I have a really good outlook for used equipment in 2019. It won’t be because of on-farm income or record commodity prices. It will come from the age of equipment on the farm. The age of equipment is the oldest it’s been in the last 5 years. From 2009-13, new machinery was produced in record numbers. Every year was the “Best Year Ever” and used inventories reflected the sale of new equipment. The market was flooded with 1-2 year old trades. This was caused by record on-farm income — causing the one-year-roll cycle. The same thing is happening today. The market has a good supply of 1-2 year old machines and a good supply of 7-year-old plus machines. The issue is the space between.
I am a firm believer in the importance of not only understanding the washout cycle, but also where each segment and machine is at in the washout. This is the simplest and most effect way to measure projected days in inventory, inventory turn and overall health of used equipment inventories. One common theme I see with used equipment inventories is the measurement of health is too often reflected in the total dollars divided by the number of locations and used equipment turn. (Please don’t read this and think I deem these measurements unimportant because I don’t.) The only way for the washout cycle to work is for your inventory to have a steady supply of equipment throughout the portfolio.
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In order to have fluid inventory turn, there can’t be holes in pricing or year segments. For example, if there are no 1-2 year old machines in inventory there won’t be any 3-7 year old machines either simply because there are no 1-2 year old machines for the 3-7 year old owner to trade for. In this situation, more than likely, the older than 7-year-old equipment has become stagnate and aged because these owners are looking for 4-7 year old equipment to trade their older equipment on.
A trend is developing that could have the same impact. The 1-2 year old segment is showing a buildup of equipment. More new equipment has been sold over the past 2 years than the previous 3 years. This is great but comes with some repercussions. The issue is the age of the equipment being traded. What I see is more 5-7 year old plus equipment getting traded with high hours for its age. The lack of 3-5 year old equipment with moderate hours will cause a problem in dealers’ used equipment inventories. The bigger issue is, where will the 3-5 year old equipment with moderate hours come from?
There weren’t enough of these new models produced to fill the void. The 2012-14 model equipment will continue to be an issue not only in population size but in number of hours as well. If this trend continues, there could be a similar issue as seen in 2009-11. It won’t be caused by record on-farm income, rather by not enough of the right used equipment in the supply chain. I am not saying there won’t be equipment to trade because that is not the case. I fear there will be a limited supply of equipment in the middle, 3-5 year old equipment to complete the washout effectively and timely.
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