Machinery Pete: Be Aware of Opportunities When Market Changes

November 22, 2016 08:59 AM
 
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It's a landscape painted with miles upon miles of corn fields. Despite a few challenges this growing season, the bird's eye view of Brent Schipper’s farm in Grundy County, Iowa shows these hoppers are running full from such a large crop this year.

“The company we were with just changed their pricing structure so much that we went around and negotiated, and there's a lot of options out there right now,” he says. “There's a lot of companies looking to move equipment, so that was on our side.”

Moving from leasing two combines, to outright purchasing two machines, wasn’t an easy decision.  

“You have to pencil out a lot of numbers and pick what you truly have to have,” said Schipper. “We need a reliable machine that we can minimize down time. We felt good about the quality machine that we got that will last several years.”

He was able to negotiate things like machinery size and tire size but overall, he said he's happy with the 1-year-old machines featuring low hours and the Pre-Owned, plus extended warranty.

“It's all about minimizing unknown costs,” said Schipper. “That's what we’re after. We have to have that number down because it's affecting the bottom line."

Leasing didn't make financial sense for Schipper, but for other farmers in the area, it's a reliable option when commodity prices are low.

“Our job is to create risk aversion, so, that's one of the reason leasing has become more popular,” said Don Van Houweling, Owner and CEO of Van Wall Equipment. “It reduces risk, because it manages cash flow at a lower level but gives them the productivity they need.”

Schipper said inventory levels played into his advantage in striking such a good deal.

“I feel like we were able to use the amount of equipment on lots to our advantage,” he said.

“It's the perfect time to be aggressive on good, Pre-Owned equipment,” said Van Houweling.

Machinery Pete’s Greg Peterson said inventory is what pressured prices to close out 2015.

“Prior to 2015 we'd seen 11 years in a row in November and December, used equipment values went up significantly with Section 179 buyers,” said Peterson. “But last year, in December, the last 3 weeks there were too many wholesale auctions at the same time."

He said that's the first time in 12 years he saw prices get softer during the fourth quarter; however, 2016 is proving to be different as dealers like Van Wall are more aggressive in moving equipment throughout the year.

“We are in a reasonably good position with our used equipment relationship to our balance sheet right now, and I can honestly say that 12 months ago we weren't,” said Van Houweling.

“We're trying everything we can,” said Jay Adamson, Van Wall Equipment. “I guess no deals left unturned.”

VanHouweling has been in the business more than 30 years, and he said the industry is still bringing new surprises, including the record crop many farmers are seeing in 2016. It’s that bountiful crop that's also pressuring crop prices.

“There was a period back in late August in a 10-day period we started to see some weakening prices on late model equipment,” said Peterson. “If you're thinking about buying, or even if you're not, just be aware of the price movements because  there are opportunities when a market changes.”

With the wave of commodity prices, some farmers were able to market the crop at profitable levels, having an immediate impact on dealers.

“Everyone was in a better mood,” said Adamson. “Seems like farmers were willing to talk at least.”

While that was short lived, it's also a golden crop in the field moving moods.

“It's always better when you have a big crop,” said Van Houweling. “You can't sell a crop if you don’t have it to sell. There’s a lot of positive out there, and it's going to take a lot of power and a lot of equipment to get this crop out of the field."

“There's nothing anyone wants to spend money on today,” said Schipper. “But when you have to have a machinery to get harvest done, that's what you have to do.”

For Schipper, it's tightening margins today forcing him to look at the necessities on the farm. 

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