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.
I am a firm believer in the importance of not only understanding the washout cycle but where each segment and machine is at in the washout. This is the simplest and most effect way to measure projected days in inventory, Inventory Turn, and overall health of Used Equipment Inventories. One common theme I see with Used Equipment Inventories is the measurement of health is too often reflected in the total dollars divided by the number of locations and Used Equipment Turn. Please don’t read this and think I don’t deem these to measurement unimportant because I don’t. The only way for the wash out cycle to work is inventories have to have a steady supply of equipment throughout the portfolio.
In order to have inventory turn be fluid, there can’t be holes in pricing or year segments. For example, if there are no 1-2 year old machines in inventory there won’t be any 3-7 year old machines either. Simply because there are no 1-2 year old machines for the 3-7 year old owner to trade for. In this situation, more than likely the older than 7 year old equipment has become stagnate and aged because, these owners are looking for 4-7 year old equipment trade there older equipment on.
A trend is developing that could have the same impact. The 1-2 year old segment is showing a buildup of equipment. More New Equipment has been sold over the past two years than the previous three years. This is great but does come with some repercussions. The issue is the age of the equipment being traded in. What I see is more 5-7 plus year old equipment getting traded with high hours for its age. The lack of 3-5 year equipment with moderate hours will cause a problem in Dealer’s Used Equipment Inventories. The bigger issue is, where is the 3-5 year old equipment, with moderate hours, going to come from?
There weren’t enough of these models produced new to fill the void. The 2012-2014 model equipment will continue to be an issue not only in population size but number of hours as well. If this trend continues there could be a similar issue seen in 2009 – 2011. It won’t be cause by record On-Farm Income rather, not enough of the right used equipment in the supply chain. I am not saying there won’t be equipment to trade because that is not the case. I fear there will be a limited supply of equipment in the middle, 3-5 years old, to complete the washout effectively an timely.
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