Farm Machinery Buying Trends

Female sale rep talking to customer
08 Feb 2024

This article originally appeared on AgDirect.com

Several years of favorable commodity prices, higher net farm income, and a recovering supply chain contributed to strong sales of machinery and equipment in 2023. That trend could begin to decelerate in 2024 if lower revenue projections are realized.    

“Reduced net farm income will be one of the biggest factors that could impact equipment purchases in the year ahead,” predicts Lucas Scheibe, an AgDirect® territory manager in North Dakota.

“If commodity prices continue to allow producers to be profitable, we’ll see similar demand to what we saw in 2023,” he explains. “Since Q4, however, we’ve seen downward movement in the grain market which could slow the pace of sales if producers choose to hold onto their working capital or deploy it elsewhere in their operations.”

Meanwhile, interest rates continue to put pressure on the cost of borrowing but have likely reached their peak. Strong liquidity built up in recent years has helped many producers withstand the higher rate environment, and in 2023, cash purchases were frequent.

Any softening in farm finances could reduce cash reserves further, and with machinery costs per acre largely fixed, calculations on a per acre basis will drive decisions to update equipment.  

Dealer inventories and used pricing stabilizing
Despite the risk of lower crop prices, there is good news for buyers in the market for new and used machinery.

“The new equipment supply chain has shifted from the unknown in 2021-2022 to the present day where equipment manufacturers are able to project when they will be able to deliver machines with a high degree of confidence,” says Scheibe. “This has created some stability in the used market where producers can confidently search and find what they need in a reasonable timeframe.”

Scheibe says he expects equipment manufacturers with solid market share and robust dealer networks will continue to see steady orders of core machines including high horsepower tractors, sprayers, planters, air drills and combines.

At the same time, new shortline equipment availability has normalized with some suppliers nearly at a surplus (example: tillage equipment), while other more specialized machinery (example: sugar beet harvesters) may be difficult to find on dealer lots.

Planning for new equipment purchases a year in advance will continue to be a common practice, but as inventory levels on dealerships rise, premium pricing of new iron may subside and pricing of used equipment will also soften – to what extent remains the question.

“There may be opportunities to find good deals on used equipment in 2024, but with lower commodity prices we could see demand fall off from previous levels,” says Scheibe. “We’ve seen this scenario occur namely on combines at auction in the last half of 2023.”

Equipment categories and sales segments to watch
While demand fueled by supply chain-induced scarcity appears to be easing, the phenomenon is still impacting the marketplace post-COVID. The auction market has proven this in the short term with many examples of machines fetching record prices.

Late-model, high-horsepower used tractors with low hours are becoming more prevalent on dealer lots and will likely continue to sell at a premium in the marketplace due to the rising cost of new equipment.

The used combine market, on the other hand, has started to soften with dealers reporting lower prices on inventory reduction sales at auction. Scheibe anticipates this trend will continue into 2024.

“There may not be a widespread slowing by product categories, however we may see dealers clean up aged inventory by sending units to wholesalers or auctions, especially as they attempt to strike a balance of keeping a good supply of inventory while measuring the cost to carry it throughout the calendar year,” he says.

Financing outlook and considerations
According to Scheibe, stronger than anticipated dealer financing activity prevailed in many areas throughout the country in 2023 despite the headwinds of higher interest rates. 

Auction and private party financing was the largest growth area for AgDirect, signaling a continued trend that producers accept they must expand their methods of searching for equipment to fulfill their needs.  

“As we come out of a year where many producers utilized cash to update equipment, some operations may require financing to help replenish their working capital,” says Scheibe. “AgDirect has creative options that can help meet these needs such as a purchase leaseback or cash reimbursement.”

With a purchase leaseback, AgDirect will write a lease and reimburse the cash originally paid for the equipment or pay off the current loan and apply it as equity toward the new lease. On a cash reimbursement, AgDirect will write a loan and reimburse the customer the cash paid, or the money used from their operating line of credit.

Given fluctuating economic conditions and the high initial costs associated with purchasing new farm equipment, leasing may be another attractive option for producers looking to lower their cost per hour or their taxable income. AgDirect offers both true tax and non-tax leases to meet producers' needs and unique tax situations, including FPO, PRO and PUT leases.

Refinancing activity may also resurface, most likely in the second half of 2024, if inflation continues to moderate and a series of interest rate cuts are made. It’s a good idea to start thinking about financing options early in the equipment buying process to take advantage of opportunities as rates and the commodity prices progress throughout the year. 

For producers planning to make an equipment purchase, Scheibe advises: “Utilize your resources and seek out as much information as you can. If buying new equipment, it doesn’t hurt to check with a neighboring dealer for pricing and availability. And when buying used, lean on trusted advisors – such as your dealer, trusted online platform or wholesale channel – to locate several viable options.”

“In instances where you’re buying equipment outside your dealership of choice, you can also contact your local AgDirect territory manager. We work with dealers and auction companies throughout the country and are always willing to assist in your equipment search and financing needs.”

AgDirect offers customized loans and leasing options at competitive rates and terms for both new and used equipment purchases 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 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.