Between rate increases, tightening inventories, market volatility and the rising cost of inputs, the agricultural equipment and financing landscape is entering a distinctly different environment following years of unprecedented demand and high farm profitability.
As a nationwide equipment financing program, AgDirect is acutely aware of the challenges and opportunities equipment dealers and ag producers are navigating. With our knowledge and dedication to serving agriculture, customers can be confident in AgDirect as a trusted financial partner.
We recently sat down with a team of our experienced AgDirect territory managers from five different regions to get a pulse on the major themes and factors impacting machinery purchases, financing activity and overall buyer sentiment.
Shifts in buyer sentiment
Rewind five years ago, and year over year, buyer optimism and equipment purchases continued to increase drastically from 2017 through the spring of 2022.
“With supply chain issues attributed to COVID, historically low interest rates and higher commodity prices, we witnessed the perfect formula for demand for farm equipment like we’ve never seen before,” says Heath Gentis, an AgDirect territory manager in Indiana. “Since the spring of 2022, rising interest rates and lower grain prices have caused this trend to start to decline.”
Increased operating expenses and limited machinery availability have also contributed to the deceleration of buying activity in the Midwest.
In the south, Jill Beck, an AgDirect territory manager in Arkansas, describes buyer sentiment as cautiously optimistic as farmers shift away from quick replacements to preserving and building equity through lifecycle management.
She says producers in her area are purchasing only the necessary equipment needed to expand their operations and take advantage of economies of scale due to tightening margins. Weakening commodity prices have also caused some buyers in Beck’s territory to think twice before investing.
Meanwhile in the Northeast and Pacific Northwest where farms are more diverse, grain market influences are having less of an impact.
“Supply chain disruption and low inventories have caused equipment buyers to be more aggressive with what they’re willing to consider as alternatives to their original business plan,” shares Mike Fleming, an AgDirect territory manager covering Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont.
“And with the consolidation we’ve seen, producers are working closer with their trusted partners and lenders to be proactive with their financing plans and budgets,” he adds.
Rates and financing considerations
Rates, of course, are an important consideration in any financing plan. According to Alex Bauer, an AgDirect territory manager in Nebraska, financing activity has remained relatively steady in his region despite rising rates and equipment shortages.
“Rates have increased over the last 12-18 months which has caused some slowdown, but not as slow as what might be yet to come,” he shares. “Cash has become a larger component of purchases because of higher rates and buyers still seem to have a lot of cash on hand.”
In other areas of the Midwest; however, farmers have started to pull back the reins on machinery purchases and equipment financing.
“We are seeing a decrease in equipment financing primarily due to increased interest rates and tighter margins that have resulted from higher rates,” says Gentis. “Cash flow really tightens up when you double the interest payment from the previous year’s cash flow statement.”
One theme that is consistent across the territories AgDirect serves is farmers are sharpening their pencils on payments as part of their equipment acquisition decision making. Creative financing will be key to lowering payments and providing a little bit of rate relief.
“Leasing, stretching out terms and other financing strategies will play a much bigger role in equipment purchasing going forward,” says Chad Goldsmith, an AgDirect territory manager in Oregon and Washington. “With large cost increases, these will be some of the tools that will have to be used to keep producers in the equipment they need.”
Supply and demand trends
While interest rates have a widespread impact on the machinery market, supply and demand trends of new and used iron are much more dependent on where equipment is purchased and sold.
Here’s a look at how supply and demand dynamics are trending across the country:
Northeast – Equipment supplies are easing. Compact and mid-size tractors, which are popular in the Northeast, are readily available. Specialty equipment and larger horsepower tractors are limited. Skid loaders are still in big demand across the board due to commercial business competition.
South – Quality used equipment continues to be in high demand. Used combines and sprayers are starting to stack up on dealership lots. New equipment supply is edging back to normal. When possible, buyers are taking advantage of new equipment discounts available from manufacturers.
Midwest – Currently, there is a large demand for used, late model row-crop tractors with low engine hours, but inventory remains low. On the flip side, a large number of new combines are showing up on farms, resulting in an inventory increase in used combines on dealer lots.
Great Plains – Demand is high for both new and used equipment. The biggest issue is the shortage of new equipment which makes it hard to finance used because customers aren’t going to give up the trade until the new unit comes in.
Pacific Northwest – Demand is extremely high across both new and used equipment sectors. Supply is very slowly improving in the Pacific Northwest, but there are still residual supply chain issues from COVID. It may take 2-3 years to get caught back up with demand for new equipment to adequately supply the used market.
Overall, economic challenges are signaling a potential slowdown in the machinery market as production gradually catches up with demand while rising rates and inflated equipment values create some buyer hesitancy. Dealers and equipment lenders will play an important role in helping customers cover their replacement needs.
AgDirect offers competitive rates and terms for both new and used equipment. Apply online, check rates, quote payments and compare options with the free AgDirect Mobile application, or learn more about AgDirect equipment financing by locating your nearest AgDirect territory manager or contact the AgDirect financing team at 888-525-9805.