Impact of Robotic Milkers (and other capital purchases) on Equity

Robotic milkers are increasingly in the news as producers continue to struggle with labor issues.  One often-overlooked concern is the initial impact on owner's equity that follows a large capital purchase - be it robotic milkers, buildings, machinery, feed or manure storage, or anything else that depreciates in value.  

Here's an example:  A 240 milking cow dairy invests in four robotic milkers with a purchase price of $210,000 each.  That's a total of $840,000 for the robots.  We'll disregard the extra investment needed to accomodate the robots, like building modifications, concrete and electrical work, feeding and milk transfer changes, etc.  

What's the value of those robotic milkers once they're installed and put to use?  That question can only be answered by selling them - but they're certainly worth less than their purchase price.  We're all familiar with the "drive-off the lot" depreciation of a new car or truck.  Same situation here - are those robots worth 20% less the day after they're installed?  30%?  40%?  The market for used robotic milkers is pretty slim, so it's hard to know for sure.  

In our example, let's assume 30% initial or drive-off depreciation on the $840,000 purchase price.  This equals $252,000.  On paper that money comes out of owner equity.  The robotic milker company was paid.  The lender is secured and will get paid.  The producer is on the hook for that $252,000.  This won't be an issue if the robots are kept in operation for their expected 10-15 year life.  It is an issue if sold for any reason prior to their end-of-useful life.

Robotic milkers can be a sound investment - just remember to take drive-off depreciation into account as you do your planning.  Be prepared for the potential hit to your equity upon the event of a forced or unexpected sale.

Lee Gross