Moving Iron Blog 9-8-2019 Used Equipment: Categorically Speaking 

This week I had a chance to talk with Dirk Mitchell of Mitchell Equipment. Our conversation was how to categorize Used Equipment during the Trade Evaluation Process. The great thing about doing my podcast is that I get to listen to others and how they are solving problems. Like Dirk, I am still trying to find the best way to implement this practice. We both have a good idea of how we want it to look; it's the implementation that is holding up moving forward. What does that look like? How big of a cultural shift will it create? All of these questions must be answered, and standard operating procedures have to put in place to categorize Used Equipment.

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Auction v. Retail: Lessons Learned

For 13 years, I have worked in the Ag Equipment Business. Along the way, I have had many mentors, and trustworthy people teach me everything I know. One reoccurring theme was the differencing opinions between the Auction Market and the Retail Market. Not one mentor I worked with had the same view of how these two markets work together.

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Casey SeymourMoving Iorn LLC
Moving Iron Podcast Blog 8/31/19: The Hay and Forage Equipment Market

On this Week's Podcast My Guests, Aaron Fintel and Jordan Kite, of Agri-Service in Kimberly, ID, and I talk about the Hay Equipment Business. Since the current downturn started, Hay Equipment has been the most consistent at holding its value. This segment has never been a real barn burner or a slug. Since 2013, a steady and constant demand for Used Round Balers and Windrowers has been a bright spot for many dealer groups. Much of this is due to Cattle Prices during this same time frame.

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Casey Seymour
The Space Between

I have a really good outlook for Used Equipment in 2019. It won’t be because of On-Farm Income or Record Commodity Prices. It will come from the age of equipment on the Farm. The age of equipment is the oldest is has been in the last 5 years. From 2009-2013 New Machinery was produced in record numbers. Every year was the “Best Year Ever” and used inventories reflected the sale of new. The market was flooded with 1-2 year old trades. This was caused by record On-Farm Income which cause the One-Year-Roll Cycle.  The same thing is happening today. The market has a good supply of 1-2 old machines and a good supply of 7 plus year old machines. The issue is the space between.

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Casey Seymour
The Hangover

I wish I was writing about a wild weekend in Las Vegas, waking up with a Tiger in my room and having to explain to Mike Tyson how we got but I not. The Hangover I am referring to is not the hit moving rather the glut of 2012 - 2014 Used Equipment on the Market, more specifically Combines. 

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Casey Seymour
The Good, the Bad, and the Ugly.

A lot is going on in Agriculture right now! There is a very wet corn belt that could lead to some planting delays and, by the way, a lot of snow melt to add to the already swollen lake, rivers, and streams. If that is not enough, two epic Blizzards in 30 days, a massive Polar Vortex, and one of the coldest winters on record haven’t done any favors for the Livestock Producers this year. Last but not least, what would an article be in this day and age with talking about China and trade wars. With all of these factors in play, what does it mean to the equipment Industry?

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Casey Seymour
The Easy Button

I have been working with Used Equipment for 12 years. During that time I considered many different ways to value equipment. I have looked at building calculators based on Dealer Price and then assumed an average sale price. I have also used the same method to compare dealer price to advertised retail price, cash selling price, and auction value to paint a picture of machine values. The one thing I have never done is put a blanket percentage of depreciation on equipment. If you are looking for an easy button, stop! It doesn’t exist!

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Casey Seymour
Reference Points

Earlier this year I wrote an article titled “There’s No Easy Buttonfor Used Equipment Valuations.” The column outlined how paying attention to the markets and understanding history is a more foolproof method of evaluation equipment. In this article, I want to explain some of the reference points I use to see the health of the overall market as well as my current used inventory.

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Casey Seymour
The Rising Price of Equipment and the Secondary Market.

I was curious to see what the price increase has been for combines over the past three model changes. I looked through the business system, locating customers who have rolled combines every year trying to see the the evolution of pricing over the last decade. What I found was not at all that shocking but at the same time I have to wonder how long trading the volume of equipment with high used pricing can be sustained. This is not to say a 2018 combine and 2008 combine are the same. The amount of technology and overall improvements in the past 10 years are tremendously vast. So, this goes without saying, R&D cost will be recaptured but with this comes a challenge of its own. When a manufacturer has a price increase it does affect the used market but not the entire price increase. In the the last 5 years, the rate of price increase recapture has been less than previous 5 years. 

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Casey Seymour
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.        

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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.

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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.

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Machine Reconditioning and its importance

It is hard to believe that another Fall Harvest will be upon us soon and Planting Spring Crops is just around the corner. With that being said Combines, Grain Carts, Tractors, various other kinds of Harvest Support Equipment, and Drills will be resurrected once again to bring the bushels off the fields and to the Bin for Market. The importance of making sure your machine is in peak operation condition is paramount during harvest and the current economy. Every bushel of grain is equally important and none of it can be wasted or lost. If your machine is free of breakdowns your efficiencies go up and so do your profits. This means your machine is set correctly and your overall machine utilization is at its max. Grain lose is minimal so more bushels are getting in the bin. The Grain Cart Tractor and Cart are working in tandem for speedy delivery to the Semis hauling grain back to the Farm or Elevator. Time is of the essence during Harvest. Mother Nature doesn’t always cooperate and downtime doesn’t make it any easier.   

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The Case for a Sales Department Machine Inspector

Inaccurate Machine Reconditioning can completely wreck inventory. If the estimate during the Sales Process is to low or something was missed; the end result could be a loser for the dealership. If the Recondition Estimate is exceeded, the unit could be sold for a loss. Writing Machine Book Values down and paying interest, costing the dealership money and negative margin selling opportunities demotivate Sales Reps. On the flip side, over estimating can have the same effect. It is easy to put too much cushion and miss the deal. So instead of creating Margin, Volume, and Market Share via Aftermarket and Whole Goods the deal is gone. Having machines for Sales Reps to talk about and sell generate margin. It is easy for Reps to become demotivated by stagnate inventory they have pitched over and over again. So, how do you balance this fine line we walk? In my opinion, the sales department needs to have an inspector.

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New Tech Old Planters: The Birth of a New Industry Trend

The Planter Market has been a rollercoaster since 2014. Four years ago, if you had a planter larger than a single row you had a hard time getting rid of it. Like other equipment segments, planters were highly produced and the market was flush with inventory. Used planters had piled up on Dealer’s Lots and the Auction Market was the new place to buy Used Planters. Week after week auctions bill where loaded with planters. They were everywhere! Of all the equipment in the last 5 years, planters took the worst beating. New planter sales fell from Highs of 50-60 to even 100 per year to lows in the single digits. Planters were being rebuilt instead of trading for new. High speed technology was introduced from manufactures but “Bolt On” equipment had been available for several years at this point. Older planters started getting a face lift with new high speed technology. 

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Casey Seymour
Has the Auction Market Become the New Retail Buying Market or is Supply and Demand Driving Pricing at Retirement and On Farm Auctions?

It is not a shock to anyone when I say the last five year auction activity has greatly increased. At the end of 2014, Used Equipment Inventories where at all-time highs. The Auction Market became a dumping ground for all kinds of equipment. Late model, high hour, and everything in between. There was nothing sacred. The use of the auction market is still strong today with Dealership Liquidations, Farm Retirement Sales, and Farm Liquidation. With large amounts of equipment selling on the open market; has the buyer become more retail minded at the auction? In this article, I will give some examples supporting auction activity and Retail Pricing at Dealerships. 

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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 title, “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. 

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Where does Inventory Management Start and Why Does it Matter?

Inventory Management has become extremely important for larger dealer groups with tens of millions in inventory and millions at risk.  Auctions have grown because it’s a controlled method to reduce inventory levels and risk.  Because of the growth in auctions, the amount of inventory being sold at auctions has caused equipment values to decline.  Additionally, consumer confidence and the decline in the Ag Economy have put pressure negatively on auction values as well.  On top of this, we still have pressure to meet manufactures demands and sell new equipment… So you have to ask yourself, are you setting yourself up to repeat the not so distant past?

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Inventory Issues: It’s More Than Just Having Too Much.

If you ask anyone in the Equipment Business if they have any inventory issues most of the time the conversation will revolve around how they have too much inventory. The conversation will lead into the models or category causing the biggest problem and “If I could just get rid of X number of units how wonderful life would be.” Very rarely does the conversation start with “I have a big inventory problem; I don’t have enough!” In this article, I am going to talk about what happens if your inventory is to low and holes in product mix won’t allow for the washout cycle to be complete. Lack of inventory will have the same effects on Used Equipment Matrixes and Ratios as having too much. These three examples outline why.

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Understanding Used Product Segment and Turn

In my last column, I talked about the importance of understanding the Washout Cycle and how understanding time to hold and number of units to sell through, effect your future inventory. In this edition, I am going to write about the importance of segment turn and how it effects overall Used Equipment Turn. To the people reading this article it is no surprise the bulk of the Dealership’s Cash is tied up in Used Equipment. The risk of every dealership is in used equipment. So much of the Dealership’s profitability is directly tied to its ability to generate cash by selling used equipment. The faster your dealership turns used equipment the more available cash there is to move to the next machine or project. Understanding how each inventory segment effects your overall turn will greatly increase your ability to achieve your turn goals.

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