Stacy Anthony, CEO of AgRevolution, a Kentucky-based, 8-store AGCO dealership, and Greg Burch, COO of 20-store Case IH dealership H&R Ag-Power, sat down during the National Farm Machinery Show in Louisville to discuss the current state of the used equipment market and what dealers need to do to better manage their used equipment in a softening ag economy. Shortly after this conversation, Burch passed away unexpectedly on March 13, 2024. 

Stacy Anthony: I think we’re seeing a typical cycle. And we’ve been through this before, no matter what brand you carry, you’re going to participate in some way, shape or form in the changing of this market. Some people are calling it a cooling, some are calling it a contraction — whatever you choose to call it, we’re going to have to deal with the reality of some resets in used equipment values. Typically, combines are the leading indicators of that, combines and planters and then you migrate your way down — the last to be affected is row-crop tractors.

Usually we see dealers develop more exit strategies. In years past, that’s happened more slowly. Today, you’re seeing dealers pull that forward and make those decisions more quickly, at least that’s my opinion. Make it quicker and sooner. 

I think they’re just trying to meet disciplines of turns and asset management. Of course, today you’re going to see it pull forward just because of the cost of money. Interest cost is a lot higher than the last correction in the market we had, so people are really sensitive to that.

Greg Burch: I certainly do agree. I think we’re seeing a cooling, and we’re watching markets very closely. We’re looking out in the future — what that grain market’s going to do. We won’t see the trough quite as deep as it was in 2014 and 2015, but I think we dealers are being more proactive. I know we did a sale back in that 2014-15 era. And we did one here in December and we call it “right sizing the ship,” essentially. We’re getting ready to do another one here the first part of March to clean up the stragglers we didn’t clean up at the end of the year. Most dealers will have a pretty strong first 6 months of business. There’s a lot of pre-sales out there in the market, and then we’ll see some tapering off going into the second half of the year.

Anthony: I’ll start with combines because usually the big multi-unit discount (MUD) rolls that create a lot of used inventory start in combines. Looking at the trade publications, you can see the numbers going up in what’s available in the market, supply and demand. Then I think planters are sensitive just because people say, “If there is a cooling or a correction, I can probably get by with my planter for another year.” They make choices dependent upon those two things.

Tractors, in my experience, are the last to be adjusted. We’re seeing adjustments in all categories — more so in combines and planters, in my opinion. Right now sprayers seem to be holding their own and tractors are holding their own. Greg may have a different opinion about that, but I think planters and combines are the first to be adjusted.

Burch: Our biggest expense and exposure is in the combine market because — it’s one of the higher cost units that we deal with. Also, with planters, we see people there who don’t have to trade planters every year. We’ve had a lot of that because the economy has been extremely good. 

I think we’ll see some slowing down in that regard as far as those guys who don’t have to trade. That’s one of the things we look at, we probably have one of the newer aged populations of equipment in the marketplace today. That’s going to put — no question — some pressure on it.

But I still think as we look at it, when we right size some of our inventory because we’re going to have sets of customers who are going to continue to trade. It’s in their business plan, it’s in their business model, and we’re still going to have to be able to take those units. I do not think it’ll be as brisk as it once was, and I think we’ll see more pressure, I agree, on planters in that arena than we see in some of the other segments.

Anthony: To your point too, planters are one of those machines that you can retrofit, you can add to it. It doesn’t matter what make or model it is, you can make that thing last a little bit longer just through some of the enhancements that are out on the market today. That’s probably going to add to the cooling of the planter sales.

I think we’re in it, but I don’t feel like we’re deep in it. I think that it’s a progression through the end of Q2. I’m unsure what will happen in Q3 and Q4. A lot of variables could still happen depending on commodities and inputs and things like that, geopolitical things and some of the things that happened in South America. We’re at the beginning of it in my opinion.

OEM Production

Burch: We were anticipating some of it last year and that really didn’t come to fruition. We saw some pressure on some margins and things of that nature with increased manufacturing costs, but for the most part a very strong, high volume year. Our farmers and producers had to spend money and we felt like that move didn’t take place. 

And again, a pretty strong 6 months of the year through pre-sales continuing and that type of thing. But I think the verdict’s out. It’s going to hinge on commodities, but we feel like we’re in what you just said. It’s starting. How long will it last? I think it’ll be a little softer than the last one.

Manufacturers for one thing realize they have the ability to reel back some of that production. And I think they’re seeing that out there, and it is what we’re hearing from John Deere and from Case and AGCO. I think all the major players are seeing a softening. As they reel back production, that’ll shorten that cycle a little bit. 

I think we’ll see producers reel in and get that cycle more right size. The other thing was we didn’t quite hit the peak numbers this past year and the year before in 2022 and 2023 that we’d hit back in 2013-14. When we looked at numbers compared to those peak numbers, they weren’t nearly as great this round. We’re anticipating the trough to just be a little more shallow than it was the last round.

Anthony: I agree with that and I think you’re spot on there. The manufacturers are correcting maybe a little bit more than what the dealer or the customer sentiment is. I was at a dealer meeting not long ago, and there was a lot of optimism still in the marketplace. As I visit people at the show so far today, a lot of optimism, a lot of anticipation about 2024. But again, I think that could help soften what you’re talking about. It’s smart of the manufacturers to do what they’re doing. That will help shallow that trough you talk about. Hopefully it won’t be nearly as bad as what we’ve had to go through previously.

Burch: I think one of the things is that we look to get out in front of it. We anticipated earlier what we were seeing, what we were feeling in the marketplace, what the producers were telling us and things of that nature. And then we come off a multitude of things where equipment’s been really short supplied. 

You could sell whatever you got and as the manufacturers got back into producing past the COVID era there and all that. We kept looking out in front of us, and we got out in front of it and a lot of dealers did as we saw some sales taking place, the “right sizing” the inventories.

I think the total number of units being produced and sold declined compared to 2013, 2014, through that era. I think that’s one piece, and I think most dealers recognized it sooner. We also looked at ordering. Do we want to order everything we can get our hands on? Do we want to look into doing that or do we back that up a little bit and have a more strategic approach to the market than we’ve done in the past?

Anthony: One thing to your point that COVID taught us, and I’ll use this example from Wayne Gretzky, probably the most famous hockey player in history. He used to always say, “If you skate to where the puck is, you lose. If you skate to where the puck’s going to be, you can win.” 

COVID taught us to skate in front of the puck. I think it taught us to really forecast, to your point, further out than we’ve ever been comfortable forecasting before. Trying to talk a customer into waiting a year and a half to get a piece of machinery, that was unheard of before. We used to wait a year, but not a year and a half.

We just got used to forecasting a lot further out in front of things. And so then, to your point, we came back and said we’ve got to start forecasting everything else, the corrections and some of these other things a lot further out in front as well. None of us want to relive that era and go back to that, but it probably did teach us a lesson how to forecast a little further up front.

2025 Used Equipment Market

Burch: I think we’ll see this cycle not take as long to start to turn the other direction. And we’ve always had a philosophy that we know it’s coming down. Can we mitigate how far it goes down? Can we do a better job? That’s why we’ll see a much shorter cycle this time around. But I do feel like we’ll see some pressure from the 4th quarter on through 2-3 quarters of the next year before we’ll see that thing maybe start to ease and go the other direction.

Anthony: It’s going to depend upon the financial strength of these dealers and how quickly they’re able to flush out what they have currently. Because, right now, we’re going to be buying the same used that we bought a year ago at a lower price because of the adjustment that’s in the market. If dealers have to monitor or measure the amount of loss they have to take on this used equipment to get to that point, they might drag it out. But that’s going to be dealer by dealer.

Burch: I think the possibility of seeing manufacturers with interest rates and I think that’s going to help turn this thing. If we see manufacturers or the Fed itself reduce these interest rates, I think we’ll see some improvement there back again on the buying side of the business.

Anthony: I agree. If we see a point, point and a half drop, we can put some momentum back in the market. We just need to clip it a little bit and we can restore some of that lost momentum. I don’t think we’ve lost again, but I think it’s right here.