Buying Used Equipment As a Hedge - New Trend

Over the past 6 months, going back to November '21, I’ve seen a wholly new trend emerge in the used farm equipment market.

Buying Used Farm Equipment as a Hedge.

Joel Everitt of Joel’s Tractors & Auction of Strawberry Point, IA confirmed the trend in last week’s new Machinery Pete Podcast interview (Machinery Pete Podcasts | Used Farm Equipment for Sale | Machinery Pete).

With the difficulty getting parts, I think lot of farmers are buying an extra one in case of break down or issues,” said Everitt. “We are having a hard time like anybody getting parts or a cab kit for a tractor. We’ve never had issues like that before. Lot of farmers are hedging toward buying an extra piece in case of breakdown or need, instead of having the danger of being down 3 or 5 months without being able to get a part. It’s a serious issue.”

Last month on a Farm Journal Country Update panel webinar video I was part of, Kingman, IN farmer Matt Martin concurred:

MattMartin-FJCountryUpdated4-22

We were down 6 weeks last Fall waiting on parts. We’ve got couple of Tractors here in inventory, a Sprayer, don’t know if we’ll use them, I hope we don’t. It’s a hedge against being broke down and delayed. It’s a big concern for a lot of people.” Watch that Farm Journal Country Update webinar panel discussion video here:

The swirl of underlying conditions in the farm equipment market going back to the start of 2021 have continued to intensify through the end of '21 on into early May '22 and have worked together to push farmers into actions they most likely never thought about before. Those conditions:

1. Lack of availability of New equipment due to the on going supply chain mess. Wanted a New Planter last year? Cool. Hope you were lucky enough to be toward the front of that short line of available new units to pre order. Also hope you’re lucky enough to have that New Planter arrive in time to use it here Spring '22. Predictions, expert and otherwise, about how long it will take for the supply chain and worldwide shipping snafus to work themselves out have been futile. The most optimistic outlooks think perhaps toward late '22? But then came the Ukrainian-Russian conflict, oh, and also now Covid again slamming China’s 2 biggest cities, forcing hard core lock downs initially. Neither of these things are at all helpful to un-snafuing (I just made a new word) the supply chain mess

2. Tightest used inventory situation ever on farm equipment dealer lots. You maybe saw the eye opening stat I shared a while back. The No. of 5 year old 175+ HP Tractors for sale on Feb. 18, 2022 at our www.MachineryPete.com web site was DOWN 79.3% vs the same day 3 years ago, Feb. 18, 2019. Nearly 80%. Wow doesn’t come close to describing that stat. There were also 66.7% fewer 3 year old 175+ HP Tractors available for sale. Of course the thing we have to do here is walk backwards in time to the calendar years of 2016, 2017, 2018 and 2019 and think about the raw No. new Tractors, Combines, Planters, Sprayers (other) that were sold. Those numbers were down due to tight profit environment during that stretch. So now…since commodity prices began RISING Fall '20 on through a red hot '21 into an even hotter '22 farmers have been in very aggressive equipment buying mood. Meanwhile over the past 3-4 years the breathtaking continuing consolidation of the farm equipment dealer network has continued unabated, with the new deals often times finding 20-25+ location dealer groups buying 6-12 location groups. These resulting mega size dealers approached working down their excess used equipment inventory in a completely different and way more aggressive way than smaller size dealer groups ever could, they were able to because they are capitalized at such a massively different level vs the old smaller 1-4 store dealership. Those old smaller dealer groups often HAD TO hold large, late model used Tractors, Combines, Planters, Sprayers in their inventory…and hope/wait for better days/times in ag. To move those excess 20 large late model Combines off their lot back then in one fell swoop…out of biz. No can do.

3. Parts Availability: Fall of '21 got spooky if you needed certain parts to keep your Combine and harvest equipment running. Tales of farmers having to drive 200, 300, 400+ miles were everywhere on social media. Supply chain mess again on this front.

Swirl all these factors together and farmers were forced into a new mindset…Buying Used Farm Equipment as a Hedge. To Keep Them Running Come Spring and Fall. Whether buying simply for their own parts availability, or more often to have that additional Tractor, Combine, Planter, Sprayer at the ready.

In the Bullpen out in the shop. There and ready when and if you need it. TO KEEP YOU RUNNING.

In particular what our Machinery Pete Auction Price data showed was an ever surging buyer demand for nice condition older (Pre-DEF, Pre Tier IV) equipment. This trend was of course already very solid before…but the past 6 mo…LIKE A TIDAL WAVE. So I’ve seen things like these amazing examples:

2010 JD 8295R with 1377 hours, sold: $249,000 on 3/30/22 Lawton, IA online farm auction


Pete’s Note:$249,000 is the new record high auction price on a 2010 model 8295R by - $70K! That prior high price of $179,000 on a 2010 model 8295R was from December 2013

2009 CaseIH Magnum 245 with 3679 hours, sold: $129,000 on 3/31/22 farm sale, Westminster, MD


Pete’s Note:$129,000 is the highest auction price ever on Magnum 245 with 3000+ hours. In fact, the 4 highest auction prices on 3000+ hour Magnum 245’s have all come in the past 5 mo.! And it goes deeper, amazingly. 10 of the 11 highest ever auction sale prices on Magnum 245 Tractors with 3000+ hours have come in the past 15 mo. Again, Wow.

Over my 32+ years tracking auction sale prices, the old reliable rule used to be that used equipment values/auction prices began to noticeably soften after St. Patricks Day on the calendar.

Not now.

Just 2 days ago, April 30, 2022, this JD 7810 2WD with 4680 hours sold for $70,500 on a consignment auction in Markleville, IN…Highest auction price ever on JD 7810 2WD with 4000+ hours.

BTW, I’d report to you this trend of aggressive demand and buying of good condition pre-DEF, pre-Tier IV Tractors/Combines/Sprayers has only intensified since the Ukrainian-Russian conflict started.

Buying Used Farm Equipment as a Hedge. Yep, its different. And I think its here to stay for a while.

Pete
Machinery Pete

That is a nice looking John Deere tractor