Over the past 2 years, late-model, low-hour equipment has been the hottest-selling used equipment on the market. Lack of supply coupled with overwhelming demand created an environment further fueled by supply chain disruptions causing factory delays and exacerbating the supply of this kind of equipment.

Interest in older equipment had remained, but it took a back seat to the newer equipment, demand for which came mainly from increased on-farm income and programs related to COVID-19. The influx of cash and lack of supply created a unique environment. At the same time, equipment prices started to rise as did interest rates.

Today, those rising interest rates are starting to take a toll on the used equipment market, which is also experiencing the erosion of the scarcity premium associated with late-model used equipment pricing. With the uncertainty of late-model used equipment and the additional cost, older used equipment is now as popular as before the pandemic. 

From 2018-20, anything under $150,000 found a home more easily than more expensive equipment, especially above $200,000. The used tractor market is experiencing this now. Of course, the dollars are more significant, but the same pattern is starting to take hold. These days, tractors costing $200,000 or less are selling faster than in previous years. 

New Buyer Emerges

More expensive used tractors are available. With supply chain issues slowly waning and more new equipment on its way from the factory — as well as more used tractors open on the dealer lots — opportunities are available for a different kind of buyer: the high-depreciation buyer.

The high-depreciation buyer tends to trade every 3-5 years and invests in “niche” used equipment. For example, the equipment has too many hours for the late-model and low-hour buyers, is a little more expensive than the buyer of 5-10-year-old equipment wants to spend and puts the international buyer in a very narrow lane after VAT (value-added tax) and shipping costs. I first addressed this kind of buyer last year in a series of articles for Farm Equipment entitled, “The Line of Delineation.”

Demand in Freefall

Before today, high-depreciation buyers were most active in 2018-20. Unlike that time, however, higher interest rates mean they are combining more significant down payments with equity from trades rather than just using one or the other. Thus, the used equipment market is not just in for a cool-down. Demand is quickly drying up. 

As buyers become more hesitant to come to the market — and as the numbers of late-model used equipment continue to grow — the market will have a selloff that will violently reset it. The second and third buyers will have minimal equity for trade-ins and will depend on cash reserves for down payments and payment structures to keep equipment budgets in line with previous years. 

The deterioration of the current market should be easy to see. As of this writing, combines have seen 4 straight declines month-over-month in advertised pricing. The slides are only a few thousand dollars rather than tens of thousands of dollars. However, I suspect this will continue, and sometime late summer or early fall, the first auction will take place and officially reset the market. 

Auction activity will require dealers to see which previous years best align with how the number of units they’ve sold is pacing. They also need to look at the difference in the average price of each equipment segment and compare it to the year they are pacing with. Most dealerships will find they are pacing with 2017-19, with the average used machine cost in those years being half of the 2023 cost.

Some Hard Choices

Used equipment cost is going to have an impact on how, when and where each buying group will purchase. In addition, because of the changing buying habits, the overall number of buyers available at any given time will shrink, forcing dealerships to be more data-driven than in the past to understand the market and who will buy before the machine comes into inventory. 

As the market continues to tighten and interest rates constrain buying groups even more, buyers’ limited capital is going to make it harder and harder to make a purchase. This will cause buyers to choose between trading in the low interest rate they have or putting more money down to offset accelerated depreciation from higher interest rates. 

I am interested in how leasing and balloon-style payment options will fit into the playbook. They were significant from 2014-20 and will have as much impact in the coming years. Also, unlike in past years, upgrade kits will play a role, both positively and negatively, in customer buying decisions because of current market conditions.