If you’ve shopped for equipment in the last few years, you’re probably still recovering from sticker shock. Supply chain disruptions decreased available inventory at a time of high demand for new equipment, driven by high crop prices and low interest rates. New equipment prices skyrocketed, leading many to purchase used which, in turn, led to higher prices in the used equipment market. Equipment manufacturers ramped up production to meet the higher demand.
Higher interest rates and falling crop prices are starting to soften the demand for equipment — the exact opposite of the last few years. Inventory levels for new and used equipment are increasing, and it’s notable that used equipment inventories are up 26% from 2023. Are we going to see the equipment price bubble burst? Probably not, but lower demand and higher inventory is influencing the market.
Prices
New equipment prices continue to rise year over year, but at a much slower rate than we have seen for several years. Equipment manufacturers are offering several incentives to get new inventory off the lots, and the most attractive offers are the low or no interest financing.
If the decision is between financing a new machine at $250,000 with 0% interest and a used machine at $200,000 with 7% interest, most farmers will choose the new machine. On a 10-year loan, the new machine will be $28,000 cheaper than the used machine and have a lower payment that will help with cash flow. This imbalance between new and used financing is attractive for farmers looking to upgrade to new equipment instead of late-model used equipment. The demand for late-model used equipment has dropped significantly, driving up inventories.
Used large tractors, combines and forage harvesters have seen the largest inventory gains (as much as 85%), but in general, all used farm equipment inventory is up by 35% compared to a year ago. As you would expect, the price of these used units is starting to decline. Surveys of markets and dealers show that asking prices for used equipment have dropped in the past year, but only by 1% to 2%.
Another consequence of the high equipment prices is that many farmers are choosing to run equipment longer before upgrading. While there are many late model pieces of equipment on dealer lots, there is less inventory available in the older, but still serviceable, units.
Used equipment prices are declining, slightly, but if you’re looking for a deal on used equipment, consider going to a few more auctions this year. On average, auction prices have been about 9% less than dealer asking prices for similar equipment. The math may work to your advantage to finance used equipment for the right deal, and if you are able to pay cash, auctions may be your best deal in 2024.
Although prices are starting to level off, they are still much higher than before the pandemic. You will need to account for higher prices when budgeting in your replacement schedule, and the cost to run equipment is higher now than it was before.
If you do custom work with your equipment, it’s a good time to reevaluate pricing to reflect your cost per acre. If you don’t know your cost per acre, it’s a good time to do that too.
