Lower Used Equipment Prices Are Another Sign of the Challenges in the Ag Sector - AgWeb

Recent data indicates that there have been significant declines in the prices of used agricultural equipment.

According to Sandhills Global market reports, auction values are decreasing more rapidly than asking values, resulting in a widening spread between the two. This trend is attributed to increased inventory levels across various categories of farm equipment, such as tractors, combines, and sprayers, which are putting downward pressure on prices.

For instance, auction values for used tractors over 100 horsepower fell by 1.25% month-over-month and 6.75% year-over-year, while asking values decreased by 0.27% month-over-month but remained 3.82% higher than the previous year. This trend is consistent across other equipment categories, with auction values generally showing greater declines compared to asking values, contributing to the historic spread

This situation is reminiscent of market conditions seen in 2015, with inventory levels and auction values trending downwards

Impact on Agricultural Dealers and Farmers The decline in used equipment prices could indeed put stress on agricultural dealers. With inventory levels rising and prices falling, dealers may face challenges in maintaining profitability. For farmers, lower equipment values can impact their balance sheets, particularly when dealing with banks for loans or financial assessments, as the value of their assets decreases.

Spread in PricesThe widening spread between auction and asking prices for used agricultural equipment has several long-term implications for both equipment sellers and buyers:

For equipment sellers:

• Inventory management challenges: Sellers may face difficulties in managing their inventory as the gap between auction and asking prices widens. With auction prices declining faster, sellers might struggle to sell equipment at desired prices, leading to increased inventory holding costs and potential cash flow issues.• Pressure to adjust pricing strategies: Sellers may need to adjust their pricing strategies to remain competitive. As auction prices drop, sellers might be forced to lower their asking prices to attract buyers, potentially reducing profit margins.• Market uncertainty: The value spread creates uncertainty in the market, making it challenging for sellers to predict future pricing trends. This can complicate financial planning and investment decisions.• Potential for increased competition: As more equipment becomes available at lower auction prices, competition among sellers could intensify. This might lead to further price reductions and a race to the bottom in terms of pricing.

For equipment buyers:

• Opportunities for bargains: Buyers may find opportunities to purchase equipment at lower prices, particularly at auctions. This could be advantageous for those looking to expand or upgrade their equipment at a reduced cost.• Increased negotiation power: The spread between auction and asking prices may give buyers more leverage in negotiations, as sellers may be more willing to accept lower offers to move inventory.• Potential quality concerns: With prices dropping, there might be concerns about the quality and condition of the equipment being sold at lower prices. Buyers will need to be diligent in inspecting and assessing equipment before purchase.• Market volatility: Buyers must navigate a volatile market where prices can fluctuate significantly. This requires careful timing and market analysis to make informed purchasing decisions.

Layoffs in the Ag SectorSeveral major agricultural machinery manufacturers have announced layoffs in response to the downturn in the market. John Deere, for instance, has laid off many workers across its facilities in Iowa and Illinois due to declining demand for farm equipment. Similarly, Kinze Manufacturing has announced layoffs of 193 employees, citing the agricultural and economic downturn as the reason. These layoffs are part of a broader trend in the industry, driven by factors such as lower commodity prices, higher interest rates, and reduced net farm income.

Bottom line: The agricultural equipment sector is experiencing significant challenges, leading to both price declines and workforce reductions.