As U.S. tractor sales have decreased overall, leasing has become a popular way for farmers to get their hands on a new piece of machinery without paying big bucks.
Lower commodity prices and decreased income have a strain on farmer’s checkbooks and a drain on equipment makers.
“2015 to me? I call it the year of the lease,” said Greg "Machinery Pete" Peterson.
Peterson says leasing is attractive option for some farmers. With leasing, farmers don’t have to buy new equipment, and they aren’t racking up hours on the equipment they own.
“Manufacturers offered leasing, and it was really well received by the farm audience, which made sense to me," said Peterson. "They thought they could lease lease two, three years and depreciation is, really, not the farmer’s problem. For farmers, it’s tremendous,” said Peterson.
Manufacturers say they are seeing more leasing demand as well and are thinking it may be a tool they need.
"We haven't done a lot of leasing but we need to," said Todd Stucke, vice president of sales, marketing, and product support at Kubota."I have a whole team of people studying it and we will come out with some very attractive lease products. Our customers are demanding it."
“We are seeing a higher percentage of our business going towards leasing, but it’s not changing the customer base of who leases,” said Jim Walker, vice president at Case IH.
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While companies are seeing more leasing demand, it’s not always within the farming sector.
"If you compare this to other sectors within the industrial side of construction equipment and utilities equipment, leases are extremely high versus farming, where it's still very small," said Leif Magnusson, CLAAS of America's president.
For dealers and manufacturers, though, managing used equipment is key so that they don't end up sitting on a glut of tractors, combines, planters, and more. “All of that stuff will come off lease, and we already have an existing issue with too much one to three -year-old stuff late-model stuff on dealer’s lots. It’s fantastic to lease and have great volume there, but they just have to manage how much of it,” Peterson said.
Case IH's Walker agreed.
"I think as a manufacturer and as an industry, we have to make sure we are keeping it in balance because of returns that come back later and that we're not flooding the marketplace with a lot of used inventory," he said. "It’s important in this market, but I don't think it's any more important than any other year of agriculture. We just need to keep the right balance."
According to the Association of Equipment Manufacturers (AEM), the excess supply situation is improving. “It’s fair to say there was a glut of used equipment on the lots," said Charlie O'Brien, AEM senior vice president. "If look back 12 months, there was a huge amount. ... There is still some to wash through the system, but certainly it’s at a much better level than what it was before."
It’s a tricky balancing act to entice buyers and help builders get machinery off the lot.
Are you leasing or buying equipment these days? Let us know in the comments.