The used tractor market saw signs of life in the last two months of 2016 that have been otherwise largely absent since grain prices fell and started altering many farmers’ overall machinery buying habits. But, that breath of life hasn’t touched all sectors of tractor sales, and the bright spots have a few caveats, experts say.
A closer inspection of the used tractor market shows the recent bump in sales comes as an actual consequence of the continued crop price downturn; as farmers tighten their belts, new machinery spending has fallen lower, with the used market offering a lower-cost alternative, says farm machinery auction analyst Greg “Machinery Pete” Peterson. Despite corn prices lower than half of what they were just a few years ago, farmers still have iron needs to cover, and they’re looking at low-cost ways to do so.
“The time windows to plant and harvest just continue to tighten; farmers cannot afford down time. These truths work toward continued demand for the equipment they need, and if not realized on the new equipment side, then the trend is more evident in the used equipment market,” Peterson says. “Such is the case here as of late.”
Two-wheel-drive tractors in demand
December 2016 saw a 5.5% increase in total tractor sales — new and used — compared to the same month in 2015. But a deeper look into that figure shows two-wheel-drive tractors accounted for the vast majority of the increase. Just over 18% more two-wheel-drive machines under 40 horsepower sold in the U.S. compared to December 2015, according to a report from the Association of Equipment Manufacturers (AEM). On the other end of the spectrum, sales of 100-horsepower and larger two-wheel-drive machines saw a year-over-year decline of more than 19%. Four-wheel-drive tractors saw a decline of more than 41% in December 2016 compared to the same month the previous year.
The gradual improvement in used two-wheel-drive tractors is expected to continue, with smaller mechanical four-wheel-drive tractors seeing a slight uptick in sales on the used market moving through the first few months of 2017, says BigIron.com president and CEO Andy Pyron. Continued expected strength in two-wheel-drive tractor sales is a reflection of producers covering needs for their highest-priority machines.
“Two-wheel-drive sales are absolutely steady and continue to maintain what we refer to as their utilitarian position,” he says. “Supply and demand are going to be the driving factors behind buying behavior, seller behavior, and the related prices that ensue.”
A growing emphasis on ‘good’ used tractors
Peterson and Pyron agree the strengthening used tractor market, at least for “good” two-wheel-drive and mechanical four-wheel-drive machines, is expected to continue to see steady, conservative strength through early 2017.
The quality of the machines that will continue selling in the used market will be a major variable. As farmers remain cautious with spending, largely covering essential needs in purchases, tractors in better condition will continue to see sales trend slightly higher. In other words, the better machinery is cared for, the better its chances are of spending less time for sale on the used market.
“There’s a lot of inventory out there, and poor maintenance is reflected in final sale prices,” Pyron says. “For the individuals who have adhered to good maintenance programs and maintained their iron, I think they are reasonably rewarded for their hard work, effort and diligence over the lifetime of their tractors.”
Confidence is key
Part of the late-2016 perk-up in used tractor sales stemmed from confidence among buyers. Factors like national election results that were construed as more “business-friendly” and strong corn and soybean yields in much of the nation bolstered farmers’ confidence heading into the winter, Peterson says.
“In November, I traveled extensively throughout the country. You could feel a more optimistic attitude in farm country after the election. If there were such a thing as a ‘Farmer Attitude Index,’ it would have exploded higher the middle two weeks of November,” he says. “The more upbeat attitude was coinciding with these rising auction sale prices I was seeing all over on good condition used farm equipment, despite the challenging ag economy.”
Maintaining that confidence will be key to sustaining that confidence, Pyron adds. That may come from any pricing incentives dealers and other sellers can offer farmer buyers.
“It’s all about buyer confidence. Farmers step up when they have an assurance,” he says. “Most of that buying interest will be with low-hour, well-maintained machines, especially if they’re offered pricing and support programs.”
Farmers can be confident in AgDirect as a financial partner for machinery purchases. We’re dedicated to agriculture and offer myriad financing options to fit any operation, whether buying used or new machinery. We offer financing for buying, leasing or refinancing, with fixed- and variable-rate terms from two to seven years. We also offer delayed payment plans with no prepayment penalties.
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