A Very Faint and Dim Light At The End Of The Tunnel

The past few years have undoubtedly been tough for everyone in the ag sector. Low commodity prices and high costs have slimmed margins for everyone. The equipment sector has seen its share of bumps and bruises. Post-COVID supply caught up with demand, and dealership lots went from bare to crammed full of inventory. Expensive late models, low-hour inventory, and high interest rates slowed the purchasing of new and used equipment. 

But 2025 could be when the equipment markets swing in the other direction. 

Used Inventory Sales

The last quarter of the year historically sees the most significant swing in used inventory sales. End users are taking advantage of tax buying sprinkled with a little bit of the variety of suitable machines available. Also, the last quarter of the year normally sees an active auction cycle. I thought that with the amount of equipment sold in the first three quarters of the year the fourth quarter would be muted, but the sale bills are proving to have similar activity as years past. 

I have noticed a quarter-over-quarter decrease across all large ag equipment segments except row crop tractors and planters. I expected to see an increase in tractors, but I was surprised to see the rise in planters. I thought the number of planters I watched sell at auction would have had more impact on inventory, but it did not. The increase in planter inventories shows the number of new deliveries. 

I expected to see an increase in tractors because of the seasonality of new deliveries. In the first and third quarters of the year, standard deliveries of new machines would increase the used inventories as customers take delivery of the new ones. Moreover, the auction pressure may have seemed like a lot for used tractors but hardly put a dent in the overwhelming number of machines on the market. 

Combine inventories are always tightly managed. Even with the seasonality of new deliveries, the sale of used combines at auction and at dealers outpaced the number of incoming trades. I have said this all year, but the combine market is the least-dirty shirt in the laundry hamper going into the end of the year. 

A Light at the End of the Tunnel?

I see a light at the end of the tunnel due to the reduced number of new machine orders for 2025 delivery. New equipment order writing periods for 2025 have yielded smaller than expected numbers across the manufacturer spectrum, and fewer new machines results in less incoming used equipment landing on dealers’ lots. The strength and weakness of the ag equipment business is that it takes a year before the next move happens. Because of less used equipment generated from incoming trades, 2025 will have less front-side pressure, allowing for more backside relief. The question is whether the relief will come from the auction or retail channels.

Unlike the last two years, combines will not be the sacrificial lamb offered up to the auction gods; while they will still be on the altar, row crop tractors will have their turn. I don’t see a scenario where row crop tractors don’t get sold off. It might not be totally at auction, but auctions will play a role in tractor activity. The difference with tractors is they are the first machines bought during any up or down cycle.  

Another reason I look at 2025 as a pivotal point is the reduction in interest rates. If you are waiting for low-rate interest to buy your new or used equipment, I am not sure what you are waiting on. The 12- to 24-month waivers and 2.9% interest for 60 months are not hard to find at your local dealer. The good thing about fed rate reductions is that your local dealer is more inclined to continue to offer low rates, and they might get more aggressive than what has already been published. As rates come down and commodity prices increase, the need to refinance or trade at a better rate will influence the market.

As more machines are traded and demand increases, used equipment values will further solidify and move more positively. As I talked about earlier, because of the low new deliveries for 2025, the tail end of 2025 going into 2026 could see a demand for late-model, low-hour equipment because of the lack of 1- and 2-year-old trades. The market could decrease used inventory, but prices will struggle to rise with demand because of elevated inventory levels. All in all, I see 2025 as a stable year ushering in a new normal into 2026. As I look at the market and what I see coming, I see 2018 through 2020. It is not a cold or hot market but a comfortable market. 

For more about used equipment, listen to my episodes on the Successful Farming podcast the last Monday of each month. Aaron Fintel and I explore current market conditions and factors driving used equipment. Please tune in to the Moving Iron podcast, where I track the economic drivers of the farm equipment business, and check out movingironllc.com for everything related to Moving Iron.