A Blog by Jonathan Low

 

May 12, 2016

The Uber For Farm Machinery

The economics of renting rather than owning continue to spread across industries and functions.

This makes sense for the time being. But at what point will the returns to ownership mean that the cycle turns again? JL

Andrea Peterson reports in the Washington Post:

The pure peer-to-peer rental model works well when you have high-value assets that aren't being utilized at capacity. One of the reasons services like Airbnb and Uber have taken off is because they’ve let normal people make money from their biggest investments — their cars and homes. There’s $244 billion worth of machinery and equipment spread across America’s farms.
Jordan Hickel has a long row of ultra-expensive tractors and other machinery parked on his farm in central Kansas.
“There’s well over a million dollars of equipment out here,” the 31-year-old farmer said, waving his hand at the vehicles while walking toward the crown jewel of his collection: A bright red 8120 CASE IH combine that he uses to harvest corn, soybeans, alfalfa and wheat.
But Hickel uses the towering machine only two months out of the year.
This summer, he’s shipping the combine off to Colorado then Washington state — renting it out to other farmers through a website that hopes to bring the sharing economy to the farmstead.
Think Uber — but for tractors.
The site, MachineryLink Sharing, is the brainchild of a Kansas City company that started about 15 years ago as a traditional combine leasing business. Last year it launched the website that helps farmers make money by renting their equipment to those who can't afford the cost of buying the machines outright.
“This is a big idea,” said MachineryLink president Jeff Dema — and one that comes as growers are struggling in the face of low crop prices that the U.S. Department of Agriculture projects will help make 2016 the least profitable year for America’s farm sector in more than a decade.
The platform now has more than 1,200 users and features “tens of millions of dollars worth of equipment,” according to the company. Listings show several hundred different tractors, planters and combines available for rent around the country.
Arun Sundararajan, a professor at New York University’s Stern School of Business, who will soon release a book about the sharing economy, said the approach has a lot of potential.
“The pure peer-to-peer rental model works well when you have high-value assets that aren't being utilized at capacity,” he explained. One of the reasons services like Airbnb and Uber have taken off is because they’ve let normal people make money from
their biggest investments — their cars and homes, he said.
On the farm, equipment is often the second-largest expense after land — and there is a lot of it out there: According to the latest USDA farm census, there’s $244 billion worth of machinery and equipment spread across America’s farms.
Combines are big-ticket items — a loaded, top-of-the-line model can retail for $500,000. Even Hickel’s machine, a 2010 model he bought used last spring, was a big investment, he said.
“It’s not the sort of thing you buy without checking in with your wife,” he joked.
Hickel's combine is listed on the site for $1,800 per day — and it’s already booked for 20 days by farmers in Colorado and Washington in July, when his own first round of harvesting should already be done.
Farmers have long shared or rented out equipment locally, but the tight timelines of a growing season make that hard because almost everyone in the same area needs the same equipment at the same time. MachineryLink Sharing lets people look outside their neighborhood
, according to Dema.
“If you look two or three states away, all the sudden you have people who are on different crops and growing cycles,” he said.
Of course, that’s a lot of distance to cover — and renters are responsible for transporting the equipment in addition to booking fees, which can add thousands of dollars to the total cost of a rental.
Still, farmers often find they can save money by renting rather than buying, Dema said. And MachineryLink can help with moving logistics — relying on relationships from the company’s traditional combine leasing business, he said. The company, which takes a 15 percent cut of the each transaction made through the site, also secures the payment, verifies that renters have insurance that will cover the machinery while it’s in use, and provides another umbrella insurance policy to reassure equipment owners like Hickel.
“You want to make sure the person renting your equipment won't damage it or run off with it," said Sundararajan.
That was certainly a concern for Hickel, who said he had been looking for ways to rent his machines to other farmers before he heard about MachineryLink Sharing, but had felt uneasy about turning the keys over to a stranger who lives several states away.
MachineryLink hopes to address those fears with a rating system similar to those used by services like Airbnb and Uber: After a rental, both sides of the deal will rate each other on a scale of five stars. “If you have one or two stars, you might as well take your listing off the site. No one is going to rent it from you,” said Dema of the feature, which is in development.
The Colorado farmer who booked Hickel’s combine for this summer was looking for a few more machines to rent. Hickel mentioned the search to some neighbors who have two similar combines, and now those machines are set to be shipped off to the same renter, he said.
The money from those bookings will help pad the margins of what can otherwise be a risky business -- one where each season leaves farmers at the mercy of both the weather and a volatile commodities market.
Hickel himself is a fourth-generation farmer who has experienced the ups and downs of living off the land.
“I was driving a tractor when I was 9 and started running a combine when I was 12,” he said. “I lived and breathed the farm -- I didn’t want to do anything but farm.” Then when Hickel was in high school, his family sold off their farm after a few rough years.
He got back into farming on his own after college, but his family’s earlier challenges helped him think through what he needed to do to stay afloat -- including finding new revenue streams like renting equipment out, Hickel said.
“When you get to look back and see what we should’ve done or could’ve done, you start to know what you should do now,” he said.

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