by the time you get it the way you want, you're like, oh, well, crap. It's escalated really quickly.

[00:26:57.510] - Matt Ramage
You want air conditioning.

[00:27:03.590] - Chris Griffin
And I'm still a little bit unfamiliar with some of this, but leasing and purchasing. Okay, can you tell us the difference between the two? And then can you also kind of explain when it would be a better option for that owner operator to lease instead of purchase?

[00:27:16.660] - Matt Ramage
Yeah. And again, it comes back to the realization when you are good with it, when you finally get to that point that you know that you're making a purchase that is a depreciating piece of equipment, you have to get to that point first before you can truly evaluate for your operation whether leasing or purchasing is the best. And when we are talking about leasing, we generally are talking about operating leases. And I always say, before you consider operating leases, you need to consult an accountant and a tax professional. But leasing is one of the unique ways that making a payment all of a sudden becomes 100% deductible. That operating lease payment becomes 100% deductible. Now, in no other form or fashion, in production, agriculture, tax basis, can you deduct the interest on your equipment. So if the interest is included in a lease payment, that's really the only way that you can claim a deduction of interest. So if you're owning a piece of equipment, most of the time you are doing it to build equity, to have collateral.

[00:28:35.870] - Chris Griffin
Okay.

[00:28:36.660] - Matt Ramage
And that collateral is something that you can borrow against for an operating line of credit. The alternative of leasing gives you no collateral.

[00:28:47.750] - Chris Griffin
Explain that to the viewer. If I'm putting a balance sheet together for a farmer to figure out their capital position, if they lease a piece of equipment, they don't own that equipment.

[00:28:55.540] - Matt Ramage
That's right.

[00:28:56.060] - Chris Griffin
I can't put it on their asset statement. Now, if they own it, it's great. But obviously then it changes a little bit on the other side and it changes a little bit on the tax perspective side. That's right.

[00:29:05.520] - Matt Ramage
Okay, so we just said pro. Pro, right? We just had two pros. We said the pro of owning equipment is building a collateral base and having something to borrow against. The pro of leasing equipment is being able to take a straight line deduction for a lease payment. So you have to take a lot of things into consideration. A lot of times people think leasing may not have any opportunity for building equity. With the changing of equipment values in the past four or five years, we've actually seen that leasing does have the opportunity to build a little bit of equity, just a little bit, that you may have a piece of equipment at the end of a term on a lease that may be a little bit worth a little bit more than the residual value. It's rare, but it does occasionally happen. But I think the major thing to consider is we aren't done with section 179 yet. Okay. It's a five year plan that eventually section 179 and accelerated appreciation will be over. Okay. Unless somebody comes along with a new plan. And obviously, elections change everything. The reality is, from 2003 to 2017, your bonus or accelerated depreciation was only 50%.

[00:30:23.500] - Matt Ramage
And so since 2017, we've seen that increase to 100% that you could take this accelerator or bonus depreciation at 100% of whatever that cost, whether that purchase price was, you could take 100% of that as depreciation. Now, there are risks with doing that. Obviously, if you want to trade that piece next week, you could deal with short term capital gains. You could. Right. If you want to trade this piece next year or two years down the road, your basis, your tax basis in that piece could be so low that you, again, are having to deal with long term capital gains or income that is taxable. So there's a lot of risks with bonus depreciation. But I think the main thing to consider is we're here at the end of 2023, and for a few more minutes, we're going to have 80% max for bonus depreciation. But in 2024, we're down to 60%, and it keeps depreciating. That amount keeps going down 20% until finally, in 2027, we'll be to zero. So, bonus depreciation, if you need a tax deduction, ownership of equipment is the only way to get there.

[00:31:39.280] - Matt Ramage
Right?

[00:31:39.680] - Matt Ramage
If you need that deduction, that's the only way to get there. Leasing doesn't get you, and I know.

[00:31:43.970] - Chris Griffin
All about this because Shea is going to laugh, but my wife owns a business here in town. Trust me, I hear all about depreciation. I hear all about leasing. I hear way more than I ever want to know. But it's her business. But I totally understand what you're saying there. And really, like you said, I think it's ultimately a conversation with your CPA.

[00:32:00.990] - Matt Ramage
Absolutely.

[00:32:01.340] - Chris Griffin
And looking at your books and what's going to be the best option that fits what you need, I guess. One last question before we kind of wrap up here. Obviously, I should know this because I'm a lender, but I know there is financing options, just like if you go to Toyota and buy a vehicle, there's dealer financing options, in house financing. You want to explain what that financing looks like on equipment and how many years you guys can typically go out?

[00:32:28.500] - Matt Ramage
Sure. So, generally speaking, when we look at manufacturer subsidized financing, the standard rates are no different than what you could get at River Valley AgCredit. The difference is, in order to give us an incentive to use that in house financing, there is what I generally call funny money.

[00:32:54.650] - Chris Griffin
Okay.

[00:32:55.080] - Matt Ramage
So the sale of a piece of new equipment may generate a little bit of funny money that allows you to do rate buy downs with the in house financing. So, with ag equipment today, if we're talking about large ag equipment, most people are very interested in five year terms. They like to see something fully paid for in five years in the event that they want to make a trade in a short period of time. And generally when you talk to your tax prep person or a tax accountant, they're going to say, hey, I want to put this on five year depreciation schedule. It's a safe, it's a conservative way of looking at depreciation of equipment. So five year finance terms and five year depreciation kind of lines up. So that is the most common. But as we are dealing with more and more high tech, high cost equipment, we're seeing more and more six and seven year terms. And those six and seven year terms are a little hard to buy down rate for because there's no good way to predict what the rate will be. And so that buy down cost is generally pretty egregious.

[00:34:07.350] - Matt Ramage
So we try to deter people from going to six and seven year terms, but it's definitely a possibility. Now, when we think about what I would call rural lifestyle or small ag equipment, so that small tractor, somebody with a smaller farm or a hobby farm, they are generally looking for a lower annual payment. It's not their primary business, it's a hobby. So a lower monthly payment, a lower annual payment, a lower quarterly payment. In a lot of ways, that is a big incentive to go to an 84 month term, for example.

[00:34:45.360] - Chris Griffin
Well, and a lot of times I think those hobby, especially your hobby farmers and things, a lot of times they may get that tractor and they're not planning on, they may get it and keep it for a really long know, like you, their, it's not their business, it's not generating any type of income. And so that's some really good information there, Matt. Honestly, I've learned a lot myself, and that's kind of the point of this podcast is not only teaching people with obviously ag backgrounds, giving them some additional information. But obviously, I think increasing the scope of knowledge for people outside of ag as well, and letting them gain an appreciation. So I think you've done that great today and I really appreciate you coming.

[00:35:24.100] - Matt Ramage
Thanks Chris.

[00:35:25.040] - Chris Griffin
Thanks for listening and join us next time on Back to Your Roots.

[00:35:28.410] - Chris Griffin
Thanks for tuning in to Back to Your Roots, where we dish the dirt on all things ag. Be sure to never miss an episode by following and subscribing while there. Leave us a review about what you want to hear next. Stay in the know between episodes by following us on Facebook, Instagram, Twitter, LinkedIn, and TikTok. For more resources, go to our website at RiverValleyAgCredit.com.