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AGRICULTURE, ANALYSIS

How to Navigate Equipment Buying and Financing in 2023

Author

Megan Schilling

April 28, 2023

 

Tuning up tractors and preparing planters may be top of mind this season, but the bottom line remains a constant for equipment buyers, especially as interest rates and equipment supply are crucial factors to consider in the purchasing process.

Here is what you need to know about the state of ag equipment financing in 2023 to better prepare to buy the heavy machinery you need.

Rising Interest Rates

Kelly Miller, Director of AgTech Financing for Compeer Financial, says interest rates are rising and combined with the high price of machinery and tight inventories for new and used equipment, it’s a difficult space for buyers to navigate.

“If a farmer needs equipment, it’s key to make sure we understand the payments and the impact to working capital if they take cash out to purchase,” Miller says.

As the second-biggest asset class on the balance sheet, making the right equipment investment is crucial.

Lending institutions like Compeer Financial and data-driven companies like Tractor Zoom have created solutions to help improve the decision-making process around valuing, pricing, and buying equipment.

“At the end of the day, farmers may need newer equipment to get through new acres they have or just to upgrade what they currently have to keep up,” Miller says. “We’re going to continue to listen to our clients and partners and have a good breadth of products to offer them on the marketplace.”

Learn more about agriculture equipment financing online at Tractor Zoom.

Equipment Supply and Market Factors

Equipment supply has decreased 45% over the last two years due to supply chain issues in the industry. The effects of this tight supply is felt at dealer lots, auctions, and the farmstead.

“When we look at the used equipment market, there has been a much stronger intent to purchase used machines because there isn’t anything for sale that is new, unless it’s a sub-44 power tractor,” says Kyle McMahon, Founder and CEO of Tractor Zoom. “It’s been interesting to see how that has changed traditional sales cycles for dealers and farmers because farmers placing orders on equipment today may not receive them for 9-20 months.”

Farmers are willing to spend 10-20% more on one- to two-year-old machines now than even a year ago because OEMs haven’t delivered equipment to meet the demand. And agriculture isn’t unique in experiencing inflationary pressures.

However, the net farm income has been higher in the past two years.

With extra cash flow, buyers tend to adopt more innovation, so Original Equipment Manufacturers (OEMs) respond with more innovative, low-input high-impact machines for the market, which are priced higher due to the integrated technology. Combined with high interest rates, it’s a difficult environment to maintain a healthy bottom line.

Many factors will affect the market when supply returns, including farmer profitability in the 2023 season.

“When farmers have a lot of cash, it can take years to erode, so people will continue making purchase decisions on equipment, land, and innovation over the next couple of years,” McMahon says.

Looking to buy in 2023? Understand what ag equipment is worth today, not last year or last quarter, with Tractor Zoom.

Advice to Farmers

Considering the factors above, Kelly Miller’s advice to farmers planning to purchase equipment this year is: “Plan ahead and know your interest rate, downpayment, and the effect on your operation.”

Niall Haughey, Founder of Graze says, “Don’t be afraid to innovate and try new tools. If it doesn’t work for you, give feedback and let organizations develop the product just how you want it.”

And Kyle McMahon recommends, “Know your options in the market. We have a simple valuation system on Tractor Zoom to do that. Get notified on Tractor Zoom so you don’t miss out.”

Learn more about the future of ag equipment financing in a panel discussion with Tractor Zoom CEO & Founder Kyle McMahon, Niall Haughey, Founder of Graze, and Kelly Miller, Director of AgTech Financing for Compeer Financial, hosted by Brownfield Ag News.

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