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Rising costs slow equipment sales

Originally published on Agdirect.com.

Between high rates, increased input costs and lower commodity prices, 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 four 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

From 2017 to the spring of 2022, buyer optimism and equipment purchases rose significantly year over year due to COVID-related supply chain issues, historically low interest rates and higher commodity prices.

Since then, this trend has reversed with high rates and lower grain prices. Across the country, many producers are carefully evaluating the cost-effectiveness of repairing existing equipment versus upgrading to newer models.

“Any time commodity prices are down, equipment sales follow,” says Richie Harris, an AgDirect territory manager in New Mexico and Texas. “Producers are slower to upgrade equipment and are buying only when necessary. Most buyers are now more patient to wait for the right deal to come along, even if that means using equipment longer than they would have in the past.”

Increased operating expenses and below-average pricing have also contributed to the deceleration of buying activity in the Pacific Northwest where cropping systems are more diverse. Chad Goldsmith, an AgDirect territory manager in Oregon and Washington says the first quarter of 2024 was the slowest he has seen since 2014.

“There’s usually some segment of the multitude of crops we grow that can be grown profitably – whether it be apples, cherries or asparagus – but in talking with our Farm Credit partners there’s a lot of break-even farming going on,” says Goldsmith.

“Input costs have increased dramatically across all of these cropping systems,” he explains. “Couple that with high interest rates, higher equipment costs and below-average pricing for 80-90% of the commodities we grow, and producers are operating in pretty tough conditions.”

Rates and financing considerations

Interest rates, of course, are an important consideration in any financing plan. Over the past year, rates have remained relatively flat, with expectations of a slight reprieve towards the end of 2024.

“Some producers have opted to delay trading to preserve the low rates on equipment they have financed over the last 3-5 years,” says Dan Takle, an AgDirect territory manager in Iowa. “With lower commodity prices, we haven’t seen as many cash buyers in the last year.”

In contrast, cash purchases are still prevalent in parts of the Southwest and the Great Lakes regions. According to Clinton House, an AgDirect territory manager in Ohio, there’s been a shift toward more cash purchases and a slight uptick in leasing activity with tightening margins putting pressure on profitability.

Leasing remains an important financing and tax management tool as farmers sharpen their pencils on payments and plan for equipment purchases. Creative financing will be key to lowering payments and providing a little bit of rate relief.

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. Auction, dealership and private party sales add distinct nuances to these trends.

Here’s a look at how supply and demand dynamics are trending across the country:

Great Lakes – Equipment purchases are occurring at auctions, dealerships and via private party sales with a notable increase in auction activity. Despite the availability of most products, there is low demand for both new and used equipment across several market segments. Many farmers are over-equipped and do not have any immediate needs.

Midwest – Lead times for new equipment have returned to normal but demand for big-ticket items is down due to projected lower net farm income. Dealerships remain the preferred point of purchase channel. However, producers are increasingly turning to auctions for high-dollar, late-model used equipment and monitoring auction prices to gauge the value of new purchases and trade-ins.

Southwest – Producers are looking for the best deals wherever they can find them, whether that’s at an auction, dealership or private party. In Texas, private party and auction sales have increased. Demand for both new and used equipment is down, and with ample supply and reduced demand, this trend is likely to continue for some time.

Northwest – Inventory levels have started to recover, increasing the equipment available at dealerships and leading to some surplus auctions and discount selling. While dealerships remain the primary sales channel, tighter economic conditions have boosted private party sales and auctions. The overall sentiment among farmers and dealers is pessimistic, with slow sales and cautious decision-making prevailing.

Overall, economic challenges are slowing down the machinery market and causing buyer hesitancy. Leasing products, longer financing terms and other financing strategies will play a critical role in equipment sales going forward. Dealers and equipment lenders will continue to be an important source in helping customers cover their replacement needs.

AgDirect offers customized loan and leasing options for both new and used equipment purchased at the dealership, at auction, online (auction platforms and marketplaces) and via private party.

Apply online, check rates, quote payments and compare options at agdirect.com or using 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.

*Your mobile carrier’s messaging data rates apply. The App Store is a service mark of Apple, Inc. Google Play is a trademark of Google, Inc.

 

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