Who is the best friend you can have in agriculture? It’s a good lender.
I’ve heard this axiom many times in my nearly 27 years of tracking used farm equipment values. The saying has taken on a deeper meaning here the past nine months as this profit-challenged ag environment persists. I field tons of questions from folks on a daily basis, but recently I got a question I’d never heard before: “Machinery Pete, can you help me find last-minute financing? I’m desperate.”
That question came via my Facebook page from a farmer whose lender said “no” for 2016. Apparently, other local ag lenders had said no, as well. It’s a sign of tightened lending restrictions. Banks are playing under different rules. The bottom line is things are tighter.
Financing Changes Course. I’ve seen signs all across the country since this past July when machinery auctions began to ratchet higher. The month of July saw a 21.7% increase in machinery auctions versus July 2014. This trend ramped higher in October to a 48.3% increase in machinery auctions compared to auctions held in October 2014. The first three weeks of December saw a 37.3% year-over-year increase.
Many of the machinery auctions involve older farmers retiring, but there’s no doubt a very sizable chunk have been lender-driven. I’m seeing verbiage on auction sale bills I’ve never seen before, words such as “Farmer inventory reduction auction.”
The phrase “inventory reduction” has always been reserved for talking about farm equipment dealers who have auctions to pare down their used equipment levels. We all know how much new iron was purchased during the bull run in ag from 2007 into 2013. The buyer-demand spigot stayed open for a historically long period. Now, many of these farmer inventory reduction or resizing auctions caused by lost acres or the need to free up cash to satisfy ag lenders feature a high level of large late-model used equipment items that are one, two or three years old.
Pete’s Point No. 1: You have a tremendous buying opportunity in 2016 on late-model used equipment if you are positioned to take advantage of it. The value is there to be had. Start with your local dealer. They, along with all dealers, are working hard to trim used inventory levels. Folks ask me, “Pete, should I wait? Will used values drop further?”
Our data show used values on large late-model equipment fell significantly in late 2013 and also fell hard in mid- to late 2014. Then they began to stabilize through most of 2015 (except in December) and on into this year. In 2016, auction prices actually have been surprisingly high from January into the first week of March.
Pete’s Point No. 2: Cultivate a proactive, close and open relationship with your ag lender or lenders. Communication is a good thing. Don’t sit back. Reach out. Talk. Discuss. Build trust. Ask questions of your lender. Get a feel for their realities.
This past summer, I talked with Jon Kinzenbaw, owner and founder of Kinze Manufacturing. Jon told me about building his business over the years. There were rough patches—plenty of them. At one low point in the difficult ‘80s, he needed millions of dollars on a credit line. Most lenders said no. One didn’t. And look what unfolded out of that trust. Amazing. The best friend you can have in agriculture is a good lender.