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Machinery Pete: Bright days ahead

Agriculture.com Staff 02/25/2010 @ 10:24am

Our nation's future?

It can certainly seem all doom and gloom these days. The folks in Washington aren't helping matters. Serious problems abound, yet nothing constructive happens. Bickering. Posturing. Gridlock. What became of the common good? What became of talking to each other, of working together?

But I see hope.

Where? In our nation's young people.

I see how hard they work. Back in the early '80s when I was in high school? Seemed no one had any homework. Today? I've seen our two daughters and their friends doing two to three hours plus of homework. Every night. AP and IB classes. Classes for college credit. All there and good kids are taking advantage of the opportunities.

I've also noticed how kids today work collaboratively. I think this is good. Seems to me my generation and preceding ones were more into going it alone when it came to school, studying and work. Kids today reach out for the answers and resources they need. Social media is helping.

Last week, two high school kids reached out to Machinery Pete.

I received two emails, one from a high school junior in Iowa working on a class project, the other from a high school senior in Missouri looking for advice on how to buy his first tractor. I had very good email exchanges with each young lad. They both agreed to let me share our correspondence here. So here you go, the questions posed by our young friends, followed by my replies:

Dear Greg Peterson,

My name is Andrew Langel. I am a senior at Kingsley-Pierson High School in Kingsley, IA. We are doing a project called a research paper and we have to contact professionals in certain fields to give us some information on a subject of our choice. I chose Ag Marketing. I was hoping you could give me some information on equipment prices. Why is used equipment worth more now than it was when it was new? Would you advise new young farmers to buy good used equipment or new equipment that will last but cost a little more? If you could answer these questions it would be much appreciated.

Thank You, Greg,

Andrew Langel

Pete's reply:

Andrew,

Thanks for your note. Glad to help. I have a daughter that is a H.S. junior myself so I know about all these big projects, good stuff. I think you have selected a most interesting topic.

There are a lot of folks trying to figure out right now why & how used farm equipment is worth as much or more now that it was new or used years ago. I have spoken with (3) financial analyst on Wall Street in the past month and each of them asked same question as you just did. I think there are a couple forces at work that have caused our present situation:

* SUPPLY & DEMAND The "supply" of used farm equipment in good condition is at an all-time low right now in my 20 years of tracking the used equipment market. Let's start at the top. Equipment Mfg's (Deere, CaseIH, Agco..) used to make new equipment and send it out to dealers. New combines, tractors, balers would sit on the lot waiting to be sold. Not now. New tighter manufacturing processes designed to maximize efficiency (stockholder's DEMAND efficiency & tight production control) took hold and now basically if you want a new combine, tractor or planter it's YOU BUY IT THEN WE'LL BUILD IT. This pretty much a game changer. So just as this new reality was setting in what happened? Price of steel shoots up back in mid 2004. So immediate price increases in all types of new farm equipment. Customer (farmer) gets conditioned to rising price of new. New prices continue to inch up until we hit Nov. 2007. What happens? Commodity prices surge wildly higher. So then what happens? A torrent of pent up buyer demand is unleashed from farmers. Folks who for years have put off the purchase of a new tractor, combine, planter now have increased $$ in pocket and are ready to spend. But now have to buy and wait 4, 6, 9 months for delivery of new product. So ok, they may decide to opt for a nice 2, 3, 5-year old used tractor, combine or planter. But not as many were made & sold over last 5 years. Not as many on dealer lots (and fewer implement dealers around too by the way due to fast consolidation...pushed by Mfg's). So alright, those would be buyers turn to auctions. Guess what? # of machinery auctions has dropped like a rock over last few years (see attached Powerpoint slides).

Add this all up and here's what you get: more willing buyers chasing less available New & Used farm equipment. A perfect recipe for RISING used equipment values.

I have attached a Powerpoint slide presentation from a speech I just gave on Tuesday (Feb. 16th) in St. Louis at the "Farmers for the Future" conference. I think you may find some helpful info in the slides.

Please, any questions just let me know. Happy to help if I can. Best of luck on your project......I think you're headed for an A+ :-)

Greg Machinery Pete 800-381-0423 www.machinerypete.com

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