From Stu Ellis at the Farmgate blog
When you calculate the value of machinery on your farm, and those of all other farmers, the total approaches $200 billion, and is about 11% of land and buildings. But that 11% is the “fun” part of the asset base and most farmers will frequently wheel and deal with farm equipment. Yes, those are the tools of the trade, but they are also more mobile, and can easily fit into the category of “big boys’ toys.” But are you buying, selling, and trading more than your farm country colleagues?
Little is really known about how farmers buy, sell, and trade farm equipment. You and your dealer know. You may have cancelled checks from local auctions. And you may have had some experience acquiring or liquidating equipment with the help of the Internet. But there are no overall records like land sales, say Ohio State University economists Brian Roe, Marvin Batte, and Florian Diekmann. Their report on used farm machinery and equipment (FME) is based on surveys with 2,559 farmers who shared their records of FME trades and motivations for trading.
At some time or another most farmers have probably told their spouse that a new tractor, combine, or planter just has to be purchased because it is crucial to the success of their operation. In addition to making that profitability call, farmers are challenged by the variable quality of equipment and the replacement of local auctions with the Internet as a provider of used FME. Despite the challenges, the economists say farmers are active in the use machinery market and in the past 5 years about 7 in 10 have bought used machinery and 4 in 10 have sold used machinery. While that may seem that used equipment is piling up on farms, the economists said that purchases frequently include trade-ins, and some equipment is kept on the farm for spare parts.
Trading with a local dealer is the preferred way of exchanging FME and 55% of farmers said their most recent purchase was through a dealer. 16% indicated the equipment came from an auction, and 10% indicated it came from a classified ad. But on selling equipment, only 9% was sold to a dealer, but 22% was sold through an auction and classified ads. While the Internet only was credited for 1% of the sales, 43% was likely sold to a neighbor or relative. The economists report their survey found well over 80% of farmers where satisfied with the transaction. One of the concerns of the buyer is the honesty of the seller and while 49% were very certain of the quality, 45% were only somewhat certain of the quality. 67% of all farmers expressed satisfaction with their most recent sale they made,
The economists credited the Internet with reducing the cost of sales, since auctions can charge 5% to 15% commission; the eBay Internet site limits commissions to $250. Interestingly, the Internet has become a more trusted form of FME exchange, particularly with Internet classified ads. The economists say, “Internet classified ads were rated as providing the greatest satisfaction and this level of satisfaction was significantly higher than standard auctions and dealers though not statistically higher than internet auctions or traditional classified ads. This suggests that farmers are finding internet classified ads to be a satisfying way to transact used FME as they report the highest levels of satisfaction among all sales outlets and find that the price obtained is similarly fair to prices received in other venues.”
Comparatively, farmers who were going to buy equipment had the most favorable impression of dealers and the least favorable impression of Internet auctions. The preference was due to the reputation of the dealer and the lack of opportunity to contact the seller in an Internet auction. For farmers planning to sell equipment, dealers and auctions received a mixed review, with dealers seen as the most likely to pay an agreed upon price, but were the second lowest in terms of getting the best price for the used equipment. The preference for selling was through classified ads and the least was through Internet auctions. However, more than 40% of farmers say they “might consider” an internet auction for selling equipment.
The growth in large farming operations is giving rise to the thought that local machinery dealers may be a dying breed and some areas would not be served by them. In fact 4% of Midwestern farmers and 5% of Eastern farmers reported no interaction with local machinery dealers in the past 5 years, and that increases to 7% in the South and 8% in the Western US. The majority of farmers have done business with two or more local dealerships. They are largely pleased with the service department and that was true for 93% of Midwestern farmers.
Auctions are part of the fabric of Cornbelt agriculture and they give an indication of the local market conditions. 90% of farmers say they attend auctions to learn about the market for equipment, livestock, land and other key inputs. 94% said they would trust the quality of the item sold at a farm sale auction, but only 68% would trust the items sold at an auction assembled by an auctioneer.
Summary:
Buying and selling use farm equipment is important to the operation of many farming operations. While the neighborhood equipment dealer has long been the source for trading equipment, the Internet is becoming a more frequently used method of buying and selling, as long as the farmer has trust in the process and whether they feel they received a fair market value.
