On November 22, 2021, I interviewed Tony LaPorta on the Moving Iron Podcast. Tony is a trader and brought up some excellent points during the interview. What made me think the most was his point about the cost of uncertainty and how the various markets are reacting. Much like the commodity market, the new and used ag equipment will respond to what is happening with new equipment coming from the factories.
2021 has had more delays and setbacks than any other year I have been involved in this business. Factory delays of equipment that push back delivery dates and lack of parts availability cause disruption in the sale of used equipment. The cost of uncertainty will continue to make the price of used equipment increase across the board.
Combine retail listings since August has gone from 10,341 to 9,228 (as of Dec. 3, 2021). The number of combines on the market hasn’t been this low since before August 2015. The lack of numbers drives the price of used combines up, late model and quiet hour combines. The infamous 2012-14 model combines are stable and, in some cases, are showing some upward movement. Due to factory delays, lack of used combines, and overall increased demand, the market isn’t shackled with overselling new equipment and over saturating the used market with trades. The same can be said for every other aspect of new retail sales as it correlates to the number of trades-ins pushed back into the used equipment inventory. Numbers are low and used equipment sells as fast as it is traded.
The equipment fleet on the farm is the oldest it has ever been. Even during the farm crisis of the 1980s, the fleet was newer. With the amount of uncertainty in the market, end-users in the market for equipment have to make quick decisions. The demand for new and good condition equipment is at all-time highs, and because of demand and lack of supply, pricing is high. The uncertainty of 2022, in my opinion, will be worse than 2021.
“Even if factories get to total capacity because of the demand for used equipment, 2022 will look and feel the same as 2021…”
Nothing on the horizon says 2022 will be better than 2021. Everything is in short supply, and I mean everything. Seed, fertilizer, chemicals, parts and equipment are all in short supply, and in some cases, no one knows when or if the product will arrive. As the labor shortage impacts supply chain logistics, the more prices will continue to climb.
All of that being said, if an end-user has a machine in high demand, they have something special. At this point, they could ask about anything they want and have a waiting list. The issue is what they are going to buy. Looking at order boards and talking with dealers across North America, when new units come in, the majority, almost all, of the trades associated are sold through the washout cycle. The first, second and third trades all are sold or have a waiting list. The broader issue is that this cycle will repeat itself three times before enough equipment is not sold to have inventory. I am talking late-model-low-hour tractors, combines, sprayers and planters.
As I look into the 2022 used equipment values, they will continue to climb and will have little relief in overall shortages. Even if factories get to total capacity because of the demand for used equipment, 2022 will look and feel the same as 2021. Not unit late 2023 will the market begin to feel the easing of the supply crunch, and even then, there won’t be much relief. However, there is an upside to all this, and inventory levels are at all-time lows.
I don’t see any real inventory issues until the decade’s end. The reason is that with 3 years for dealerships to play catch up and another 3-4 years to build carryover, the market will digest what comes through it. The bigger question looming is what the Federal Reserve will do with interest rates and how higher interest rates play into the longer-term decision-making process. These are genuinely unique times not seen before. How dealerships fine-tune their operations is as critical now as it has been for the past seven years. Do not become complacent and trick yourself into believing you can put anything you want into used equipment because there is a point but, have fun finding that point. Best of luck in 2022; it might be more complicated than you think.