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Large inventory, lower values

Overheated new machinery sales in the past few years have generated a large stock of used equipment all across Canada and the U.S.

The Association of Equipment Manufacturers (AEM), which represents all the major ag equipment brands, recently published a less than optimistic prediction for the used ag equipment market over the coming months.

“While some sources are indicating record prices for used equipment due to the low amount of hours logged, in general, higher inventory of used equipment is still driving down the price to below what the machine is worth,” reads the statement. “The large inventory of used equipment sitting on dealer lots is not only decreasing the ability of the dealers to purchase and finance new equipment, but is also lowering the value of the trade-ins farmers tend to use when buying new equipment. Dealers might go so far as to not accept used equipment for trade-ins.”

According to John Schmeiser, executive VP and CEO of the Western Equipment Dealers Association, the large volume of used equipment currently available on the North American market is causing concern in the industry, but some dealers have handled their inventories better than others, and not all are suffering. The problem is also more acute in some regions than others, particularly the Southern U.S. which has seen record drought in recent years, stifling equipment sales.

“The fact of the matter is 95 per cent of new equipment sales involve a trade in, and there is a lot of good quality, fairly new, low hour four-wheel drives and combines out there,” he says. “Our dealers were concerned about used inventory levels in May and June. But fortunately they worked through that fairly well.”

“Last week (mid-November) I spoke to some dealers that were sold out of used combines and were buying some from other dealers because they didn’t have anything to sell. I wish that was the case across all of Western Canada. It’s not. Just in some isolated situations.”

What goes up must come down

The larger-than-normal national inventories of used equipment in Canada and the U.S. is the result of more than five years of very rapid growth in new machinery sales, fuelled by record farm incomes.

“For 2015 we just don’t see the run up in (new equipment) sales we had from 2008 to 2013, which was pretty much double digit increases, year after year, after year,” adds Schmeiser. “We knew that growth would be unsustainable, and we looked at 2014 as being a correction year and that’s certainly what its turned out to be.”

Now along with declining sales of new machinery, many dealers are facing challenges in dealing with the resulting oversupply of used equipment from the previously red-hot equipment market.

“We noticed with some of our larger members their new equipment orders have stopped, solely because they need to address their used equipment situation,” says Schmeiser.

Rocky Mountain Equipment, Western Canada’s giant CNH retailer, is one of the dealership chains that has already worked to address its used inventories, according to Jim Wood, Rocky’s VP for agriculture.

“I’m less worried about it than I was probably two years ago,” he says. “As far as the used goes, stuff is still selling. You’d think with the low Canadian dollar machines would start to move a little more into the U.S. (but they haven’t). We work on fairly low margins in the ag sales business. What really helped in the third quarter (for Rocky) was even though we have a lot of used, the value of it is correct. We’re not having to sell it at a loss or auction it to get rid of it.

In late 2014 both Case IH and John Deere announced incentive programs to help stimulate used equipment sales.

“Case IH has been a great partner to work with,” says Wood. “They help wherever they can, because they realize we’re not going to sell much new if we can’t move the used.”

About the author

Machinery Editor

Scott Garvey is the machinery editor for Grainews.

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