Pessimistic Ag Climate Benefits Used Equipment12/19/2019
As in any business case, you need to look directly at supply and demand to understand the shift in the equipment world. OEMs are cutting production and Auction is quickly becoming the go to place for farmers when looking for farm equipment.
In a recent article, Tractor Zoom’s Client, Sullivan Auctioneers said “We’ve seen a 10 to 15% uptick in the number of auctions being held this year versus last.” Tractor Zoom’s data confirms this uptick in auction volume, recording a 20% increase in retirement auction YoY 2018-2019. The farmers that are retiring had a strong run from 2007 to 2013; and are now choosing to turn to auctions to help them liquidate equipment to bring in some revenue as they retire. The increased retirement volume has supplied the agricultural equipment market with good equipment which has turned demand away from dealerships and to auctions.
Another key factor considered in the increase of farm auctions and supply is the number of Chapter 12 farm bankruptcies that we have seen in recent years. This is difficult to digest as Tractor Zoom was built on the foundation of farmer first. Farm Bureau reported a 24% increase of Chapter 12 Bankruptcies in 2019 as compared to 2018. Nearly 40% of those bankruptcies came from the 13-state Midwest region. Wisconsin was affected the most due to the challenges of the dairy market and industry conditions. A couple of things to keep in mind are the bigger dairy operations that are drastically running margins down, making it nearly impossible for the smaller operations to keep their doors open.
For reference, see the figures below that were published by Farm Bureau in October 2019.
In terms of demand, the online bidding trend has increased the popularity for equipment auctions. Internet bidding makes it easier for farmers to shop across the US and reduces the time a traditional onsite auction requires, where buyers have to drive to the auction then wait for a specific piece of equipment to sell. Another compelling argument for the push in demand for used ag equipment, is looking at net farm income which is predicted to increase nearly 8.2% YoY from 2018-2019, which is a good thing!
When you look at the increase in price for new equipment, it does not mirror the increase in net farm income. John Deere is known to increase ag equipment prices 4% per year and net farm income has been flat since 2015. A key driving factor to consider when looking at the increase of new equipment: the tariffs on imported steel. Farm Equipment wrote an article quoting dealers, “We get a new notice of price increases on new product orders almost every other day. The rumors of looming steel surcharges are adding caution to the mix. We’ve received mid-year price increases from 4 different manufactures all in the range of 3-5%.” Expensive equipment keeps getting more expensive. Farmers are taking notice of this and looking to buy well maintained used equipment. The giants in agriculture are feeling this; John Deere has seen some of its’ larger facilities shipping up to 20% less in 2019 vs 2018. An analyst at Bloomberg Intelligence said, “Until there’s some kind of stability on crop prices or a resolution on the trade front, farmers will continue to repair equipment as best they can or go to used markets”.
In summary, The current state of the ag market is driving farmers to liquidate pieces. The demand has grown for similar reasons, tough times keep farmers away from the new expensive equipment. Overall we are seeing massive growth in the used equipment market, will this keep up? Time will tell.
Founder and CEO, Iron Comps by Tractor Zoom
Kyle is a 3rd generation entrepreneur and actively farms in southeast Iowa. Prior to starting Tractor Zoom, he was the Director of Acquisitions for Summit Agricultural Group where he led a team to buy and sell farmland across the Midwestern corn belt. Kyle co-founded Buch-McMahon Lawn and Landscaping and is a graduate of Iowa State University.