Glacier FarmMedia – This year, any farmer expecting a new tractor in time for spring planting knows they shouldn’t hold their breath.
It may or may not arrive on time. Problems including staff shortages, transportation bottlenecks, a shortage of components — all a result of COVID-19 in one way or another — have hit ag equipment manufacturers simultaneously and hard.
Why it matters: It will be more expensive, and perhaps more difficult, to purchase used equipment this year
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It’s the main reality of today’s new farm equipment market, and it has pushed the used machinery market into unprecedented territory.
“Some of the lowest levels we’ve ever had,” John Schmeiser, CEO of the Western Equipment Dealers Association, says of used equipment inventories on dealer lots.
“We have 70 per cent of our dealers saying their used equipment is too low. And we’ve also seen month-over-month price increases on used tractors and combines that are sitting around, primarily just because of the delay getting new equipment. We still have supply chain issues because of the pandemic.”
Used supply is low. Buyers waiting for new machines are holding onto their trade-ins, reducing the stock of used equipment on the market.
And demand is high. Many producers who would have looked at buying new machines have turned their attention to the used equipment market instead, just to get something, anything, in time to do the job. That means more buyers are competing for fewer machines.
“Because customers are being advised that wait times for delivery of new are pretty bad or being pushed back, it’s kind of driving them to used equipment,” Schmeiser adds. “Especially right at harvest, there was a run on used combines.
“The most amazing stat I’m looking at is used combine pricing. Historically, the longer a combine sits on a dealer’s lot, the lower the price is going to be. That’s the industry norm. Every month over the past year dealers have been increasing pricing on used equipment, solely because of the demand that’s out there. This is unprecedented.
“I’ve been managing the association since 1996, and I’ve never seen such a prolonged period where, month after month, there’s a positive percentage increase in combine pricing.”
Most months until midsummer, dealers had reported a compounding one or two per cent monthly jump. Then monthly increases started to turn sharply upward: three per cent in August, followed by five per cent in both September and October.
Four-wheel-drive tractors saw even bigger month-to-month gains at dealerships throughout most of the year, but like combines, price increases really took off in late summer, hitting six per cent per month in each of September and October.
“When we saw (commodity) prices increasing, that changed the aspect in demand from buyers. That was good to see, because as we went through July every sale was down from the week before.”
The outlook from a 2021 Agricultural Equipment Manufacturers (AEM) survey showed most machinery manufacturers expected difficult conditions to persist long into 2022. Some even expected it to continue into 2023.
Will that continue to drive the unprecedented demand — and prices — for good, late-model used ag equipment through the next growing season?
Responds Schmeiser: “96 per cent of dealers are reporting that their new equipment inventories are too low.”
That suggests continued upward price pressure for used machines, depending on whether all factors influencing demand stay positive.
“There’s no magic to equipment sales (demand),” says Schmeiser. “It’s always three things. Number one is weather. Secondly, commodity prices. The third thing is interest rates. If all three of those things hit, demand for equipment is going to skyrocket.
“Weather is a huge factor,” said Jordan Clarke, sales director for Canada prairies division at Ritchie Bros. “But I am a little concerned about the rising costs of inputs, which could potentially affect equipment sales. If we can start the year off with a decent amount of snow and runoff and get the year started on the right foot, I think we’ll see a good start.”
So far, winter precipitation levels look good in most places. And with low interest rates and affordable financing, don’t expect to see bargains at auction sales or on dealers’ lots as long as the growing season looks promising.
“I would think, honestly, (the used equipment market) is going to mimic a lot of what we saw in the last half of 2021,” says Clarke. “From all the information we’ve seen, it’s going to take a while for manufacturers to catch up to demand. I honestly think there’s going to be strong demand on the supply that’s out there.
“So, if there’s good used equipment available, whether on a dealer’s lot, a private sale or auction sale, I think there’s going to be a lot of buyers going after those pieces. We ended the year off with strong demand for equipment and all indications are we’re going to start the year on the same foot.”
Industry watchers had expected a surge in new machinery sales starting around 2020 and carrying through the next few years. It’s part of the regular cycle of sales peaks and valleys that the industry has experienced for decades. Supply chain difficulties have hit the brands at the worst possible time.
“We’re in that time in the cycle again where there’s customer demand,” says
Schmeiser. “I just got the new equipment sales stats for year-end 2021, and we’re up double-digit percentage increases in every category.”
– Scott Garvey is a freelance machinery reporter for Glacier FarmMedia. His article was originally published at Country Guide.
