As with seemingly everything right now, farmers in the United States are feeling the pain of ever-increasing inflation and higher interest rates. In particular, farming equipment is a massive bubble where that over-supply has caught up with demand, with lots completely packed and the cost of managing them keeps rising. Farmers are now rushing to offload their used tractors and equipment to cool their overhead costs.
Casey Seymour for Successful Farming dives into what’s going on in a vital sector that’s not getting enough attention for such a notable problem. Seymour discusses what this so-called “new normal” will look like in 2025 and factors that will trigger this “reset.”
Seymour wrote:
The state of the used market is top of mind for anyone involved in the farm equipment business. Dealers’ lots are as full now as they were pre-COVID. Based on the data I have collected, that equipment has seen a 40% to 60% price increase over the last six years, and in the same period, interest rates have increased a staggering 188%. The reset is happening, but what will the new normal look like?
As you drive from town to town, it’s easy to see that supply has caught up with demand. The manufacturer doesn’t matter; dealer lots are full and, in many cases, teeming with model-hour equipment. The cost of holding the equipment is also at record highs. Typical large ag equipment carries a price tag of $400,000 to $500,000. With floor plan interest rates at 7%, dealerships are paying $28,000 to $35,000 in interest per year per machine.
More dealerships than ever are motivated to sell equipment. This has generated liquidation auctions not seen since 2014 to 2020. I spoke with several auction companies and heard the same account each time: The dealers need to get machines off their books, and they plan to use every means possible. Some reports have dealers taking machines straight from the farm to the auction block.
The price of late-model equipment is also a problem. In 2020, a new Class 8 combine cost $450,000. Today, the same spend would get a used Class 8, with 500 hours. Finding buyers for a used $450,000 combine is growing more complicated, not because the money isn’t there but trading a low interest rate for a higher one isn’t attractive.
Signs Of The New Normal
I look for the sell-off of equipment to continue throughout 2024 and through the end of the second quarter of 2025. I will be eyeing signs in midyear 2025 to indicate what the new normal will look like. I think it will look and feel much like 2017 to 2020.
What I Will Be Looking For:
- Auction values over four months fluctuate less than 2%. Peak auction period, August to December, needs close watching.
- Average retail and auction values are within 15% to 20% of each other.
- The number of machines in each hour band is fluid and not overpopulated on one end or the other.
- Year-over-year inventories fluctuate within 2% to 3% annually.
Once these criteria have been established, we will know what the new normal will be like. There could be the same number of machines on the market as in 2017 to 2020, or there could be fewer. What interest rates do over the next 18 to 24 months also will impact how soon the new normal shows its face.
Used equipment inventories will fluctuate within a few hundred to a thousand machines year-over-year. New demand will remain with the buyers that command the most significant discounts from manufacturers.
Used-Equipment Buyers Will Then Have Two Choices:
- Buy late-model and low-hour equipment with the same build codes from when machines were new.
- Upgrade their fleets to the latest technology through retrofit or performance upgrade kits (PUKs).
The latter will be the path most traveled. As the prices of used late-model and low-hour equipment increase and farmers need to stay as close as possible to the technology curve, they will have to choose the best option for their operations.
Upgrade Now Or Wait?
If you are a used equipment buyer wondering what to do, I suggest upgrading only what you need now and waiting until fall to make significant purchases, because I believe pricing will be to your advantage. If you can sell anything now and replace it in the fall, I advise that as well. Also, discuss upgrade kits, retrofit options, and PUKs with your dealer. The kits have a place, and the dollars usually make sense. Ultimately, there will be deals, and they will not be hard to find.
As any bubble, they all eventually pop. The current situation’s cause correlates with the rapid speed at which supply caught up with demand and the similar movement of interest rates. 2020 to 2022 saw incredible and widespread supply chain disruption. Canceled and delayed machines all seemed to land on dealer lots in 2023. This rapid supply increase forced the erosion of the scarcity premium placed on equipment during 2020 to 2022 and is responsible for the correction of the market we see today.
AUTHOR COMMENTARY
Economies around the world are staring down the barrel of everything bubble that was created post-2008, and then has been hyper-inflating since 2020, and with rates where they’ve been at it’s pushed nearly all sectors to the breaking point.
2025 is going to be a watershed year, or I should say a bloodshed year, in my opinion, because a lot of signs seem to indicate this whole gravy train will be allowed to fail next year, because central banks will allow it to; which will be used to usher in this “great reset,” and enforce all these insidious agendas we know these globalists have been working to shove on everyone. The chaos that’s coming in 2025 and after will be a wild ride, and that’s putting it extremely mildly, and a collapse in the farming markets is just one aspect of it.
A mass consolidation of power and wealth is taking place and it’s all coming to a head, where central banks are closing in on their lifetime wish of finally becoming the buyers and lenders of last resort. No more middlemen, just them, in a land of consolidated power and wealth, of the haves and have-nots.
Proverbs 22:7 The rich ruleth over the poor, and the borrower is servant to the lender.
[7] Who goeth a warfare any time at his own charges? who planteth a vineyard, and eateth not of the fruit thereof? or who feedeth a flock, and eateth not of the milk of the flock? [8] Say I these things as a man? or saith not the law the same also? [9] For it is written in the law of Moses, Thou shalt not muzzle the mouth of the ox that treadeth out the corn. Doth God take care for oxen? [10] Or saith he it altogether for our sakes? For our sakes, no doubt, this is written: that he that ploweth should plow in hope; and that he that thresheth in hope should be partaker of his hope. (1 Corinthians 9:7-10).
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Jacob, I’ve heard lately a USA channel say in their opinion there is only six months (Nov 6 2024) before a famine and all chaos breaks loose and that there might not even be a selection this year.
What are your thoughts on this?
Who said that?
Delaying a purchase until the bubble pops is traditionally good advice. Going into debt is never good advice. Waiting until fall or even later to purchase might be good advice, except that you might not wish to be subject to the slavery of, or be allowed to participate in the new CBDC banking system if it is imposed on us by then. And if things go the direction it appears, the dealers may be out of business by then as well. As our government collapses under the weight of its own corruption, with politicians expending and wasting all of the resources, you can also expect taxes to become even more vicious and confiscatory than they are now across the board.