“There is a house in New Orleans / They call the Rising Sun / And it's been the ruin of many a poor boy / And God, I know I’m one."

These lyrics are from the song "The House of the Rising Sun" by the Animals, one of my favorite songs growing up. I listened to it play in the background as my dad would spend his weekend fixing and building things around the house. As I grew older, I understood better what the song was about — that ultimately every decision has consequences, both good and bad.

Let me start by saying the COVID supply chain disruption was an absolute gift from the equipment gods because it helped clear out old used equipment. I am sure my statement will shock and astound everyone reading this. The perception that less equipment was sold during 2021-2023 is wrong. Manufacturers delivered less equipment on time, but the orders were there. However, the equipment supply disruption has created a scarcity premium in price, which has been compounded by manufacturer price increases. So equipment is priced at all-time highs. 

If you listen to my Moving Iron podcast, I often talk about combines and not typically in the best light. I am not about to change my evil ways now. I have my concerns about combines, and they aren’t strictly related to price or the number of used combines. My concerns come from the number of high-priced used combines on the market.

As of April 9, 2023, there were 9,706 used combines listed on TractorHouse.com. A year earlier, there were 9,196 used combines recorded. The number in April 2021 was 11,179. More used combines will be listed as more new combines get delivered this spring and early summer. I expect the number to hit 10,000 by May and return to 2021 levels by late summer or in time for the fall auction season. While the number of used combines available will not be unprecedented, the costs associated with used combines will.

The breakdown of combines listed in April 2023 is as follows: 

What are the ramifications? The number of used combines with 300 hours or fewer is 415. Of those, 83 (20%) have 50 engine hours or fewer. The delayed delivery of new combines has made the market flush with late-model, low-hour machines. So, if a buyer was in the market for a new combine but the price was more than they could afford, they would have an opportunity to buy the next best thing. But for the first time, used combines are more expensive than new combines. To me, this is the biggest threat combine dealers are facing. Used Class 10 and 11 combines are in direct pricing competition with new Class 7, 8 and 9 combines. This is uncharted territory, and watching how the market plays out will be interesting.

That being said, this also opens the door to exposure like nothing anyone has seen before. When — not if — the combine market slides, 50 cents on the dollar is a long way from $100,000 if a Class 10 or 11 is liquidated.

The next biggest threat is interest rates. The cost to hold equipment inventory on the lot is through the roof. The floorplan interest cost for a $500,000 combine at a 7% interest rate is $97.22 per day. In 30 days, interest charges equal $2,916.60. Profit margin is quickly eaten up at this rate with little to no room for exposure . It’s the same for the rest of Class 7, 8 and 9 combines. The vulnerability with these combines is no walk in the park either.

I don't see a scenario without a big selloff of used combines in the future. Whether it is this fall or next spring, it will happen. Used combines are the last to the party and the first to leave. But this time, they will be all alone — and I mean all alone.