Navigating the Used Farm Equipment Market in 2025

Casey Seymour talks about the challenges and opportunities that lie ahead in the new year.

Successful Farming

The agricultural equipment market stands at a crossroads, grappling with many challenges while presenting opportunities for savvy producers. As we look toward 2025, several factors — including interest rates, commodity prices, and inventory levels — influence the agricultural sector's purchasing decisions and market dynamics.

The agricultural landscape has faced significant hurdles recently, marked by declining commodity prices, high operational costs, and reduced farm income. According to USDA projections, net farm income is expected to drop by nearly 25% in 2024, falling from $155 billion to $116 billion. This sharp decline, driven by decreased cash crop receipts and rising production expenses, has left many farmers hesitant to invest in new equipment. Consequently, the used equipment market also feels the effects of this downturn, with many farmers postponing or canceling their planned purchases.

The dynamics of the used tractor market are influenced heavily by the interplay of supply and demand and economic conditions. The past few years have seen an influx of used machinery into the market due to post-COVID supply chain recoveries and the expiration of seasonal leases. Supply chain recovery has led to crammed dealership lots filled with expensive, late-model equipment, while high interest rates have further discouraged purchases. However, as we transition into 2025, there are glimmers of hope that the market could swing in a more positive direction.

The last quarter of the year has historically been crucial for used equipment sales, driven by end-of-year tax buying and an active auction cycle. In this period, farmers typically take advantage of favorable buying conditions. Despite expectations of a muted fourth quarter in 2024 due to interest rates and lower farm income availability, sales activity remained slightly more active than expected. Interestingly, row crop tractors and planters saw a rise in inventory levels, indicating that while some equipment segments are more tightly managed, others are not as closely watched.

The relationship between the auction and retail markets is another critical factor shaping current dynamics. These two markets are intricately linked, influencing one another through a phenomenon known as the "120% rule." This rule indicates that buyers tend to favor auctions when retail prices exceed auction values by more than 120%. The COVID-19 pandemic disrupted this balance, creating a "scarcity premium" that inflated auction prices during a time of constrained supply. Currently, retail-to-auction values for various equipment categories again exceed the 120% threshold, suggesting that a recalibration is necessary for market stability.

The anticipated decline in interest rates could ease financial pressures from operating notes, allowing farmers more feasible pathways to invest in used equipment. With financing options like 2.9% rates for 60 months and 24-month interest waivers becoming more common, many producers may be encouraged to explore upgrading their machinery. However, uncertainties surrounding future commodity prices and the overall economic climate continue to loom, leaving farmers in a cautious "wait and see" mode.

Additionally, the high costs associated with new equipment financing are compelling many farmers to consider leasing options. However, today's leasing structures differ significantly from the past, as most leases require customers to take responsibility for the equipment at the end of the term. This reality requires careful consideration before entering lease agreements, as farmers must weigh the long-term implications of their financing choices.

The agricultural economy's current state poses significant headwinds, yet some segments show resilience. For example, parts and service revenues thrive as farmers prioritize maintaining and repairing existing equipment rather than investing in new machinery. This trend underscores a broader adaptability within the agricultural sector as it navigates ongoing economic pressures

In summary, the agricultural equipment market is undergoing a complex transformation influenced by various factors. Declining net farm income, high interest rates, and uncertainties surrounding government policies pose challenges, but potential reductions in interest rates and slight improvements in commodity prices offer hope. As we move into 2025, the dynamics of the used tractor market will continue to evolve, driven by supply and demand shifts, financing conditions, and the broader economic landscape.

Farmers and equipment dealers must remain vigilant, adapting their strategies to capitalize on emerging opportunities while managing the risks inherent in the current market conditions. The agricultural sector's resilience and ability to innovate will play a crucial role in shaping the future landscape of agricultural equipment sales, leading to a new normal that balances the challenges and opportunities ahead.

For more about used equipment, listen to my episodes on the Successful Farming podcast on the last Monday of each month. Aaron Fintel and I explore current market conditions and factors driving used equipment. Please tune in to the Moving Iron podcast, where I track the economic drivers of the farm equipment business, and check out movingironllc.com for everything related to Moving Iron.