2023 Used Equipment Outlook1/20/2023
These past two years have highlighted the tight connection between new and low-hour used equipment. The void of new equipment has disproportionately catapulted the values of low-hour tractors, combines, and sprayer at auction, and to a slightly lesser extent, at dealerships. So as we maneuver into 2023, one eye is on the manufacturer governing new supply, while the other is on the demand lever of farmer profitability.
Tight stock-to-use ratios in the commodities, which ratcheted even tighter in the government’s January reports, only serve to support continued strong commodity prices. Although the burgeoning bumper crop out of Brazil, recent rains in Argentina (too little, too late?), and questionable Chinese demand may have something to say otherwise. Regardless of your bearish or bullish outlook, most analysts are firmly in the camp that we should have another profitable farming year. When farmers are profitable, stronger farm equipment values are not far behind.
In their recent 10-k filing, John Deere stated “Demand for the company’s [new] equipment remains strong, as order books are full through a majority of 2023.” Their backlog of $9.7 billion barely outpaces their backlog from the year prior of $9.6 billion. Their key takeaway is that dealer stock inventory will continue to remain tight for most large ag, likely until 2024. At Iron Comps, we saw overall supply of used equipment start to return in the fourth quarter, especially for combines.
All of this being said about supply, keep in mind that we are focused on 2023 trends, which indicate change in our overall supply. Which, for once in a very long while, there might not be much change at all. Assuming John Deere, as stated earlier, is essentially the same as last year, what about other OEMs? CLAAS shared recently in their 2022 annual report that they plan to deliver their backlog of harvesters in the first few months of fiscal year 2023. Finished goods and inventory for CLAAS actually grew 25% in 2022 from $690 million to $864 million. Incoming supply appears to be the improving, albeit slowly.
Of course, supply can exit our system en route to the scrap yard or a farm overseas. Assuming exit velocity doesn’t change here, the one variable left is current supply on the farm. Did our farmers ‘stock up’ on their equipment purchases these past two years with lower interest rates and the full 179 tax advantages? We certainly saw a growing flurry of search activity on TractorZoom.com this past year. If so, and this is not a far-flung ‘if so,’ demand could actually lessen despite a profitable farming year, and we could be looking at more of a status quo on value volatility for the next 12 months.