[Source: INEDA, 05.2016 | Keywords: Auctions, Used Equipment]
Farm machinery auctions have been a part of the agricultural landscape for over a century. From farmer retirements and dealership consolidations, to bank foreclosures and inventory reductions, auctions have long provided farmers and dealers with a quick way to move equipment.
Over the last year, the number of farm machinery auctions has grown significantly due to the downturn in the ag economy. This trend is expected to continue.
Industry experts from BigIron (BI), Machinery Pete (MP), Purple Wave (PW), Ritchie Bros. (RB), Steffes Group, Inc. (SG) and Sullivan Auctioneers (SA) recently shared their insight on this growing trend of equipment auctions. Hereís what they had to say…
Q: What trends are you currently observing in farm equipment auctions?
BI – Overall, we have noticed an increase in farm retirement auctions. The current market cycle has prompted several producers to exercise that option, which they postponed during the past run up in grain prices. The farm economy is in a much better position today than during the 80s. However, reports of low pricing and fear of loss has prompted some farmers and dealers to hold onto equipment longer than during recent market highs. Lenders have started exercising more caution as well.
MP – The number of machinery auctions have increased significantly since July. For example, machinery auctions increased 117.5% in January 2016 over January 2015. I feel the biggest thing driving this increase is the number of older farmers retiring. These farmers had a really good run from 2007 to 2013. However, with things declining over the last two years they’ve had to start selling their machinery. I have also observed more financially forced auctions for farmers. After the recession, the lending rate has gotten tighter at banks, which has dictated a lot of farmers to restructure. Until recently, I’d never heard a farm auction called a “farm inventory reduction auction.” Now I see that quite often. It’s basically the lender saying, “We need some cash here.” Another big thing I’ve noticed is a lot more dealers aggressively moving excess late model used inventory.
RB – We are starting to see more farmer auctions. With the lower commodity prices, farmer balance sheets are stressing a bit. As a result, smaller farmers with tougher balance sheets are now bringing some of their equipment to auction to keep the cash flow going and to help the balance sheet come back.
SA – We’ve seen a 10 to 15% uptick in the number of auctions being held this year versus last. The majority of these auctions have been farmer retirement sales. After an initial drop in machinery prices (following the drop in commodities during summer 2014), prices leveled off and now we’ve seen a slight price increase in the past 8 to 10 months.
SG – I think discussions about having machinery auctions are becoming more commonplace as opposed to one to two years ago. At Steffes Group, we experienced a very big spring auction season regarding on-farm auctions. I think the profitability (with farming) is just not there, so many have decided it’s a good time to retire.
Q: Do you feel equipment values are starting to firm up? Do you think we’ve hit bottom?
BI – It’s really a mixed bag depending upon equipment type. Recent auction values created optimism that we may have hit bottom in several equipment categories for this season. I do believe combine prices will be interesting to watch as people prepare for harvest. As always, it’s all about supply and demand. While planter prices plummeted during spring 2015, they were not as bad this year.
MP – The answer will come with auction prices over the next few months, which are tied to commodity prices. It feels like we are starting to find some footing with used values, particularly in late model items. Our data shows used values on large late-model equipment fell significantly in late 2013 and also fell hard in mid- to late 2014. Then they began to stabilize through most of 2015 (except in December) and on into this year. In 2016, auction prices actually have been surprisingly high from January into the first week of March. Many farmers recognize this as a tremendous opportunity.
PW – As with everything in the ag markets, equipment prices ebb and flow with commodity prices. As long as commodities are fairly stable, we think we will continue to see a slight decline due to the stress of the ag markets in the used market this year.
RB – Some dealers I’ve spoken with feel values have hit bottom. However, the big question mark is leased equipment. A lot of leased equipment will be coming back into inventory, so it will be interesting to see how it filters back into the market and whether it affects used equipment values. In addition, there is a lot of uncertainty surrounding corn and soybeans. How these crops do and are priced will determine equipment values going forward. I feel it’s still a good time to buy and not a bad time to sell.
SA – Prices certainly seem to be holding steady, if not increasing slightly. New equipment prices haven’t backed off, which is why quality used equipment seems to be holding its value very well.
SG – I believe the answer lies completely in the commodity market. If we can hold the current values, then I think we’ve hit bottom. However, if corn goes sub $3, I don’t think the bottom is in yet. However, I would say late model, low hour equipment still has the potential to bring retail at auction.
Q: What trends have you noticed with online vs onsite auctions? What % of sales is typically done online?
BI – We continue to see an up-tick in online bidding, even against tightening producer margins. We believe that buyers (who are frequently also sellers) are responding to market pressure by acquiring assets without having to travel. Eighty percent of our business comes from repeat buyers. More than 90% of our auctions are conducted online and registrations are at an all-time high.
MP – Online auctions are bringing in potential buyers from throughout North America and beyond. It’s been a huge development. However, I still see the highest prices realized at physical auctions with online bidding. Physical auctions are an emotional event and great auction companies play on that.
RB – At agricultural auctions, we sell 60% onsite and 40% online. This 60/40 split demonstrates that people still want to see a live auction. To be able to have online buyers and an onsite value for everyone helps bring a wider audience.
SA – The most noticeable trend is the increase in Internet buyer and bidder participation. While the majority of the equipment at our auctions still sells to onsite buyers, online buyers have increased substantially in the last 2 to 3 years. For example, a recent Iowa auction had Internet buyers from as far away as Texas, California and Pennsylvania. Five years ago we were seeing around 5% Internet buyer participation. Today, that number is in the 20-30% range.
SG – Our online platform is getting huge. At one of our recent live auctions, just over 55% of the sales were conducted online. Last year, approximately 60% of our sales were conducted online and 40% of those sales were completed using a handheld device. As a result, our company recently launched a new mobile app that can be downloaded to any handheld device to help expedite this process.
Q: Who is buying the equipment?
BI – Growers and Producers (end-users) represent over 70% of the buyers at our auctions. There will always be a demand for good used equipment. While prices will ebb and flow with the seasons and market cycles, the Internet has helped us put a high number of bidders against the inventory.
PW – With almost any ag auction you have all types of buyer demographics; but the vast majority of our buyers are the end users (farmers).
RB – Farmers with larger balance sheets are still buying equipment and wholesalers continue to buy different types of equipment.
SA – Farmers who traditionally would have
purchased new equipment have been the strongest buyers. Equipment dealers are participating, but the majority still remains farmers.
Q: What type of equipment do you see being auctioned?
BI – A lot of late model high-horsepower MFWD pull-tractors with low hours are showing up in many auctions out of dealer inventories. We are receiving some of those as well, since we tend to get a broader selection of ag equipment to sell every Wednesday in our online auction.
MP – Large, late model planters and tillage have been a little soft over the last few months, while hay forage and skid steer sales have been up. In addition, I have noticed that auctions are featuring a ton more late model farm equipment than I’ve seen in over a quarter century tracking the used market, so it’s a great time to buy. Many farmers recognize that now is a good time to get that combine or tractor because when they look ahead and consider that sales of new equipment have slowed down, they realize it might be hard to find late model equipment two to three years from now. Today the availability is everywhere. Farmers should acknowledge this opportunity and take advantage of the values to be had. They should start with their local dealer first.
PW – We have noticed an increase in the amount of equipment coming in to our auctions. While it has primarily been coming in through farmers, there has been a little up-tick in machinery from dealers and wholesalers.
RB – I have noticed an up-tick in some categories. There has been a small price increase in some late model equipment being sold at auction (mostly tractors) since farmers are not trading in as much equipment.
SG – Over the last few months, farm retirement sales of good clean, late model, low hour equipment have remained steady to slightly stronger. I think a lot of that has to do with the fact that buyers can use the equipment right now. I don’t know what that is going to look like 30 to 60 days from now. However, I do believe we are gearing up to have one of the busiest falls we’ve had in a while. My advice to any dealer sitting on a lot of combines is to try to move them right now or sometime soon because as we get closer to fall there will be more combines on the market.
Q: What role do you see auctions playing for dealers in the future?
BI – We recognize that dealers often see auctions as a last resort when they need to convert assets to cash. However, as lease returns accelerate and lenders start to provide a greater influence on selling decisions, we believe we will see more dealers release equipment for sale in true unreserved auctions that guarantee clear title to its buyers. We also believe more of those dealers will participate in online auctions which provide that level of service and ultimately deliver higher price performance in return.
MP – If you use auctions to deal with excess used inventory you really have to be careful to time your auctions so it’s not during a super swamped period. January and February are great times to sell, as well as October and November. I also encourage you to post more videos ahead of time and to personalize it. Have someone talk about the equipment and shoot a video of it in action so potential buyers can see and hear the equipment.
In addition, I feel that auctions will always be a tool for dealers to embrace if they want to know how much a piece of equipment is worth. That is the beauty and honesty of auction data. You should always know how much everything taken in trade and on your lot is worth because if it’s overpriced on your lot, you’ll have to deal with it.
PW – We believe that online auctions will serve as another component and resource dealers can use to determine product availability and equipment pricing. Plus, with the availability of the Internet and online sources on smart phones, we are seeing a lot more activity on mobile devices.
SA – Auctions are a useful tool for dealers to move overstock or aged equipment and attract new customers. Dealers and farmers alike are adjusting to the new ag environment, and auctions are helping to set new market prices.
SG – I recommend that somewhere between 7 to 12 percent of dealership inventory should be sold at auction every year to keep inventory fresh. We’ve been extremely successful at reducing inventory on dealer lots with our online only platform. During this process, we bring a lot of traffic into the dealership, giving dealers the chance to upsell prior to the auction and sell to back up vendors following, potentially increasing gross sales up to a third.
MEET THE EXPERTS:
BigIron (BI) | Andy Pyron, President and CEO
Live unreserved, weekly public online auctions and onsite retirement auctions. BigIron.com
Machinery Pete (MP) | Greg Peterson, Machinery Pete
Researching and tracking machinery auction prices since 1989. MachineryPete.com
Purple Wave (PW) | Patrick Crouch, Ag Industry Specialist
No reserve online auctions. PurpleWave.com
Ritchie Bros. (RB) | Rick Vacha, Sales Director
Live unreserved public auctions with onsite and online bidding. rbauction.com
Sullivan Auctioneers, LLC (SA) | Luke Sullivan, Auction Manager
Live auctions with live onsite and online bidding. SullivanAuctioneers.com
Steffes Group, Inc. (SG) |Tim Meyer, Iowa Vice President of Operations
Live auctions with live onsite and online bidding, in addition to timed online-only auctions. SteffesGroup.com