A New Catalyst For Auctions

September 7, 2018 10:23 AM
 
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Stopping the equity drain—it’s a phrase I’ve heard often in 2018. Farmers, primarily in their 60s to 80s, are retiring and having an auction. It’s not an easy decision to “hang ‘em up,” but they’re making the decision to stem losses and retain equity built up over a lifetime of farming ups and downs. Farmers retiring in increasing numbers is one root cause of the surge in machinery auctions.

I began to see the number of machinery auctions rise back in July 2015. The trend continued through 2017 and has picked up steam this year. I’m talking roughly a 50% increase in the number of annual machinery auctions versus the 2007-to-2013 time frame.

To be fair, during the period of higher commodity prices and stronger farm profits, the number of machinery auctions dropped 50% versus 2000 to 2006. When they were having some of their best years, farmers didn’t retire.

The second root cause of the increase in the number of machinery auctions is a tougher one. Basically, ag lenders are pushing, advising and forcing farms to restructure their operations. Oftentimes this means selling off some equipment at auction. Until recently, I don’t recall often seeing the word “restructuring” on sale bills; it’s a common occurrence now.

Demand Still High. The question becomes “Pete, are used farm equipment values dropping due to the increase in the number of auctions?” 

Amazingly, no. Used values haven’t been dropping in 2018.

It’s an Econ 101 theory. If supply is up, why hasn’t demand slacked and values dropped? Well, we don’t live our days and run our businesses in academic classrooms, do we? There have been a myriad of other factors at play since late 2017 that have kept buyer demand strong for good condition, late-model, used farm equipment:
 

• Pent up buyer demand. New iron sales were down from 2014 to 2017 and not as many farmers updated equipment. Now in 2018, it’s necessary.

• Warranty. Buyers are seeking used equipment that’s still under warranty to avoid downtime.

• Rising cost of new. An annual increase in new equipment prices, which could be higher yet due to steel and aluminum tariff issues, could push more farmers to consider used.

• Lower inventories. Today, dealers have lower inventories of late-model, used equipment versus 2013 to 2016. Dealers who absorbed significant losses to turnover inventory, now sit with tighter late-model, used options. When equipment that’s only a few years old is auctioned, buyer demand is heightened.
 

Now I’m hearing rumblings of another wave of retirements—older ag lenders. As credit tightens and more difficult discussions with long-time customers loom, lenders are deciding to step away. Of course, every situation, even tough ones, creates opportunities. The rest of 2018 into 2019 will be interesting. 

Watch a video of 1997 John Deere 7810 2WD tractor sell at a farm retirement auction near Monroeville, Ind., at bit.ly/Retirement-Auction

Greg Peterson is the most trusted name in farm equipment. Since 1989, he has worked with a network of 1,000 auction companies to track used equipment prices. His website, MachineryPete.com, features equipment listings from dealers and equipment for sale at upcoming auctions.

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