2023 saw normal obstacles and those that were not so normal. A few of the issues are easy enough to see, like interest rates, lead times on new equipment and the price of used equipment. Rising used inventory levels — and not just combines — have caught the attention of used equipment and remarketing managers. Will lead times, interest rates and machine inventory be present in 2024, or will they be amplified?

I am writing this in November 2023 and interest rates have doubled since the same period in 2022 and tripled since 2021. For example, if a used machine has a book value of $400,000 and floorplan interest is at 7.5%, it costs $82.19 per day in interest. Watchful eyes do not take long to become concerned about inventory levels. Interest rates are why the auction market had an incredibly early start. Some inventories have become so bloated that machines are leaving the farm and heading straight to the auction block. 

Is this a declining market because of a lousy economy, or is this a correction based on an inflated price bubble? 

My vote goes to the latter, but interest rates are a factor. The equipment business has gone through an incredible time of machine pricing and value. Everything in the equipment market was influenced by shortages, strikes and an influx of capital not seen since the 2008 housing crash. 

Still, COVID relief was significantly more immense in scope and overall dollars distributed. Because of the size of COVID-19 programs, the available dollars drove up prices well beyond any supply and demand fundamentals. 

The number of used compact utility tractors (CUT) is a good example. Extra funds fueled the buying of CUTs to the point that the market is now flooded with such machines. To combat higher interest rates and sell new CUT tractors, manufacturers have issued integrated programs as rich as 0% interest for 84 months. With interest rates as high as 10% in some cases, the used CUT could be more expensive than the new when considering the cost of money. 

Combines are an easy target, like any other time, so I am not going to devote much space writing about them. Too many expensive combines were sold, and too many expensive used combines were taken on trade. What concerns me isn’t the used combine market, it’s the used row-crop tractor market. 

There is a mindset that it’s better to have too many row-crop tractors than combines. I agree with the logic — of course, it is easier to sell a tractor. Row-crop tractor sales outpace everything else. Manufacturers had delays, allocations and canceled orders. Even with all the headwinds, record numbers of tractors were ordered and produced. 

As shortages and delays decreased, machines started to show up fast, so much so that the market is adjusting quickly as the interest rates are slowing down buying decisions, not stopping buying decisions. I want to make sure I am clear on this point: the buying of new or used equipment hasn’t quit, and, in some cases, it is more robust than ever. Take auction values, for example. I have seen auction values as strong now as during COVID shutdowns and related shortages. 

Although it’s always better to have more row-crop tractors than combines, there comes a saturation point. From my seat, it looks like the market found it. Like combines, the price of used row-crop tractors not only are at all-time highs, but the amount the prices have increased over the last 3 years is adding fuel to the fire. Like combine sales, who is the $400,000 or $500,000 used row-crop tractor buyer? This question will be asked several times in the coming months and will play out in the auction market between now and March 2024. In the coming months, the tractor market will need to be watched and adjusted. 

The Federal Reserve has hinted at no more interest rate hikes. That being said, the Fed hasn’t said it plans to lower rates anytime soon. Like price increases, interest rates over the past 3 years have almost tripled, adding to further uncertainty. The used equipment market will continue to correct not because of a lousy economy or low crop prices but rather the eroding of the scarcity premium established during the COVID years and interest rates. 2024 will be a successful year, but it may not be as good as the previous 3 years.