Caught you; you spendthrift
Yes, you now have a machine shed full of new paint which will be beneficial because it may be a number of years before you again find your way to the equipment dealership. But you also have demonstrated the tendency toward a trend that you will have to shed, if you are going to be able to use all of that new equipment. Buying new iron at the old rate will get you in financial trouble with $4 corn and $9 beans. But curtailing your investment will be a necessity. Schnitkey says it will be important to downshift from the $100 per acre of new capital purchases to the $40 rate which will parallel commodity prices that are beginning to prevail.
In the meantime, Schnitkey says “economic depreciation” instead of tax depreciation will help your budget considerably, “Generally, economic methods more closely match the life and services offered by equipment. As a result of using economic methods, machinery depreciation will remain high for a number of years because of previous high levels of capital expenditures.”
Higher commodity prices and beneficial government tax policies have allowed a substantial increase in per acre expenditures for powered farm equipment. Most of the expense has been in depreciation. With the drop in commodity values, the trend of new equipment purchases will have to reverse and the rates paid per acre will have to parallel those prior to 2006 when commodity prices began to rise.
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