The changing agricultural economy of the last few years has led to a change in the climate of many agribusinesses, particularly the equipment industry. Though he has not been in the farm equipment business all that long, Evolution Ag’s Dave Shipley has seen some dramatic changes.
“I came into the business in ‘02. I farmed before that. We had a time of low commodity prices in ‘01, ‘02. And then by ‘07, ‘08, it got pretty strong. We all knew it was coming, it was just a matter of when,” he said. “You can get a pretty good gauge of how farmers are feeling through the seasons. Right now, farmers aren’t feeling too bad. We’ve had a good crop. Good or bad, it’s better than they were thinking.”
As far as what farmers are buying, there isn’t a hefty amount of money to be throwing at equipment at the moment.
“If it’s useful, they’re using it. If it wasn’t, it pretty much had a short-lived life. Some guys might not be adopting technology just because of cost. Now I am hearing some of that — guys might not be replacing a planter because they’re happy with the way their planter is working,” he said. “I always tell my salesmen that the easiest thing to sell is something they’re going to spend money on anyway so it doesn’t cost them a dime. When we converted guys growing beans to using planters at 15-inch rows a lot of times that didn’t cost a guy a dime. He was going to use the seed man anyway for that extra seed. There’s a lot of technology like that.”
Shipley said there is a disproportionate amount of equipment on the market right now when compared with demand.
“The industry as a whole is lowering the inventory. I think if you ask most dealers, they have a little bit more than what they want, and one of our goals is working through it,” Shipley said. “The market probably peaked in ‘13 as far as new from what I’ve seen. The manufacturers have really slowed down production in the last two years to match the actual demand. When the peak of the new was going on, we took down a lot of used equipment. But right now, that’s what we’re working through — used equipment. I kind of think the prices have leveled off somewhat and actually. I’ve seen a little bit of demand for the late model, low hour used equipment — the ‘14s and ‘15s. Some companies are still working through some older new inventory, offering deals.”
The intricacies of farm equipment purchasing programs are also seeing a change in this economy.
“That’s one thing that probably changed in the industry. Up to about a year ago, we were leasing a lot of equipment. The companies have really tightened up the leasing because they’re getting too much equipment back. It’s hurting sales. And some guys are just buying their piece out of the lease, too. And we’re buying some lease returns from lease companies and selling them, too. We’re dealers, so that’s what we do.”
Shipley sees the new and used markets on a daily basis and how they correlate into how much equipment really is worth. He notes that farmers often overestimate how much cash is sitting in their barn.
“Probably right now, the buys are in the used equipment, especially in the combines or large four-wheel drive tractors. The cost of the new is still basically where it’s been, but a lot of the times the guys trade-in isn’t worth near as much,” he said.
Richard Barrett of Ritchie Bros. Auctioneers in South Vienna echoes Shipley’s statements on farm equipment having lost a bit more value than a producer prefers.
“It’s not a big secret. We just went through the gold rush of my lifetime in the ag industry, so equipment was flying off the shelf. A lot of technology coming into the industry and everybody wanted the latest and could afford it and that dried up pretty fast,” Barrett said. “I don’t know who counted all the combines, but I read an article that there was 2.86, almost 3, used combines on the market for every farmer that already has one and doesn’t need another one. That starts to paint a picture for people to understand.”
Ritchie Bros. Auctioneers is an auction company, but quite a bit different than the average farm auction down the road. They work with quite a bit of construction equipment are there are big differences between the way agriculture and other industries do business with regard to machinery.
“In the ag industry, there’s no new farmland, there’s no new farmers, there’s nothing the government is going to do tomorrow that’s going to make a guy go, ‘Hey, I think I’m going to go buy two new combines,’” he said. “Even the government’s tax relief of 179 is only good if you had profit.”
Barrett refers to Section 179, passed late last year, which led to serious tax relief for business-related equipment purchases.
“So obviously, we’re seeing a large influx of used equipment on the market. Late model, low hours that got traded in. And there are just not enough buyers. And probably some of the worst equipment is the large equipment — the class nine combines, the very large corn planters — there’s even fewer buyers for them,” Barrett said.
That leads to some farmers exiting the industry right now, due to retirement or other reasons, to easily be shocked by the current state of farm machinery when liquidating their supply. Shipley, Barrett, and other sources all said that means they must clearly talk to equipment owners and educate them on the state of equipment prices to avoid surprises at sale time for their customers.
“Well I think we’ve educated them,” said Nick Cummings, machinery specialist for the Wendt Group. “I think that what we’ve done is we’ve told them. We’re in the equipment auction business and so we’re around them all the time and before they decide to go to auction we just sort of tell them that hey, this is the range that your equipment’s worth. You can look at the equipment piece by piece and say you can look at that average, and basically most of them are pleasantly surprised when the sales are over of what the average looks like.”
Cummings and the Wendt Group deal heavily with on-farm auctions. Are people still turning out to their auctions in these down times?
“Crowds are down just a little bit, but for the most part they’re still as good they were during the $8 corn times,” he said. “We’re seeing a lot of different people and we’re having big crowds.”
Though they might not be the best of times, farm auctions are still successful — a far cry from that of the 1980s, according to Cummings.
“I don’t even think we’re even close to the ‘80s. I didn’t farm during the ‘80s, but during that time, guys were so highly leveraged. And I’m sure that are some guys that are leveraged on some equipment, but back then they were leveraged on land, and we’re talking about record low interest rates. I mean when you can buy equipment for zero interest for two years or four years, we’re not even close to what it was like in the ‘80s. The only way we would even speculate these times are close to the ‘80s is because they’ve overspent and their gross farm incomes are lower, in result have created low cash flow. The guys we’re working with are not being forced to do anything — it’s all voluntarily.
“The only negative thing that I see is we just have a flood of equipment on the market in terms of on the dealer lots and wholesale auction lots. Because of this much equipment availability, that takes away from the demand of the supply being offered. But there’s just a lot of equipment on the market because of during those good times, the manufacturers were making stuff as fast as they could make it,” he said. “What we’ve got is a huge supply, but the demand is still strong for quality stuff.”