To say the ag equipment industry is crazy is the understatement of the year. Each month brings a new adventure to the industry — some the same and some not.

The number of projected manufactured machine deliveries is X one day and Y the next. Supply chain issues seem to be the same but different, ranging from chips to tires. All of this is slowing the delivery of new and used equipment. However, allocations are in full force and will continue for the foreseeable future.

Although allocations are favorable for the management of used equipment, I can see a future where allocation is part of everyday business. Because of delays, new machine deliveries are pushed to the following year, further declining the number of current model year production. 

Current model year delivery disruption has been happening since 2020 and looks to have a similar pattern in 2023. So, what happens in 5-10 years when one segment has a minimal equipment supply and is surrounded by elements with much larger pools?

2012-14 were epic years for on-farm income. The number of new machines produced during those years was some of the highest on record. Armed with cash, provoking tax laws and 0% financing, the producer had every reason to purchase new equipment. New equipment was flying off the shelf. Trade-ins were selling but were outpaced by the sale of new equipment. 

As the economy continued to tighten, fewer buyers stepped into the market. One of the most significant driving factors was the age of the fleet. Updating producers’ fleets over the past 2-3 years meant the need to update again was not there. 

This led to 7 years of used equipment liquidation and shrinking new equipment orders. The used equipment market was saturated and stagnated, and buyers needed an excellent reason to buy equipment — new or used.

Then 2020 happened. At first, it seemed like a non-factor in the ag equipment space. Then, an influx of cash through various government programs and high commodity prices spiked sales. Used tractors started moving in late 2020, caught fire in early 2021 and never looked back. Each segment slowly followed until used equipment became in short supply. 

“The number of available machines will be limited, and the price will reflect that…”

With the capital increase, producers looked to update a fleet that, in most cases, hadn’t seen a new machine in the past 5-7 years. The orders rolled in. Equipment dealership lots were empty, void of new and used equipment. For the most part, trade-ins were presold, new sales were set to break records, and delays started showing up.

The 2021 model year order saw factory delivery delays of 2 weeks, then 6, then months. Finally, orders just got canceled. The 2021 canceled order was re-upped for 2022, and similar delay patterns materialized because of allocated factory orders. This time, production was limited. The pattern persisted in 2022 and 2023. The number of new machines built and delivered during 2021-23 will impact the market the same way the 2012-14 model year machines had; it will just be in reverse.

In the previous 6 columns, I wrote a series of articles called “The Lines of Delineation,” outlining how I think the shift in buying habits for buying groups is changing and is anchoring buyers to a price range more than in the past. In my opinion, the change in buying habits is driven by the jump in price of used equipment. As the lines between buying segments continue to get bolder and more defined, the lack of equipment produced in 2021-23 will see the effects of supply and demand work to keep these model years’ prices elevated compared to the cost of subsequent model years around them. 

In addition, like in 2015-20, producers will retain their fleet for extended periods before they trade. This will further exasperate the supply and demand issues of model years 2021-23. As a result, the number of available machines a buying segment has to choose from will be limited, and the price will reflect the lack of supply.

Every industry will feel the impact of this — heavy equipment, trucks, automotive, material handling and the list goes on and on. What is happening right now has never been seen before. There is no manual on how to handle a situation like this. There have been factory delays before on a product line here and there, but they were minor blips on the radar compared to the mass correction in manufacturing we are witnessing now. 

I don’t think manufacturers will change the allocation model much, which will change how we do business. I believe the upgrade kit model will be the great equalizer, but more on that next month!