Founder of Machinery Pete read the tea leaves for 'unbelievable' farm auction industry
A surge in online auction participation, slowed manufacturing of new equipment and one of the lowest inventories of used equipment ever has led to an unprecedented point for the farm equipment industry.
ROCHESTER, Minn. ― Greg Peterson has been charting auction prices before they were accessible on the World Wide Web, and he's never seen anything like this.
Due to a surge in online auction participation, slowed manufacturing of new equipment and one of the lowest inventories of used equipment ever, the market for farm equipment has reached an unprecedented point .
Machinery Pete — one of the largest marketplaces for used farm equipment — was founded over three decades ago by Peterson of Rochester.
Back in 1989, Peterson, who's from Benson, Minn., started Machinery Pete out of his basement in Rochester, where he researched and tracked down auction prices for farm equipment, starting in the Midwest and eventually across the country.
Peterson said that the online farm auction industry became "unbelievable" starting two years ago this month, when the curtain fell and the pandemic hit.
"I could see a quantum leap forward in the farm machinery online space," said Peterson of the time about two weeks after the pandemic started.
For over a decade before then, Peterson said he could see that the farm machinery online space was "way behind" the online farm construction auction space. He said pre-pandemic, nearly 80% of non-ag equipment sold by Ritchie Bros. — a company that sells industrial equipment and trucks through live and online auctions — were buyers online.
"And on the ag side, it was more like 20%, maybe up to 35% of online bidders were the winning bidders on a physical auction," said Peterson.
But when the pandemic set in, farm equipment auctioneers were forced to go online only. He said at that point, the market was coming off a depressed period which began around 2014. But he could see an uptick starting around 2019.
Peterson said the thought might be that during a pandemic, farmers would pull back on spending. But due to a commodity price bump, the prices went higher than ever.
"If you went back over my 32 years and charted auction prices against the price of corn — it's a complete direct match," said Peterson.
Rolling into 2021, the supply chain issues started to arise, said Peterson, and became more severe as time went on. In February of last year, Peterson wrote in Farm Journal Magazine, warning of the time ahead.
"I was hesitant to do that, but I felt compelled to have to say that if you need anything equipment wise — just get it, and don't worry about what you pay for it, just get your hands on it," he said. "Because if you read the tea leaves, this ain't gonna be good, because the production of new is going be severely pinched in."
He said with commodity prices up after a six-year period of downturn, equipment was at the top of the list for many farmers. But due to supply chain issues, farm operations were not able to invest in upgrading equipment.
"Now you've got all kinds of precision things like precision planting, high speed planting, and all the data applications — farmers wanted to update," he said. "But the manufacturers couldn't make enough, and so used values just kept going higher and higher and higher."
As 2021 winded down, Peterson wrote again to expect a "tidal wave" of year-end tax buying. He said that even though some accountants say the Section 179 tax deduction is overdone, a lot of farmers use it as a strategy to save on taxes, which Peterson said "they get hit from every angle" on.
"And so the end of 2021 was incredible," he said of used machinery prices. "I've never seen anything like it — and honestly, it's gotten higher in 2022."
Peterson said he hasn't seen prices like this in his 32 years, and he said it's dangerous for farmers to just assume it's only due to inflation. The underlying issue lies in a very low used inventory level.
"The driving factor is the tightness with used inventory levels on dealer lots around the country, the tightest ever," said Peterson.
Recently to get an understanding on the situation, Peterson and his team ran the numbers on a single category — 175-plus horse power tractors — at Machinery Pete. Picking one day -- Feb. 18 — they looked back three years and compared the dates.
"It was confirmed what we knew anecdotally," he said. "There's 79.3% fewer five-year old tractors for sale on dealer lots now than three years ago."
In the past, Peterson said whenever commodity prices fell, and profit conditions became more negative, there was always excess used inventory sitting around the country.
"And now there's not," he said. "You've got to look backwards at how many new units in tractors, combine sprayers and planters were sold in 2015, 2016, '17, '18 and '19 — and those numbers were all down."
Peterson's advice for farmers looking to purchase machinery in the near future is to think long term and more aggressively. And farmers' relationships with their dealers will become much more important through the end of this year.
"Just stay in closer communication with your dealer, maybe than you had before, so that if come harvest, they're aware of what you're thinking," he said. "I would be a little more proactive with your dealer; that'd be my advice."