At the onset of 2023, overall demand for farm equipment was projected to remain strong despite rising interest rates and commodity prices softening from peak values.
Now, prices of used combines, tractors and other pre-owned equipment appear to be moderating with new machinery inventories starting to slowly recover and a variety of external factors challenging farmer profitability.
The following used equipment update provides a snapshot of the market forces impacting buying activity as well as key equipment financing tips to help producers navigate their machinery purchase decisions in 2024.
External factors impacting used equipment
When farmers are profitable, stronger farm equipment values are typically not far behind. Although profitability projections initially encouraged 2023 buying activity, developing concerns about sharp declines in net farm income have put downward pressure on farm machinery purchases.
The U.S. Department of Agriculture’s (USDA) recent forecast projects U.S. net farm income will plummet by $42 billion in 2023, resulting in a record 23% income drop compared to the year prior. Persistently high input costs and rapidly declining commodity prices are two of the primary culprits, compounded by rising interest rates.
The current interest rate environment is night and day compared to the past two buying seasons. Interest rates are approximately 4% higher today than they were in 2021 and 1% higher than in 2022.
“The impact on financing is customers are borrowing less to cheapen their overall interest expense,” says Chris Steinkamp, Iowa AgDirect territory manager. “We are seeing more customers paying with all cash for smaller purchases and utilizing as much as 50% cash on larger expenses. Fortunately, row crop producers are coming off some profitable years so they have the cash.”
In addition to interest rate hikes, geographic disparities are also becoming more apparent. Across the U.S., 8 out of 9 USDA resource regions are projected to see lower farm-level net income.
Factor in isolated extreme weather events – such as drought and hailstorms – plus increases in equipment transportation costs and greater disparities in equipment values across the U.S. could follow.
Implications for machinery buyers
What does all this mean for machinery buyers? On one hand, the supply and demand imbalances could create buying opportunities for farmers who didn’t stock up on equipment in the past two years. However, purchase decisions will have to be reconciled with the higher interest rate environment and tightening margins
“Equipment is moving from a seller’s market to a buyer’s market overall. Dealers are having to put on their sales hats for the first time in three years,” says Mike Fleming, an AgDirect territory manager covering Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont.
“The pendulum has definitely swung back to farmers looking at payments as a major part of their equipment acquisition decision making,” he says. “This brings leasing and residuals back into play.”
Equipment financing tips
Demand for used equipment may be softening, but as the overall cost of farm equipment continues to rise and machinery becomes a larger asset category on producers’ balance sheets, the right financing options will play an even more important role in helping buyers cover their purchase and replacement needs.
“Given inflated equipment prices, higher input costs and rising interest rates, a slowdown in the ag equipment market is to be expected,” says Alex Bauer, Nebraska AgDirect territory manager. “Creative financing, like leasing, will be key to getting payments down and providing a little bit of rate relief.”
Producers planning to buy or upgrade equipment will benefit from knowing how the investment will affect their cost per acre and cash flow, as well as balancing repair costs with replacement costs. Understanding how a purchase will affect the financial side of an operation is critical.
When it comes to equipment financing, there are options to look at such as longer-term financing or lease and balloon options. And when rates do start to go down, refinancing is always a good option to look at to help reduce interest costs.
No matter where you choose to buy your farm equipment, AgDirect can help you buy, lease or refinance new or used equipment with attractive rates and farmer-friendly financing terms.
Apply online, check rates, quote payments and compare options at agdirect.com or in the free AgDirect Mobile app available for download from the App Store and Google Play*. Or learn more about AgDirect equipment financing by locating your nearest AgDirect territory manager or contact the AgDirect financing team at 888-525-9805.
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