About This Episode
Brent Judisch tells Chris Barron that used equipment inflation had at least another eight to twelve months to run, because most of what Deere, AGCO, and Case would build over the next calendar year was already sold. The sharpest moves were not in one- and two-year-old tractors but in ten- to twelve-year-old models, roughly 2006 to 2012 Deeres, which he says climbed 20 to 30 percent in six months as buyers who could not get new machines chased auto steer and similar technology.
He explains why the gap widened between three- or four-year-old equipment and one-year-old equipment: a 10 percent increase on a $400,000 tractor adds $40,000 to the new price while the five-year-old machine moved only $20,000. Dealers need the large farms that roll their whole fleet every year in order to keep late-model used inventory available. His advice is a one-, three-, and five-year replacement plan that balances depreciation, trade cost, and repairs, and sticking with it rather than falling behind and facing a bigger jump.
On supply, most common parts had recovered by that harvest, but he flags high-wear items like sweeps, disc blades, and planter blades to order early, and notes imported electronics remain a problem, with GPS globes running six to eight months and one combine harness on backorder three months. For acquisition, he lays out purchase, lease to use, and lease to own, and reframes a $90,000 combine trade against a 12-row head, 3,500 acres, and 250-bushel corn.
“So when you break it down to that per-acre, per-bushel, it's not a lot different than it always has been.”
— Brent Judisch
Key Takeaways
New tractors, combines, sprayers, planters, and major tillage were running roughly a 12-month lead time, with manufacturers building only what is pre-sold.
The steepest used inflation was in ten- to twelve-year-old tractors, up 20 to 30 percent in six months, because buyers wanted auto steer without waiting a year for new.
A 10 percent price increase on a $400,000 tractor is $40,000, which is why the spread between a five-year-old machine and a new one keeps widening.
Judisch pushes a one-, three-, and five-year fleet plan, with depreciation, trade cost, and repairs balanced against each other; if one is out of line, find out why.
Lease to own is most of what his dealership writes; leasing suits an added machine after picking up ground because it stays off the balance sheet, costs less up front, and the full payment is deductible.
A $90,000 combine trade looks like sticker shock against the $15,000 to $20,000 of years past, but with a 12-row head, 3,500 acres, 250-bushel corn, and 300 to 400 hours a year, the per-acre and per-bushel cost is close to what it always was.
Full Transcript
Narrator: We are grateful that you are joining us for another episode of the Ag View Pitch, as we know that your time is very valuable. Our team at Ag View Solutions is always here for you for any questions or comments that you may have. Please feel free to reach out to us at cbarron@agviewsolutions.com. And now, here is your host, Chris Barron.
Chris
Barron: Welcome everybody to another episode of the Ag View Pitch. We are going to have a conversation here today on machinery and equipment, and we have with us the equipment extraordinaire that knows a lot about equipment, Brent Judis. You've been with us before, Brent. How's it going?
Brent
Judisch: I'm doing good, Chris. How are you today?
Chris
Barron: Good, good. This is take 2, so we recorded this the other day and then somehow we lost it. So, so we'll have to try to remember what we said. We had a pretty good conversation, so this is take 2. Are you ready? We'll figure it out. Okay. Sounds good. So I guess what we want to do is we have a lot of, a lot of people that are doing a ton of trading, machinery and equipment trades right now. A lot of questions, a lot of things going on. First of all, let's talk just a little bit about what you're seeing from an inflationary perspective. You know, we've seen obviously a lot of inflation from '20 to '21 and going into '22. What are we going to expect moving forward here?
Brent
Judisch: I think that the used inflation is going to continue. New machinery pretty well sold out for the next 12 months. Most of the larger farm items that are going to be built by Deere and AGCO and Case are sold for the whole next calendar year. So if you're looking for late model used or medium model used, it's going to stay high. There's not many tractors out there, not very many combines and sprayers out there. I anticipate that the inflation we've seen is going to continue at least for another 8 to 12 months for sure.
Chris
Barron: What's the hot items? What's trading right now?
Brent
Judisch: Um, right now what's probably the hottest item are used tractors. Um, 1-year-old, 2-year-old are pretty hot, but tell you the truth, the most inflation I've seen is in the 10 to 12-year-old models. Um, in the Deere, they'll be like '06 to 2012 models. They're— their inflationary period there is very high. They're up 20-30% in the last 6 months alone. And every auction you see, there's a, you know, Machinery Pete's got a new record price about every time. Every day there's a new record price on a used tractor of all colors. Guys want that newer technology. They want to get to auto steer and some of the things that are offered there, and they can't get new. So what's the next best thing? Find a lower used one.
Chris
Barron: One thing we're, we're seeing is, and you can either agree with this or disagree with it or, or, um, get your two cents on this, but it appears like from what we're seeing anyway is that, you know, we've got, I don't know, 3 or 4 clients that roll essentially their whole fleet every year— tillage, planters, tractors, and everything— and they actually are trading pretty good. But then when we see people trying to go from, say, 3, 4-year-old stuff to that 1-year-old stuff, that's a that's an even bigger jump. Are you seeing that, or why would we maybe be seeing that?
Brent
Judisch: Well, in order for us as a dealer to keep inventory to sell, we have to roll the big guys. So the guys that are larger farmers that want to get new every year, it's to our advantage to trade them. Because if you come in and want to buy a used tractor on December 31st and the new one's a year out, but we have a whole fleet of 1 or 2-year-old coming in, you have something you can buy. So from our standpoint, we need those new sales. We have to make— keep them on the books and make sure that we get all of our allocations sold. And when you have a large number of people that are trading everything every year, that allows us to keep our allocations sold. And it, you know, maybe some more timely trade-ins. A lot of guys— springtime is a great time to trade tractors, and we have all these, you know, new ones sold a year ahead.
So when the used ones come in we have some access there for guys. The reason there's such a spread, I think, is, is the new has been going up as fast or faster than the used has with inflation. So, you know, a 10% price increase on a tractor that's $400,000, that's $40,000. So that kind of keeps that top-loaded. So when the guy's got a 5-year-old tractor, yes, it's up $20,000, but the new ones are up $40,000. So that, that gap there gets a little bigger when you have that spread.
Chris
Barron: Mm-hmm. Yeah. And that's a good point. That's one of the things that we try to do with our clients when we look at cost of production is we try to make sure that every year of ownership we factor in that depreciation and that inflation as an expense, even though you don't write a check for it each year. Eventually you're going to— when you trade, right, you're eventually going to have to make that payment. So if you analyze that as an expense,— as part of your cost production, it keeps you more current and allows you to stay more current.
Brent
Judisch: Well, I think, you know, I discussed, you know, off camera, we need to— guys need a 1, 3, and 5-year plan, you know, and stick to it. I realize that maybe it's going to cost me another $25,000 more to buy tractors this year than I thought it was last year, but if you get out of that, get out of that plan, then pretty soon it's a larger jump. So if you stay in that plan and work with your dealer and get an idea where you're at, and stick with the plan, you always have an idea what's going to cost you. And like you said, you can put— you got depreciation, you got trade, and you got repairs. A guy needs to find a balance between all three. If one's out of whack, you know, why is it? Is my repairs too high? My depreciation's too high? I mean, what is it? You got to find a balance. If a guy has a good cash flow and a good 1, 3, and 5-year plan, you can work the plan.
You can adjust it, but at least you have some idea of what What's gonna be traded this year? What's gonna be traded next year? Is it a grain cart or a corn head or a combine? And get a plan and kind of work the plan.
Chris
Barron: Right. We try to, you know, with the clients we work with and you've seen it, you know, our 3 to 5 year plan, it does help you guys as dealers too, doesn't it? So that way, you know, okay, they're thinking about a combine next year, the following year they're looking at a tractor, the following year it's a planter. That way, you know what to be looking for as well, right?
Brent
Judisch: Well, it helps us because maybe you got a combine or tractor you want to trade in, and I have a guy wants what you have. It's easier to turn the deal if I got the back end sold and know what I can sell it for. I can come to you and say, hey, John traded a 1-year-old whatever tractor, combine, and you mentioned you might want one of them, and here's a chance to do it. I can pre-sell yours. I got a guy wants it. It's a lot easier for us to have it turned right away.
Chris
Barron: Talk a little bit about availability on the supply side on new equipment and then also parts. What are you seeing on the supply side of things?
Brent
Judisch: Well, we'll start with parts. You know, we made it through harvest. We didn't have any major issues. In general, most common parts are pretty good right now, supply. The manufacturers worked really hard at getting their stock resupplied, and that's gotten a lot better. There are some exceptions to that, as you found out, finding tires and rims. That's not impossible. Some things like that, they're a little out of the ordinary or tough to get, but in general, the parts stuff has gotten a lot better. I think going into spring, the only thing that concerned me would be like a high-wear item, maybe foot-culvert sweeps, maybe disc blades, maybe planter blades, stuff that you know you're going to need it. Don't wait until March or April. Get on the bandwagon now and get an order from your dealer. So that the manufacturers have an idea what they need to supply stuff going forward.
On the large equipment side, it's pretty simple right now. It's 12 months. You want a tractor, combine, sprayer, planter, major tillage, it's a year. Everything that they're gonna build the next 12 months is sold.
Chris
Barron: Do you see that improving or do you think the manufacturers are gonna kind of keep that, that, that, uh, tight supply moving forward?
Brent
Judisch: I think that the manufacturers like it this way, and I think they're going to build just enough to get by but not one extra unit. I think they're watching their sales real close, and I think that they, you know, what better time than to build a tractor than when it's pre-sold to the dealer or to a customer. So if I'm Deere, Case, or AGCO, whatever else, I like it right now because I know where I'm at. My whole 12 months in front of me is planned out. I'm not worried about, you know, excess inventory or who's going to take this stock or that stock. There's no discounting because I have leftover stuff. I think right now they're watching sales and they're only going to build what's absolutely sold.
Chris
Barron: What about, uh, wiring harnesses and electronics on the supply side? Just to hit on that real quick too, like there's some wiring harnesses and goofy stuff like that that takes forever to get there, and if you lose something like that, you're kind of screwed.
Brent
Judisch: Well, the trouble there is a lot of that stuff's imported. A lot of that comes from overseas, and with the whole COVID thing and the shipping constraints, that's been a major issue. It's not as bad as it was, but it's still an issue. We have one certain combine harness right now that we're on back order for 3 months and can't get it. That doesn't work very well in the middle of harvest. Yeah, but that's still back to COVID-related. I think that's going to be an issue going forward. The Globes, the GPS stuff, has been an issue for 2 years. It's still a major issue. You're still talking 6 to 8 months just to get a Globe for a tractor or combine. And I remember when they would come in 3 days.
Chris
Barron: Talk a little bit about leasing versus purchasing. That's one of the questions we get a lot. You know, they're talking, you know, guys are talking to their dealers and, and kind of wondering, should I be leasing this machine? Should I be purchasing it? And A lot of times what we see is, you know, leasing might be a good option for that, that second machine or additional piece of equipment, you know, or whatever. But a lot of times, at least from what we've seen, it's, it's pretty good deal just to own it too. But interest rates are higher and everything. So talk a little bit about what you see there, the difference between leasing and purchasing.
Brent
Judisch: Well, basically, if you're going to acquire machinery, you've got 3 options. You can purchase it whether you pay cash or do a retail note, pay for it over 5 or 7 years. That's option 1. Option 2 is lease it to use it. By that I mean I'm going to lease it for a 3-year deal. I'm going to put $300 a year on it. After 3 years, I'm going to turn it back to the whoever I got it from. Option— the last option is I'm going to lease to own. Most of what we do are lease to own. The reason is, is most leases, if you take care of it and service it like your own. It's going to have equity after the lease term, whether it be 3 or 4 or 5 years. So that's probably the most common lease, is that I'm going to lease it, I'm going to own it. That way I acquire at the end of the term whatever a gain in value has.
Now if I'm just normal trading, gonna trade a combine for combine, most what we do is still just purchased. But if I acquired some land or I'm picking over somebody else's operation, I need a tractor or a planter or a combine to add to my fleet. Leasing is a great way because it's a, it's an off-balance sheet acquisition and it's going to be a lower upfront payment. So a lot of guys that are also adding, adding a machine, maybe they picked up some land, have to add a planter, maybe a bean planter or tractor. Lease is a great way to acquire it because it doesn't affect your balance sheet and it's probably going to be less money up front. I can still use it to build equity and I'll still want to own it at the end. But it's a great way. And the nice thing is, if I have some items depreciated and some leased, it's great for taxes because my leased items, I can write off the lease payment.
I purchase it, I'm limited to what my tax man is going to write off. So lease is great for expenses.
Chris
Barron: Gotcha. So you said that, you know, I asked you a little bit in the beginning about kind of what the hot items are. Let's talk about harvest equipment for a minute. You know, I hear a lot of people say, well, I used to trade for X amount and now it's going to cost me Y amount, which seems like double, triple, whatever. Talk a little bit about, you know, harvest equipment and the cost of some of these things, sprayers and combines in particular, and tractors for that matter. But talk a little bit about just where these costs have gone and some of the things that you see that are working good for the producers.
Brent
Judisch: Well, you know, you and I have been working together long enough. I remember when trading combines was $15,000 or $18,000 or $20,000 a year. Right. What guys got to remember is I had a 6-row head, I was doing 1,000 acres of corn and beans total, my yields were 150. Now I'm probably going to run 3,500 acres through that combine with a 12-row head, and I got triple the acres and my yields are 250. So it's a little bit of a sticker shock when somebody says it's going to cost you 90 grand to trade combines. But break it down. Is it a per-acre trade? Is it a per-bushel trade? If you look at it in those terms, we're probably not much different than we were 20 years ago. It's just that everything is getting more productive. We're doing more bushels, more acres. We're putting more hours. Used to be 200 hours in the combine was pretty, pretty normal. Now it's 300 to 400 hours a year.
So when you break it down to that per-acre, per-bushel, it's not a lot different than it always has been.
Chris
Barron: Mm-hmm. Yeah, and that's a good point 'cause that's how exactly we always like to do it is break it down to a cost per bushel on any of these things. And then you can kind of compare from one year to the next and you kind of compare apples to apples. So with that said, I mean, we don't have to go forever here, but I just kind of wanna see if there's anything else that you're seeing. You know, if you're the typical farmer and you know, you're managing your fleet, you're looking at all the things that you need to stay updated on and, What are, what are kind of the 1, 2, 3 key things that you want to, want to leave the producers with to make sure that they're paying attention to?
Brent
Judisch: Well, you mentioned sprayers earlier. A lot of farmers are getting their own sprayers now. That's got to be real common. That's probably still the fastest payback on the farm. Probably the least amount of depreciation. You know, sprayer doesn't do any hard work. It just runs hours. So sprayers are a great thing to invest in. It's a great way to— get your spraying done on time. You can buy your chemical wholesale if you desire. That's a great investment. But like I said earlier, get a plan. I mean, we're seeing a lot of this year guys are trading heads, they're trading tillage, and they're trading grain carts. And you think, well, that's kind of odd time of the year. Well, we're end of the year, my tractor has been updated, my combine's been updated, and I need to spend some more money yet.
So guys are going down the line and say, okay, what's the next thing I haven't traded 5 or 8 or 10 years. So we're getting a lot of that right now. That's a really common trade for this time of the year.
Chris
Barron: Mm-hmm. Sounds good. Well, I think that's for now all the questions I have, but you know what I would encourage the listeners to do, if there's things that they want us to have a conversation around with the machinery and equipment fleet management, let us know. Because, um, you know, like we always talk, Brent, your machinery and equipment line item is the second largest line item next to land and And I think it's one that warrants paying attention to and crunching the numbers and staying current on it as well.
Brent
Judisch: Well, like I said, technology is a big thing. Auto-steer, row shut-offs on the planter, like I said, DirectApply on the sprayer. All them things aren't cheap, but some of them things are the fastest paybacks that you can do on the farm.
Chris
Barron: Exactly. So paying attention to the details and keeping track of it along the way. Brent, Really appreciate your time. I appreciate this was the second go-around and we got, we got it recorded hopefully this time, so we'll get it out to everybody. But we'll have you back again real soon and appreciate your time. Thank you.
Brent
Judisch: Okay, Chris, have a good day.
Chris
Barron: Yep, you too. And thanks everybody for listening. If you got other questions on the machinery and equipment stuff that you'd like us to talk about, please let us know, and we will catch you again next time on the Ag View Pitch.