2021 was uncharted territory that brought one surprise after another!Dealing with shortages, delays and uncertainty became the norm for dealers, customers and manufacturers. In addition, interim price increases, steel surcharges and freight increases made the equipment market a challenging place to navigate. The same issues will spill over into 2022, but I foresee a new twist not seen in 2021. Because of delays and shortages, the late-model-low-hour spectrum will move.
With so many pieces of equipment missing estimated delivery dates, many machines have most of or a complete season of additional use beyond expectations. New machine delays are creating an issue with used machine inventory availability, thereby creating more hours of service for each segment of the washout cycle. In doing so, the traditional hours of service will expand, and in my opinion, the hours will grow significantly.
On Moving Iron Podcast 240, I interviewed Kyle McMahon, CEO and founder of Tractor Zoom. Kyle and his crew are great at finding data pointing toward trends in the equipment marketplace. Considering the same age, an interesting point Kyle pointed out, supporting my thesis, was that a row-crop tractor with 1800 hours in 2021 had the same selling price as a 300-hour in 2020.
To further support this point, Kyle brought up two other points worth mentioning. First, the price of used row-crop tractors, year-over-year auction value has risen 36% from December 2020 to December 2021. I am not surprised by the rise in the value of used row-crop tractors, simple supply and demand. However, the amount of year-over-year increasing auction value caught me off guard. The need to update equipment and on-farm income has driven up orders to record highs, and lack of supply has made an incredible impact on pricing.
Secondly, with the lack of low-hour equipment, when sold, the hours on equipment stayed the same year-over-year. For example, the hours sold in December 2020 were 2900 hours. Fast forward to 2021, the hours remained the same. The age of the fleet and lack of supply shows that the end-user will buy what is available and when lower-hour equipment is more readily available, I look for equipment purchased in 2020 and 2021 to come back on the market.
“Don’t hold your breath; almost all these machines are presold…”
In 2022, the amount of new equipment delivered will continue to ramp up as the year progresses. By the end of the third quarter moving into the fourth quarter, the highest equipment volume will start to be delivered. Then, freeing up the jam in the funnel, used equipment will begin to trickle in. Looking at the used equipment order board, the bulk of the equipment is sold in advance.
Even with used equipment presold, the hours of use will not stay the same. The equipment traded will have more hours than expected, and what does that mean to the “new buyer?” I am not sure it will affect the overall value associated with each machine. The reason is the used market will support higher value for higher hours. The equipment that is not presold will have a similar story.
Much like 2021, 2022 will have the same availability of used equipment and the same issues. But, in the traditional sense, late-model-low-hour will be next to impossible to find. What is available will be in the pricing stratosphere of its own. You can ask what you want if you have one, but don’t hold your breath; almost all these machines are presold.
Because of the additional hours of use, I believe the new late-model-low-hour row-crop tractor will eclipse the 1000 hour mark. Extra hours of service from another season of service will make the available equipment higher-priced with more hours. Buyers will need to maximize their equity in equipment to ensure a soft landing when the market corrects in late 2023 and early 2024.
When pricing normalizes, dealers and customers alike will need to be ready to make adjustments in their operations to absorb the changing market. Therefore, natural and traditional trade cycles need to be scrutinized over the next 18-24 months. With market conditions at all-time highs, buying and selling equipment comes with a cost as a more normal market is on the horizon. 2022 will be as crazy as 2021. How the backside of 2022 is handled going into 2023 will separate winners and losers.