Understanding the State of the Used Farm Equipment Market: What’s Ahead for 2024 and Beyond

The farm equipment industry is navigating a critical period of reset. After years of supply shortages and heightened demand, dealer lots are now fully stocked with machinery. Equipment prices have climbed by 40% to 60% over the past six years, and interest rates have surged by 188%. For those in the industry, the question remains: What will the new normal look like?

Dealer lots are packed with model-hour equipment across all major manufacturers, and the holding costs have reached record highs. Large agricultural machines, such as those from John Deere, typically priced between $400,000 and $500,000, now come with significant financing costs. With floor plan interest rates around 7%, dealers are paying $28,000 to $35,000 in interest per machine per year. This has fueled a wave of liquidation auctions not seen in over a decade, as dealerships work to clear inventory. Auction companies report that dealers are increasingly taking used machinery straight from the farm to the auction block to offload it quickly.

Challenges in Selling Late-Model Equipment

The steep price of late-model equipment poses another challenge. In 2020, a new Class 8 combine cost around $450,000, but today, that same budget would only buy a used model with 500 hours on it. The cost of financing also impacts buyer interest; transitioning from low to high-interest rates is often unappealing. As a result, securing buyers for high-priced used equipment has become more complex.

Indicators of a New Normal in the Equipment Market

It is anticipated that the current wave of equipment sell-offs will continue through 2024, stabilizing around mid-2025. By then, we may see a market that resembles the conditions of 2017 to 2020. Key indicators to watch for include:

Auction price stability: Auction values should fluctuate by less than 2% over a four-month period, especially during peak season (August to December).
Consistent value differences: Average retail and auction prices should align within 15% to 20%.
Balanced inventory: Hour-band categories need a steady distribution without significant oversupply in any particular segment.
Stable year-over-year inventories: Inventory levels should fluctuate within 2% to 3% annually.

When these patterns emerge, we’ll have a clearer view of the “new normal,” likely with similar or fewer machines on the market compared to pre-2020. Interest rates over the next 18 to 24 months will also be influential in setting this new baseline.

The Choices for Used Equipment Buyers: Upgrade or Retrofit?

For used equipment buyers, the market presents two primary options:

Purchase late-model, low-hour equipment with original build specifications.
Opt for retrofit or performance upgrade kits (PUKs) to enhance older machines with the latest technology.

Many farmers are likely to choose the latter, as PUKs provide a way to stay up-to-date with technology while managing costs. As prices for late-model equipment continue to rise, these upgrade kits allow farmers to improve performance without fully replacing machinery.

Machinery Appraisals: A Vital Tool in Today’s Market

As the used farm equipment market adjusts, accurate machinery appraisals become essential for dealers and buyers alike. An appraisal provides a precise valuation, enabling dealerships to better manage inventory costs and helping farmers make informed purchasing decisions. By understanding the current market value of their assets, buyers can strategically plan upgrades or sales, ensuring they’re getting the best return on investment.

Should You Upgrade Now or Wait?

If you’re considering a purchase, my advice is to upgrade only essential equipment now and hold off on major acquisitions until fall. Pricing will likely be more favorable then, as dealerships continue to manage inventory and stabilize costs. If possible, consider selling any equipment now that can be replaced later, and explore PUKs and retrofit options with your dealer. These kits are often cost-effective, helping you stay close to the technology curve without the hefty price of new machinery.

The market’s current correction is tied to the rapid alignment of supply and demand, alongside sharp interest rate increases. The supply chain disruptions of 2020 to 2022 created a scarcity premium, which began to erode as delayed equipment landed in dealer lots throughout 2023. This realignment has pushed prices back toward pre-2020 levels, creating both challenges and opportunities for those navigating today’s used equipment landscape.

November 12, 2024 12:37 pm

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