The Dealership of Tomorrow: Who will be the “New” Used Buyer?

This is an exciting time in the Farm Equipment Business. There is a generational paradigm shift happening both with Ag Equipment Dealer and the Producers. Retiring Producers and those that have gone out of business, have the left the door open to expansion. Across North America, the demand for Technology, specialized product knowledge, and the decreasing number of Producers has lead to greater Dealership consolidation. In order to create economies of scale both sides will continue to grow. So what does this mean and how will it effect each other’s business? I am of the opinion, the next five years will have such a dramatic change the industry it will be unrecognizable.

As the number of Producers shrink the number of buyers do as well. So what does this mean to both the New and Used Equipment Market? I believe the market will mirror the Construction Market.  As Producers’s Operations grow the 2nd and 3rd buyers will disappear. This will leave a void in the market. Dealerships will be faced with what to do with a Used Market with less buyers. So how will this effect the sell of New Equipment? Yearly roles of equipment will be be greatly scaled back. Dealerships will not have the appetite to digest the number of units each large scale operation produces. In doing so, each year will consist of a cross section of equipment trades. Customers will be more interested in maximizing Machines Throughput v. Machine Deprecation. In other words, when have they gotten the good out of the machine and maximized ROI.

Like the Construction Industry, larger operations will have an Inventory Control Manager buying and selling their equipment. They will understand the market as well as, the effect of equipment on balance sheets. Sound familiar? If not it should! This person will have the same functions as the Remarketing Managers do at Dealerships today. They will look at the market and understand what hour range will produce the best ROI. They will also know what Used Machines to buy with the best value. They will be professional buyers and understand the ins and outs of the dealerships because they will come from the dealership!

So the biggest questions in the scenario is who is going to be the buyers of Used Equiupment. The fastest growing segment in Ag Production is the 500 or less acre Farm/Ranch. There are a lot of part time farmers and rancher working their “Day Job” while working the Farm/Ranch at night and the weekend. This has never been more evident then in the raising demand in the 150 HP and less tractor. This segment grows every year and is an important revenue stream to any dealership.

On the flip side, the fast decreasing operation is the 3500 acre and less farm. These are the operations big enough to support one family but not 2 or more. This is where the larger operations are are getting their expansion.  These are also the prominent buyers of late model and low hour Used Equipment. As these buyers go by the wayside so do the buyers of used. So as this population of buyers continues to shrink the Dealer Groups will have to rely on the 1500 acre or less Operation to fill the void. This machines will need to older and have more hour in order to find buyers. This will become the the “New” Used Equipment Buyer.

In my opinion, this will broaden the auction market moreover, the online auction market. Because Larger Operations will have the personnel in place, they will be selling more of their equipment Online to end users, listing equipment on Online Auctions, and trading a smaller amount of equipment back to Dealerships. I see the New Equipment Market developing into a different mindset as automation becomes more mainstream. The number of machines working in the field will increase and the size and HP will decrease. This will open a a whole new door to a whole new buying and selling cycle.

The market is changing and Equipment Dealer needs to be driving change; not the Producer. The shift between Grandpa and Dad was simple, for the most part. The Internet and Auto Track wasn’t mainstream yet. The generation taking over, at a minimum, has spent half of there life on the Internet and is completely comfortable buying off  the Internet site unseen. This generation views equipment as a commodity but the technology and support are not. So I will leave you with one last questions, are we Equipment Dealers or Technology Companies selling Ag Equipment? I believe the later! The future is bright for Ag Equipment Dealer Groups adapting and overcome the challenges they are facing today as well as, recognizing and preparing for challenges the future will hold.

For more topics like this tune into the Moving Iron Podcast which can be found on iTunes, Google Play, Stitcher Radio, TuneIn Radio, and SoundCloud. If you would like to continue and of the conversation you can hit me up on Facebook, Twitter, and Instagram @MovingIronLL  or send an email to MovingIronPodcast@MovingIronPodcast.com.  You can also visit my website, www.movingironllc.com, where you can final all things going on at Moving Iron. So until next time lets go move some iron. This is Casey Seymour out!!

Large Frame Articulated Tractors and Options

Farm Equipment Technology has come along was in the last 100 years. Horse power has gone form 20 HP to 620 HP and rightfully so! The size of implements demand has  greater HP requirements as well as, hydraulic capacity. The role of the tractor has changed as well. Bigger HP tractors are now expected to be a tillage, planting and grain cart tractor. As the size of implements continue to grow. Large HP tractors will have to fill multiple voids on the farm.

3pt and PTO on High HP Articulated 4WD and Track Tractor isn’t anything new. These option have been available for many years. These option have not been very utilized on these machines until recently. It has been since the introduction of the 9R, 9RT, and 9RX have these options been actively added to machine.

The size of Grain Carts is requiring bigger machines to handle the load requirements. These machine also require a PTO to unload. Adding a PTO to these machines increase the salability of the Used Machine. This option will open the National Market and have a greater likelihood to the sell machine faster if positioned correctly in the marketplace.

Another option growing in importance are High-Flow Hydraulics. In order to operate them, The size of implements are demanding more hydraulics every year. The size of Air Seeders, the size and speed of Planters, and the down pressure required on Planters and Tillage require a large amount of fluid and fluid demand. Implements will continue to require more hydraulics as speeds increase and down pressure requirements increase.

3pt equipment is also growing in size and with size comes weight. Mounted planters are growing every year and Hydraulic Lift Capacity is limited to the weight and size of the tractor doing the work. The tractor will need to have the HP to pull the implement through the field and in order to make this the machine work properly; it will need to be weighted and ballasted correctly. This may mean the Large Frame Row Crop is too small for the implement in question. Hard to believe an 8400R might be too small for some implements in certain situations!!

All being said, The face of Agriculture is changing. To those of you reading this who remember when 300 – 400 HP was a lot of tractor, this is not news to you. In their own right, Ag has had many faces and they all are amazing. The future of Ag Equipment is bright and will continue to morph and change with needs of the Producers do. As I am writing this, down payments are being taken for fully autonomous vehicles as well as, plug-and-play systems making machines autonomous. This means no one is inside the tractor operating the functions of the machine. It’s doing it all by itself while monitored by a distant laptop screen somewhere. Only the future knows what this will do to the size and number of machines working in a single field.

For more conversation like this, tune into Moving Iron Podcast on Itunes, Google Play, TuneIn Radio, Stitcher Radio, and Sound Cloud. Companies like Smart Ag, Climate Corp., and Dot Technologies all have contributed to this topic. If you have any questions or comments please send them to me at MovingIronPodcast@MovingIronPodcast .com or on Facebook, Twitter, and Instagram @MovingIronLLC. So until next time let’s go move some iron. This is Casey Seymour out!

 

Depreciation: Hours Matter!

Like 2017, 2018 will present similar profitability challenges. In order to have a profitable year, every seed, gallon of chemical and water, pound of fertilizer, and machine hour will need to be maximized. Profitability will hinge on how each is respectively planted, applied, harvested, and ultimately marketed. Like you will read in this flyer, machine optimization plays a fundamental role in maximizing efficiencies. With increased efficiencies come increased profits. These profits can come in the form of seed savings, not over applying chemical and fertilizer, and regulating water application based on soil type and field conditions. These material reduction play a profound role in On-Farm Income. Like seed, chemical, fertilizer, and water machine hours can be decreased as well.  This article will outline a simple way to reduce the hours of non-revenue generating machine hours.

I will use a 8370R with 906 hours as an example.  JD link is nothing new and has been a standard option on John Deere Equipment since 2012. Since JD Link is a standard option there is no additional hardware or software need. It is all part of the machine from the factory. Along with machine performance, JD Link tracks machine hours and how they are used. This illustration is the lifetime JD Link Data for hours of use.  The statistics I want to draw attention to is the number of idle hours. This tractor has 906.7 total hours of use. It has set at idle for 227.6 hours. If you do the math this tractor has idled for 25% of its life. This machine will be assed with the number of hours on the meter at the time of trade. The total working hours of the machine will be the same regardless if the machine is at idle or not. The difference in hours could easily equate to $15,000 – $20,000 in total trade difference alone. This 8370R will do the exact same amount of work but, instead would have 679.1 hours. The salability of the machine goes up and so will the trade value.  The other cost savings is $772.50 at $2.50 per gallon in fuel savings. I understand there are reasons why the machine will set at idle during the work day. The point I am making is hours matter! What would the impact be if idle hours were cut in half? It would have an effect on resale of the tractor as well as the trade value.

If you would like to hear more conversations like these tune into Moving Iron Podcast  which can be found on iTunes, Google Play, Stitcher Radio, TuneIn Radio, and SoundCloud. You can also visit my website, www.MovingIronLLC.com, where you can find recent Blog Post from the Moving Iron Blog, past and current episodes of Moving Iron Podcast, Morning Market Roundup with Chip Nellinger, and the Tax Tip of The Week with Glen Birnbaum. So until next time, let’s go move some iron.

2013: A Paradigm Shift in the Ag Equipment Business

In 2013, the signs of a looming collapse were becoming clear. In Farm Equipment Magazine, Dr. Jim Weber had been writing a series titled, “The Business of Selling.” An article from the series “Gathering Storm Clouds” was posted July of 2013.  I am paraphrasing but, the article, Dr. Weber talks about low return on sales, dealerships dependence on volume and market share payments. Because of the low returns, dealerships should have been failing in droves. Because of record high commodity prices, record low interest rates, and record on farm income dealerships were able to spike margins with New and Used Whole Goods.

Leading up to the article, conversations had been taking place about how to handle One Year Rolls and what to do with Used Equipment piling up on lots. By this time combine rolls had become an issue. Dealerships were starting to see carryover from bigger multi-unit customers. For example, if the customer buys 6 new machine and trades in six machines, when the next round of trade-ins where coming there might be 1-2 units still on the lot. This kept happening for the next 2-3 years. This was the start of stagnant, slow moving inventories across North America. Dealerships where forced to increase trade differences to bring equipment back into line with market demand. Thus, started the decline in Large and Small Ag Whole Good Sales.

This created a bash lash in the Retail Market. Retail average advertised pricing compared to average auction value started to widen. Overnight trade difference double and in cases tripled. 2014 was first year I noticed a considerable spike in Auction activity, even more so at the end of the year. From October of 2014 until December of 2016 marked the free fall of Used Equipment Values.

To me, the SEMA Equipment Auction held on November 29th, 2016 was the turning point to stabilizing the market. From the SEMA Equipment sale through the end of 2017 auction values started to form a soft bottom. Throughout 2017, the auction market no longer had the wide swings from sale-to-sale. The values became more consistent and predictable. The average retail advertised pricing compared to average action results narrowed. At Retirement Sales and some Dealer Consignment Auctions, values were mirroring dealership retail reported selling prices. The retail Market is also showing signs of life. More dealers have reported the sale of new equipment then in past years and the late model low hour used equipment is in higher demand.

Because of higher trade differences, Producers are running their equipment longer than in the past. The Used Equipment Market is lined with 2012 – 2014 model year machines with more average hours of use per year then I have seen in my career. As the older generation retires, operations fail, and more farm ground transfer hands the same equipment has been ran across more acres. Which, in my opinion, is causing the spike in new and used equipment sales. The lack of late model and low hour equipment coupled with high reconditioning cost have the market moving into a stable condition. With more and more Producers looking for ways to protect cash flow, find better ways to manage risk, and increase efficiencies leasing and extend warranties have become a bigger part of the sales conversations. Lease Return Equipment has also filled some of the void for late model low equipment demand in the market.

In closing, 2018 will mark the fifth year of the current downturn. The positive side is it feels like a soft bottom has formed. Auction Prices are stronger and more consistent. Equipment demand is shaping the market not equipment supply. The gap between advertised retail price and auction values have tightened to a very manageable point.  Model year 2012 – 2014 machines have stabilized and are no longer creating wide rifts in auction value. These machines are now showing consistent auction values and have predictable auction outcomes. Of course, like anything there are exceptions. I can give examples of shock and awe on both sides of the spectrum. MY 2012 – 2014 have also become a commodity because the overwhelming supply in the market. This should be no surprise since this was the height of the Ag Economy Super Cycle. So, for these units to be stable or showing signs of stronger stability is a very encouraging indicator.

If you would like to read or listen to more topics like this Check out Moving Iron Blog and Moving Iron Podcast at MovingIronLLC.com. So, until next time, let’s go move some Iron!!