About This Episode
Shay Foulk talks with Brent Judisch, who has sold machinery for P&K Midwest in Cedar Falls, Iowa for about 34 years and farms corn and soybeans with his family. Coming out of the 2020 harvest, Judisch says yields disappointed in dry areas but prices rallied, and combined with USDA payments many operations ended up with more gross dollars per acre than expected. That leaves two conditions at once: better cash flow than anticipated and a real need to update machinery.
The 5 to 10 year old market had been strong for a year and a half without dropping off, and now 1, 2 and 4 year old machines have turned extremely strong too. Buyers want lower hours, more technology and PowerGuard warranty coverage because they are pushing more acres and hours through each machine. Shay notes the sticker shock for operations that held off since 2013: a $200,000 sprayer bought seven years ago is a $400,000 sprayer now.
Two forces explain the used strength. New machinery prices rise about 2 to 2.5% a year, pulling used values up with them, and a new tractor ordered in December would not arrive from the factory until late August or early September. Anyone who needs a machine before next fall buys the lowest-hour used unit available. Judisch expects the backlog to persist 12 to 24 months, and notes buyers are waiting on IRS and congressional clarity over PPP deductibility.
“So buying a lower hour machine or more technology machine right now probably has as much payback as it has been in my 34 years of selling, that's for sure.”
— Brent Judisch
Key Takeaways
Better-than-expected gross dollars per acre plus USDA payments left many operations holding cash flow and a machinery update backlog at the same time.
The 5 to 10 year old market never dropped off, and 1, 2 and 4 year old machines turned extremely strong in roughly the prior 60 days.
Used equipment financing ran under 3% fixed on five-year deals and around 3% on six-year deals.
New machinery prices rise about 2 to 2.5% a year, which pulls used values up behind them.
A new tractor ordered in December 2020 would not leave the factory until late August or early September; Judisch expects 12 to 24 more months of tight supply.
Some buyers sat on the fence because the IRS and Congress had not settled whether PPP-funded expenses would be deductible.
Full Transcript
Shay
Foulk: Welcome back everyone to another episode of the Ag View Pitch. Today you have Shay Foulk with Brent Judisch. If you could just give yourself a little bit of a background there, Brent.
Brent
Judisch: Ah, my name is Brent Judisch. I'm in Cedar Falls, Iowa, sell machinery for P&K Midwest. Been doing that for about 34 years, and then we also farm up to Cedar Falls as a family farm. We raise corn and soybeans.
Shay
Foulk: Awesome. And Brent is one of the people that, you know, Chris and I call frequently or shoot a text message on equipment values. He's just phenomenal at having a pretty good pulse on what's going on in the industry. And that's a little bit of the conversation we wanted to have here today. We've had a lot of farm operations ask us here, uh, last couple weeks, you know, what are you seeing for, for used equipment and, and how are prices holding up? And some of that can be regional, but we're playing in a pretty, uh, global market here today. So just wanted to see if you could provide the listeners a little bit of perspective on, on what you're seeing on your end, Brent.
Brent
Judisch: Well, since harvest, we know we went into harvest prices were low, but we thought we're going to have a very good corn crop, bean crop. And we kind of got into harvest and the crops were maybe a little disappointing, especially with the dry area, but the prices have run up. So I think if you look at the gross dollars the guys ended up with, I think they ended up with more gross dollars per acre than they thought they were going to get. And you couple that with a lot of these USDA payments and now most guys are sitting with, with two situations in front of them. One is they're at a better cash flow than anticipated, and second of all, I think a lot of guys have a direct dire need to update the machinery.
Shay
Foulk: Absolutely. With that being said, from, from a machinery update standpoint, it's been roughly since about 2013. Again, this is regional depending on what different farm operations we're seeing yields and stuff like that. It can be quite the shock with some of those operations looking at replacing equipment now. And what we saw was those who have maybe held out on their equipment replacements or maybe getting a little bit of a sticker shock because, you know, that $200,000 sprayer they bought 5, 6, 7, 8 years ago now is a $400,000 sprayer. So are you seeing a lot of strength in the used equipment market as a result of maybe some of those that haven't made the upgrades and are looking for a cheaper option, or where is some of that strength coming in here?
Brent
Judisch: Well, the, the, I'm gonna go back and talk the last year, year and a half. I'm gonna go with the 5 to 10-year-old stuff has been really strong, both in tractors, combines, and sprayers. That market's never really dropped off at all. But now because of the, I said, little bit better cash flow, guys needing to update, now all of a sudden this 1, 2, and 4-year-old stuff got to be extremely strong. Guys are looking at lower-hour machines, they're looking at more technology. And so now we've seen just a huge uptick in every level, whether it be 1, 2, or 5-year-old. And even the 10-year-old has been strong all along. So the whole market right now to be extremely brisk.
Shay
Foulk: With that being said, with looking at some of the differences in these machines and, you know, making decisions on the upgrades and maybe what's a good fit. Chris and I work frequently and very in-depth helping operations calculate their costs on a per-pass basis, and it can be pretty eye-opening. One, from a standpoint of depending on the size of operation, how much you probably are actually, you know, what the actual cost is to run some of those machines on a smaller, you know, some of the smaller acreage operations. Or vice versa, you know, larger operations that can maybe actually afford to make these upgrades and still keep their rates of what they're charging themselves pretty similar.
So with that being said, as producers look at these different options, what are some key things that they should maybe keep in mind between the difference in the hours, the difference in the technology? Have we seen enough change over the last 5 years that you're going to see substantial differences between some of the offerings out there?
Brent
Judisch: Well, I think, you know, as we're trying to run our acres more efficiently, we're seeing guys are taking a tractor or a combine, they're going to push more acres and more hours through it. And so we're seeing guys want to keep those in PowerGuard warranty, which is John Deere's version of it. The technology allows you to sit in there for more hours a day. There's more information being fed back from your sprayer, from your planter.. And so as guys are trying to get them extra 500 acres out of that machine, um, they're willing to pay a little extra for lower hours or extra warranty or more technology because they know that they're going to put more hours and more acres to that machine. So buying a lower hour machine or more technology machine right now probably has as much payback as it has been in my 34 years of selling, that's for sure.
Shay
Foulk: No, I appreciate the perspective on that. Uh, you know, And two things that I want to touch on, uh, as we kind of wrap up this conversation here, you know, there's a lot going on with, with financing options and end of the year stuff, and sometimes that can be overwhelming. Sometimes farm operations feel like there's games being played, and I'm not sure that's necessarily the case, but there can be a lot of information to wade through out there. You know, what are some recommendations for handling this time of year and handling some of these key decisions that they need to be making? I know your phone's been ringing off the hook here.
Brent
Judisch: Or so. Well, and right now, you know, we got on the end, the used equipment side, you can get 5-year deals under 3% fixed. I think you can get 6-year deals around 3%. So as from an interest perspective, you know, if I'm spending $100,000, I'll get my combine on my tractor. There's not a lot of interest, you know, getting factored in here. But I think it's a business now, you know. I think farmers are well prepared. A lot of my guys have been to their CPA in the last 2 to 3 weeks. So a lot of guys kind of know where they're at. The only— right now, the only confusing part is on this PPP money that a lot of guys got. The IRS and Congress have not agreed on how that's going to get handled. So I do know that's a concern right now. IRS is reading it as in it's going to not be expensible on the employee side. Congress is saying, well, we might have to change that.
So there's some confusion out there. So some guys are sitting on the fence not knowing, do I need to spend money real quick or don't I, because there's some IRS stuff that's kind of not very, not very plain right now happening.
Shay
Foulk: Right. And I know a lot of people are holding their breath on that, trying to see what happens there. Certainly some unique challenges that we've seen this year. You know, anything else that I haven't asked you on here that you think is key as farmers make decisions here in the next couple weeks, Brent?
Brent
Judisch: Well, they always ask us, you know, why is used equipment kind of getting stronger? Well, a couple reasons. First of all, newer— new machinery goes up on the average about 2 to 2.5% a year. So that has to bring the user with it a little bit. And then the reality is right now, a new tractor out of the factory is late August, early September. And so when we're sitting out here 9, 10 months out and a guy needs to spend some money or needs a new technology before now and next fall, that's really pushing these 1, 2-year-old machines. Because if I need something and I can't get a new one, I'm going to go out and buy the lowest hour, nicest used one I can get. And that's where the, that's where the big push has been the last, oh, I'd say 60 days or so.
Shay
Foulk: Gotcha. How abnormal is that, um, looking out to that August, that 10 months out here, or is that fairly common?
Brent
Judisch: Um, 5 years ago it was a, we were always 12 months out. Then we went through the, you know, the times got pretty tough there in '15. '16 and '17, so we were back down to normal timetables, I would say in that 2 to 3 month timetable. But starting about, oh, last summer, maybe June, July, it started to get a little tighter for us. And I realized COVID affected that, you know, getting parts availability and stuff like that was tough. But since COVID started, we've lost some, you know, some dates as far as how soon you can get stuff. And now with the uptick in demand and uptick in the economy, It's just gotten worse. So I think we're going to fight this for the next at least 12 to 24 months for sure.
Shay
Foulk: Gotcha. Well, I think that's enough for the conversation today. As always, we, we appreciate your perspective and your input. Um, it's always great talking with you, Brent. And, and I won't, uh, won't have you give out your phone number here with the number of calls that you're getting, but what I would encourage is for anybody that's listening to this, if you have a, if you have a question on a, an upgrade or a trade, or, you know, you're trying to evaluate some of the stuff that you have going on in your operation, give Chris a call, give myself a call. We're going to be pretty busy here over the next couple weeks, but we'll get back to you when we can and help you make some of these decisions. So Brent, thanks a lot. I appreciate the conversation as always.
Brent
Judisch: Okay, have a great day.
Shay
Foulk: And everyone, thank you for listening to another episode of the Ag View Pitch, and we will catch you next time.