Used farm equipment inventory was up 39.5% year over year in February and dealers are finding it hard to compete with financing packages offered by manufacturers enticing farmers to buy new.
Used farm equipment inventories are higher partly because manufacturing has returned to its standard pace following delays and supply chain constraints during the pandemic. The surge in inventory is also spurred by an influx of lease returns, said Jim Ryan, equipment lease and finance manager at analyst firm Sandhills Global, which published its February report on the agriculture equipment market on March 6.
“You’re seeing a lot of OEMs offering incentivized financing for new equipment, but what that’s doing is these dealers’ lots keep getting full with equipment, especially late models. All these buyers are buying new because of incentivized financing [and] the way interest rates are right now,” Ryan told Equipment Finance News. “It’s really handcuffed these dealers on this late model inventory, and they can’t continue to floorplan that high dollar amount for months on end.” As a result, “you’re seeing some [used equipment] hitting auction, which you normally never do,” he said.
BY THE NUMBERS
According to the monthly Sandhills report on the ag equipment market for February:
Used planter inventory more than doubles
- Inventory of used planters in the U.S. was up 53.1% YoY.
- Asking values were down 1.9% from January, but up 8.5% YoY.
- Auction values were down 3.9% YoY, suggesting “a market in transition as auction values movements typically precede asking value changes.”
Used farm equipment asking, auction values up
- Inventory of used farm equipment was up 39.5% YoY and up 5.1% month over month.
- Asking values were up 6.6% YoY.
- Auction values were up 1.4% YoY.
Compact, utility tractor asking, auction values slide
- Inventory of used compact and utility tractors was up 22.9%.
- Asking values were down 1.5% YoY.
- Auction values were up roughly 1% MoM but were down 3% YoY.
Commodity prices dip due to high interest rate
The price of commodities directly impacts farmers’ income and that impacts their ability to finance or buy equipment.
The U.S. Department of Agriculture forecasts a 25.5% decline in net farm income in 2024. In February, the USDA predicted that nationwide farm profits are expected to sink 16% YoY, to roughly $155.9 billion. This impacts all segments of agriculture, including crops and animal products.
“The commodity prices have not been that strong lately,” Ryan said. These prices are the “underlying driver” behind what farmers can afford as it directly impacts their income flow, he said.
While commodity prices are lower than average, they are affected by seasonal market changes and could see an uptick in harvest season, Carl Chrappa, asset management practice leader at analyst firm The Alta Group, told EFN.
“The rise in inventories and interest rates means the market is tight now, Chrappa said. “With all that in mind, it’s natural prices will start to climb.”
“Over time, inventory will peak and start to drop,” he said. “Usually that would be due to falling interest rates or special packages on financing.”
Chrappa added, “We’re seeing a lot of business that’s taking a pass because interest rates are high, and it’s pinching earnings; earnings are down. People would rather hold off to see if there’s a rate cut, maybe in June or July.”
Registration is now open for Equipment Finance Connect, the nation’s only dealer-centric equipment lending and leasing event, which will take place May 5-7 in Nashville. Learn about the event and free dealer registration at EquipmentFinanceConnect.com.
