The Equipment Expense Report: Current Value Trends and Tips

Chris: Welcome everybody to another episode of the Ag View Pitch. Today we're going to do an update on machinery and equipment, and we have with us today Brent Judisch from P&K in Cedar— well, actually Waterloo, Iowa. How's it going today, Brent?

Brent

Judisch: Well, it's good. A little nicer weather and I'm ready for winter to be over, so today feels a little better.

Chris: Yeah, yep, that's for sure. Yeah, it's, uh, spring will be here before we know it. And, uh, I just happened to speak with you a couple minutes ago and said, hey, I'm hearing some questions from people on, hey, what are equipment values doing? Where are the deals? Um, some people still need to update a few things as we get into spring, and so I thought I'd corner you for a couple minutes and just kind of see where the market's at and what's, what's kind of going on with machinery and equipment. So I guess what I'd like to start with are power units. Let's start with tractors first. What are you seeing? Where are the values? Where are the deals? And where are not the deals?

Brent

Judisch: Well, on the tractor side, about the last 6 months, the higher dollar tractors— by that I mean 3 to 4 years old or less that are $350,000 to $500,000— that market's been soft. Started before harvest and it's continued to be soft. Um, in that market there in the Deere side, some of the more common models are 600 to 700 tractors available in that 3 to 4-year-old and less. So, um, stuff that was maybe worth $450 is kind of trending back down to high 3s to around $400. So if you're looking for a value, it's definitely in that 3 to 4-year-old tractor, um, whether it be front-wheel assist or articulated or tracks. That whole market's come down roughly 10%, 12%. It's kind of leveled off now. It's not dropping anymore, but it's kind of still down in that lower end of that range.

Chris: What do you think in terms of timing on that? I mean, anybody, you know, that's a dangerous thing to ask, but, you know, is that, that inventory, is it moving or is it pretty stagnant?

Brent

Judisch: Um, if we get to the bottom end of that price point, it is moving. We had a large number of tractors available for us. Yeah, we're winding through that inventory pretty quick. I think by spring, March, April, I think that's gonna probably kind of start to clean itself out. You know, we're not— new tractor sales are definitely off and gonna be off for the first half of the year. So people that are buying are definitely buying the used. And so we'll see that. I think that trend will continue, but I think we'll feel better about things once we get into planting time.

Chris: Let me ask about, as we're heading into spring, let me ask a little bit about sprayers too. It seems like there's, you know, driving around meeting farmers and, and been on the road a lot here recently, and you see a fair amount of sprayers sitting on some of the dealers' lots. Talk about where they're at, where the values, the deals are there.

Brent

Judisch: Sprayers have not come down as much as tractors, and the reason is technology. Sprayers I'm gonna, I'm gonna group them with planters. Sprayers, some sprayers around used. I don't feel bad about the inventory and the pricing. However, everybody wants technology, See and Spray. That's getting to be a big thing. You know, nozzle control, ExactApply. Everybody wants the new technology now. So in that side of the street, the later model ones are actually held up better than the tractors because People want to trade to the technology. So we're seeing a big trend, the guys that maybe have a 6, 7-year-old sprayer and 3 to 4-year-old and newer are going to have ExactApply. 1-year-old are going to have See 'n Spray. So on the dealer side, we are seeing a lot of demand for the higher dollar sprayers, but it's technology driven.

Chris: Talk about the technology for a second, you know. So if people are updating, they also have used technology, right? What's the used technology market doing in terms of you know, the Globes and the, and the screens and some of that stuff?

Brent

Judisch: Um, there's a market there. Um, keep in mind that everything new that comes out now, every new tractor, every new sprayer, every new combine comes with, with your Globe as part of the tractor. Activations are part of the tractor. So we are getting a lot of trade-ins on used Globes and used displays. But the same token, I don't think we realize there's an awful lot of farmers out there running 20-year-old Globes 15-year-old displays. So we have found a pretty solid market for the secondary market because there's a lot of guys still running an 8200 with an old globe on it and a brown box. So there's— those guys can update, not have to spend a lot of money, get to the middle of the road stuff. So as far as the technology goes, it's been good. On the sprayer side, you know, we have had ExactApply out for like 6 or 7 years.

Um, if you have a used one of them that's traded in, again, there's buyers for those. And now John Deere's really come out and gotten strong in the, in the aftermarket the last 2 years now. We're doing seed and spray kits. We're doing, um, nozzle control kits. So we can take an older sprayer right now. You can take an older 4830 for $35,000 for the kit plus labor, make ExactApply. So a lot of things that we didn't have 2, 3 years ago are coming to the market. So technology is driving a lot of things, Chris, as you all know on your farm.

Chris: Talk a little bit about, you know, again, as we're heading into spring, let's, let's hit on planters for a minute. Um, you know, a lot of times if you think about your operation, that's one area to probably make sure you've got a really strong investment is in that machine. That machine kind of sets the tone for the whole year. Talk about what you're seeing with, you know, used planters and, and even new. Are there, are there some opportunities yet, or are we too close to planting season?

Brent

Judisch: There are a few new planters around, not very many. Um, again, it's technology-driven. Guys that have a 15-year-old 24-row planter that's in good condition but doesn't have row shut-off, doesn't have hydraulic downforce, doesn't have closing wheel down pressure— a lot of guys have been trading up to these 1, 2, 3-row planters because the technology is there. Or again, there's kits available. You know, we have some competitors that make kits for our planters We have kits to update our planters now. So we've seen a few less new planter sales, but an awful lot of— we call them PUC kits— and a lot of guys are going to that to get the technology. Because like you said, if you don't plant it right, the rest of the year is not going to go as well.

Chris: On tillage, are you seeing any opportunities there if people need to update something? Or I mean, is there any excess of anything, any deals, or Um, how's, how's tillage holding up?

Brent

Judisch: Uh, tillage sales are kind of hit and miss. I know some dealers have kind of shied away from tillage. We're still doing a lot of tillage stuff. We have seen an uptick this year in demand for tillage at every level— vertical tillers, high-speed disc chisel plows. You know, the market's kind of telling us to plant more corn this year, so a lot of guys are kind of changing their operation a little bit to plant 10% more corn, 20% more corn. So because of that, used tillage has been really strong. There's even been some new tillage sold. Guys are kind of figuring out that, you know, beans might not pencil out as well this year, so I'm going to plant some more corn, but I got to have some machinery to make that happen.

Chris: Are you seeing that with your client base? Do you feel like there's more guys going to more corn for sure from what you're seeing?

Brent

Judisch: Um, everybody that has the ability to Yes. Now I have, I have some clients that have seed corn, Chris, which, you know, of course they're kind of limited what they can do. But the guys that I have that are not in seed corn area, definitely almost everybody that I talk to is going to plant some more corn this year because of the way cash flows work.

Chris: I'm going to come back to the spring stuff here in a second, but I want to hit on, um, some of the fall tools for a second here too, because again, you know, like I said, I'm seeing a lot of sprayers, but I'm also seeing a ton of combines sitting on dealer lots as you drive around, um, you know, this winter. And so was just curious, you know, if a person is looking at trading combines, you know, does a person go to a 1-year-old, 2-year-old or something if they're sitting on a 4 or 5-year-old machine? Or do they, um, or should they be, you know, still getting new? Or can you even get new yet for next, next fall? And, and what kind of— where are the deals or where aren't they in on combines?

Brent

Judisch: Well, new combines are available, you know, sales— I think sales are actually off more than tractor sales are. So there are a number of combines sitting around 1 to 3 years old. They've, like the tractors, they've come down 10, 12%, maybe in some cases 15%. The flip side is if you have a 6 or 8-year-old combine, that market's kind of been flat. So actually, if you look at trade difference, it's probably going to be a little bit lower trade difference today than it would have been 8 months ago for the same exact deal. Because the top ends come down a little bit and the bottom end's actually held firm. Um, our inventory on, on mid-price combines, $200,000 or less, that's hardly anything. We get a good one in that sells immediately.

So now, now if a guy has the working capital to do it, um, we've— I've sold a lot of tractors lately because we're tractor selling season now, but if you're thinking about a combine, it's a great time to update just because the difference from what you have to what's on the market's probably less now than it would have been before harvest and certainly during harvest.

Chris: Is there a sweet spot on the age of combines? If, you know, is it 1, 2-year, 3-year? Where's kind of the sweet spot? And an hour or two on the hours?

Brent

Judisch: The sweet spot is going to be to find a 2-year-old that only ran 1 year or a 3-year-old that only ran 2 years. It's going to be a little older by still number, but it's going to have less acres through it. And that's who— them are the ones that people want to move. So that's where the value at. By— if you could find a 3-year-old combine with maybe 500 separator hours, that's going to be a good value compared to a new one in today's world.

Chris: Mm-hmm. What about the auctions? You know, some of these, you know, and I'll get to dealer financial health here in a minute. But in terms of these auctions, you know, some of them are, you know, it's kind of hit and miss. It seems like, you know, some of the stuff really goes higher than it should and some of the stuff's really a good deal. What's your opinion on auctions? Because, you know, one of the things I hear, kind of two schools of thought. One is, well, I can get a way better deal if I go to the auction potentially. And then the other school of thought is, well, if I don't buy from my local dealer, then I am a little bit more limited on getting, you know, the response that I need when I have downtime and need the repairs and stuff. So kind of what's your two cents on those two schools of thought and, and where— what should people be thinking about?

Brent

Judisch: Well, auction values, you know, there's been some dealer auctions, that's backed off now, but The people seem to pay a little bit less on a dealer auction, um, but when I watch these, these estate auctions, retirement auctions, and I kind of shake my head, it's like sometimes those will bring as much as we'll ask for the same machine, and we've got finance and warranty. And, um, so be careful when you go to an estate or retirement auction, right? The flip side is, is yeah, you can go out and maybe buy a combine $30,000, $40,000 less than the market, but then if you have one at home you're going to sell, what's it going to bring on the wholesale market too? You got to kind of be careful because If the top end is going to sell at a discount, the bottom end is probably going to sell at a discount too. So, but we are guys doing it.

We have customers and we're not going to differentiate. If you buy a combine in an auction, we're not going to throw you out. If you call for service, we're going to treat it the same as if you bought it from us. Yeah, but you may not always get a better deal if you have one to sell. But if you're adding a combine, you've already got one home you're going to keep. You go buy one at auction reasonable. That's, that's just good business.

Chris: Yeah, it's easy to buy. It's just hard to sell. It's It's a little harder to sell your machine than it is just to go buy one. So that's a good point, I think. Talk a little bit about dealership financial health. I've heard some issues, you know, some of the dealerships, you know, that have been rolling and have been caught up in some of the, you know, the devalued equipment and stuff. Are there, are there still some concerns out there? Are there, are the things that producers need to be wary of with any dealers, or what things should we be thinking about there? Is there any concerns?

Brent

Judisch: There's not a lot of dealer turnover. And keep in mind, every dealership now is 20, 25, 30 stores. You know, in the last 4 or 5 years, Chris, have been solid. So I don't think anybody's really getting to be on the edge too much. However, dealers, because of the dollars we deal with, Chris, it's just like a large farmer. The large guy's got to watch his pennies more than the small farmer does because, you know, you're just talking about having 20 combines at $400,000 apiece on the lot, interest at 8%, that's a lot of carrying costs. Right. So we're really trying to manage carrying costs. Um, there's been a few dealerships, um, change hands. It's generally been— that's not been very common. However, there is a lot of age in the ownership group. So if you hear about somebody selling out, it may not be financial. It may just be that, hey, the primary owner's 70, 75 years old.

I've got good, you know, net worth in my dealership. It's a good time to sell. So there's been a little bit of sales going on, but it's been more, more retirement generated than it has been anything else.

Chris: What about financing? We'll go back to the spring stuff again here, and it can be any line of equipment, but are there any financing things that people can be aware of coming from any of the manufacturers, like, you know, on new stuff or on used stuff, or where, where are the financing opportunities that, that kind of fit a program?

Brent

Judisch: Um, between the manufacturers and the dealers, the finance rates are definitely better on used than new. Again, it's back to we want to move the used, we need to get some inventory down, need to get some carrying costs reduced. So there's, there's some support from the manufacturers, but the dealers also are the same thing. We're going to throw some interest waiver, some low interest, but it's going to definitely be better on used than it is on new currently. Now I think once we get in, like I said, in spring Once the crop's planted, I think it's going to level off. But right now we're all focused on getting that used inventory reduced between now and planting time. And if you think about, you know, tractors, believe it or not, sell year-round, but it is a seasonal thing.

A lot more tractors get sold from after harvest until spring than the rest of the year because farmers have their income in, their crops in, they kind of know where they're at. And hey, I got a tractor that's 10 years old, maybe it needs a little TLC, so A lot of tractor trading gets done this time of the year. So we've been right in the heart of that. And that's been pretty brisk here recently.

Chris: What about lease programs? Because it seems like, you know, cyclically anyway, as I go back and look in the last 12 years or so, and beyond in the past, it seems like when we get into some of these cycles, sometimes there are better opportunities occasionally to lease, some pieces of the fleet as opposed to buying everything? Are there any pockets or anything that people need to be aware of on leasing, or is that not, not something at this point?

Brent

Judisch: Um, from the farmer standpoint, um, probably the most common thing we lease is combines. And the reason is combines are just a low equity machine. You know, you go out and buy a combine for $500,000 and you put 20% down, you got a loan of $400,000, and by every year it goes down 15% or whatever. So if you're in the combine side, leasing actually works a little better. You can get a 4 or 5 year lease. The rate's going to be relatively the same, but instead of having to put that large liability on your financial statement, you can just show the lease as a current expense. However, if you're in a tractor side, most tractors are still purchased. But for the farmers that are maybe going to expand 500 acres this year, I'm going to plant more corn, I need to add a tractor and a planter, leasing is definitely the way to go because you're not going to tie up as much capital.

You're going to have a lot lower front-end expense, and, you know, you can lease it for 3 or 4 years, 5 years. Maybe I got a tractor on the farm I want to get rid of at the end of that lease term, so then I'll keep the lease machine, buy it, and then trade in my— trading against it. So leasing when you're expanding your operation is definitely a positive way to go.

Chris: Awesome. Okay, uh, Another question for you as we get closer to wrapping up here, but when we look at fleet management, we help a lot of our clients just categorize their equipment, do an appraisal every year, look at what the true depreciation is by line item. We've seen some things this year actually go up in value, believe it or not, you know, and you're, I'm sure, aware of that. You know, some of the certain age of tractors, you know, depending on the hours they have and stuff, some of that stuff's actually gone up in value. Grain carts seem to be steadier, a little higher. Some, uh, pieces of equipment, some of the short-line pieces of equipment really haven't changed much.

But in whole, what we've seen is— and, and tell me if, if you're seeing something different than this— but in as a whole, we've seen, uh, complete farm fleet machinery go down somewhere between 15 to 20% in terms of total fleet depreciation. Are you seeing something similar on whole fleets, or what are you seeing there?

Brent

Judisch: Well, as I mentioned earlier, for the guys that are 3 to 4 years old or less, that's definitely happening. Late model stuff, just because of oversupply, has come down gradually and consistently the last 12 months now. Um, but you mentioned it, if I have an 8-year-old tractor, 10-year-old tractor, 10-year-old combine, that thing is not leveled off at all. That's, that's, that's stayed firm. That, those values have not dropped a bit.. And so if I have a medium to older fleet, I'm probably holding my own. If I have a 3-year-old or less fleet, yeah, on paper I've lost some money, but until I sell it or trade it, it really doesn't matter, Chris. Um, but you know, this might turn around in 12 months. It might come back. So just because you lost money on paper, I wouldn't freak out too much.

If I have a good tractor that's not very old, it's got warranty left on it, or combine, I'm gonna run another year or two and see. I think stuff will plateau. You know, we go on 8-year cycles. You know, we had 8, about 8 years from the top to the top and to the bottom of the bottom, and we're definitely trending towards the bottom right now. So, but if maybe corn holds here, we get a $5 corn bid here coming up, depends what the crop does, what the weather, you know, we are kind of due for a dry year this year. Um, it can change in a hurry. So, um, yeah, you've lost money on paper on the later stuff, but if you're not trading it or selling it, it's just a number.

Chris: Yeah, and that's, that's the thing. I think just, it's just a matter of recognizing the trend because we have seen some balance sheets, you know, if you adjust accordingly for true market value on machinery and equipment, you know, we've got some $5 million fleets that have lost $100,000, $120,000, or lost $1 million just on, on the balance sheet alone, just on the machinery and equipment equity position. But like you said, if you're going to continue to run that stuff for a while, those things kind of average out over time.

Brent

Judisch: So Well, I think farmers, you know, you and I talk a lot about our operations between two of us, but I think guys need to have a plan. Just have a 1, 3, and 5-year plan. And my planter is probably going to run 2 more years, but maybe my tillage tool is getting bad. Or we're doing a lot of heads right now. A lot of guys have been trading corn heads and platforms and drapers because they maybe traded their combines and the tractors, but they kind of ignored the grain carts, ignored the heads. So get a plan, kind of, you know, identify that, oh, Maybe I need to get a better field cultivator this year. There's one coming on auction, or I see someone dealer a lot, you know, have a plan. Just don't sit there kind of blind, you know, know what, know what needs to be turned in the next 1, 2, and 3 years and know what you can run for 3 or 4 years and kind of get a plan.

So the opportunity arises, you can take advantage of it.

Chris: Yeah. Yeah. There's always, there's always a need for way more than what capital available dollars and cents are. And so it's, if you got, $500,000 a year you can use on updating machinery or whatever your number is, then it's just a matter of prioritization over the course of time. And, and to your point, otherwise I think what happens a lot of times is when you buy something that's a good deal, all of a sudden it screws you up 2 years down the road. You needed to do something different, and now you got that money spent on something because it was a good deal. You know, it's kind of like going to Target and trying to buy everything just because it's on sale doesn't mean you should buy it. You know, you need to buy the the things that fit the system.

But I think it's a key point you said is, you know, I think a lot of us need to do a better job of having a more partnership relationship with the dealers, kind of like we do with you, you know, to where— so you know what's going to happen 2 years, 3 years, 4 years down the road, so you know what to be looking for and how to help somebody, as opposed to having an adversarial relationship, which is usually not very good for anyone.

Brent

Judisch: So Well, the, the deals from the farmer side are usually a whole lot better when you're proactive versus reactive. If I have a tractor blows up or a combine, something happens to it, now I'm against the back of my— my back's against the wall. But if I'm proactive, you know, my combine's got 2,000 hours on it, I know it's going to need some help in the next year or two, and I find a good deal, you know, be proactive. Don't wait until something bad happens and then figure out, okay, now where do I go, right?

Chris: Um, last question, and then I'm going to give you the last word. Um, parts and service, that kind of stuff. Where are we at in terms of cost in your opinion over the last couple of years? What's the percent of increase in terms of those categories? So maintenance and repairs from your perspective that you see.

Brent

Judisch: It's like the price of everything else through COVID. Parts of prices went up drastically. Labor did not go up as much. Parts was the biggest thing. It's kind of leveled off now. You know, production costs for manufacturers have come down. They can actually build stuff when they want it. Um, the only thing that's still bad is wiring harnesses and electronics. Um, aren't enough manufacturers for that stuff. You know, you can run into a harness on a, on a combine or tractor, you look to order it, it's going to be 90 days or 65 days or something stupid like that. Those parts have not gotten much better, and the reason is there's not enough manufacturers for those parts. Common parts, cast parts, steel parts are good., but electronics, if I know I got a wiring harness to give me fit, or I got some electronics to give me fit, be proactive because that stuff hasn't improved much.

That stuff's still kind of lagging in availability.

Chris: Is it worth keeping any of that kind of stuff in, in your own individual inventory, or is that overkill?

Brent

Judisch: Uh, no, that's overkill. I mean, how do you know what to have? I mean, every tractor's got 5 or 6 harnesses on it. Now, if I have 5 tractors all the same, and I've had a problem in the past with a turbocharger or injection line or something. Yeah, you can keep that online. But in general, it's just the luck of the draw. It's just electronics. It is frustrating. It's for everybody. And it's not just us, it's the short lines, the semi guys. Electronics is just getting— it's just tough in the whole industry right now. It's not recuperated from the COVID years. It's still lagging behind.

Chris: Yeah. All right. I'm going to give you last word and we'll wrap it up. What do you want people to be thinking about as they continue through winter here and kind of plan for spring field work?

Brent

Judisch: Well, you know, you and I talk a lot this time of year because we're not busy doing other things, but it's a great time. Get your balance sheet lined, see where I'm at. Like I just said earlier, get a plan. You know, maybe this one tractor is 12 years old now, or my one combine's 14 years old. Just have a plan and be looking. Oh, you know, tell your dealer, if you find me a good deal on a corn head that's got low acres or something, or a field cultivator that looks good, you know, kind of give your dealer an idea what you're looking for, and you have an idea what you're looking for. More because the deals kind of come and go. And right now I said they're on late model stuff. Um, so if you're looking for a 10-year-old tractor, you probably aren't gonna find a great deal. If you're looking for a 3-year-old one, the deals are everywhere.

So kind of have a plan, you know, do a cash flow. Maybe it's a per acre. You and I talk a lot on a per bushel basis. Just have a plan and try and work the plan. And now that we're a little bit in the wintertime, we're probably 60 days from getting outside and doing things. This is a great time to get your bookwork in order. And get your statements in line and just look at the age of your machinery. You know, I turned a grain cart this year, wouldn't even think about it, but crept up on me. I was like, shoot, it's 12 years old. Like, it's time to update, you know, and just have a plan. I mean, that's it, work the plan. You can't always work the plan if times are tough, but when they are, make sure you know that if I'm going to make an extra $100 grand this year, I can allocate $50 of that to a corn head or a book elevator, or maybe I'm going to buy a PUC kit for my planter or something.

Just Just have a plan because don't be surprised when something bad happens, then you're against the 8-ball.

Chris: Yeah, for sure. Well, hey, this has been a great conversation. Um, Brent, you're kind of my phone-a-friend when I got a question, anything machinery, even if I'm sitting, sitting in something, it seems like you always have a lot of good answers and figure out which buttons to push or why something's not working. So, um, I guess with that said, if anybody wants to reach out to you, you've helped us a lot with, um, clients that are in the midst of trading or looking into lease versus a purchase or looking at this machine versus that machine. If somebody wants to get a hold of you or look you up, what's a great way to get a hold of you?

Brent

Judisch: Ah, my phone number's out there, 319-404-2914. You know, you and I go over a lot of deals for stuff I don't get involved with, but it's always nice to have a second set of eyes sometimes just to evaluate, is it a good deal or is it a bad deal? Or it's a second set of free eyes that never hurts.

Chris: Yeah, and just that confirmation is really useful. And, and Brent, I really appreciate you doing that. You do a good service for the ag industry in whole, and With that said, again, thanks a lot. We appreciate it.

Brent

Judisch: Have a good day.

Chris: All right, will do. And thanks everybody for listening. Again, also don't forget about 19 Minutes. If you're not subscribed to that, I would check it out. Go on to Spotify and you can sign up or reach out to us and we can get you signed up. Got a lot of good business topics on there. We got over 70, um, excuse me, over 70 business topics on that. They're all timeless and things that can really help your business and your bottom line. That said, we'll catch you again next time on Yankee Pitch.