There certainly was a lot to unpack in late 2021, and prices for quality farmland and used tractors continued to trend higher along with all materials related to farming and food. One bright spot for farmers is that the price of fertilizer subsided, but it’s still too high compared to late 2020.

 

Late last year, it was reported that the job sector for American family farmers and ranchers has been experiencing the highest rate of suicides as they face unprecedented challenges in today’s world. Inflation in the United States peaked at 40-year highs during the summer of 2022 at a time when the Federal Reserve and other central banks were implementing hawkish monetary policy that’s causing a new affordability nightmare. The supply chain crisis that gripped most industries has returned to borderline normalcy, prices for oil, gasoline, and diesel are lower because the Biden administration is continuing the unprecedented drawdown from the U.S. Strategic Petroleum Reserve (SPR), the pandemic-induced real estate housing bubble spike remains elevated due to low inventory with unaffordable 7% mortgage rates, the war in Ukraine continues, geopolitical fallout from financial and raw material sanctions will certainly ensure additional pressure in global trade, and the cost of essential consumer staples for survival are a mixed bag. Let’s begin with an excerpt from Part 1 published in Nov. 2021:

“There is a lot to unpack about the high demand and bidding wars taking place for used farm tractors and equipment. It is directly linked to fallout from a pandemic that sparked an ongoing supply chain crisis, a semiconductor shortage, high demand for farmland and food, and the rising cost of labor, energy, agricultural products, and fertilizer. I suspect most folks who read this are not farming professionals, but investing in airable farmland or multi-acre parcels of land with an existing home is an investment that will help secure your financial and retirement prospects.” – TraderStef

The used tractor market is divided into three categories that include 2-4WD compact and utility tractors under 100 horsepower (HP), tractors over 300 HP, and large farming machinery like combine harvesters. While total sales are down across the board, sales of larger-ag-focused equipment remain strong. The overall reduction in numbers in 2023 is mostly attributed to small tractor sales that experienced unprecedented growth in price and inventory during the pandemic. Those prices have plunged, and inventory remains elevated. In the 300 HP market, asking prices are stubbornly high despite rising inventory since early 2022. Large combine machinery prices are starting to subside this year with inventory on the rise. Overall, there are signs of a deteriorating used equipment market. The following three graphics from Sandhills Global break down the data:

 

 

 

Prices continue to set records on certain types of used tractors with low mileage that were well-maintained. At a retirement auction last week, a 1995 Case IH 7250 tractor sold for $127,750 and obliterated the previous 14-year-old record of $42,250. A 1997 Case IH 8920 sold for $125,250 and beat last year’s record of $100k. Case is owned by CNH Industrial, an American-Italian corporation. You can view a breakdown of the world’s largest farm machinery manufacturers at Statista.

 

 

Machinery Pete: A lack of supply has consequences… “That’s what we’re seeing in the farm equipment market. The worldwide supply chain mess and labor shortages have adversely affected the availability of new farm equipment. Farmers have money, but often they cannot buy the new iron they want. Naturally, many farmers are looking at used equipment. Unfortunately, the supply issue is just as bad as the new market.  In 2023, used values have continued to rise… People want to attribute the skyrocketing used equipment values solely to inflation, but that hasn’t been the engine driving prices higher. Nope. It’s been a supply issue.” – AgWeb, Mar. 8, 2023

 

High-Horsepower Tractor Asking Values Remain Elevated Despite Rising Inventories and Falling Auction Values… “Used combine inventory levels have remained steady for the past few months while asking and auction values continue to soften. Recent inventory gains in Q2 among high-horsepower (300 HP and greater) tractors have driven auction values downward. Despite the increasing inventory levels and decreasing auction values, however, asking values for high-HP tractors remain elevated. Buyers and sellers should monitor and assess values in the short term. ‘Asking values for high-horsepower tractors were up compared to last year, but auction values are trending down,’ says Sales Manager Mitch Helman. ‘It will be well worth paying attention to changes in this market as the spread between auction and asking values grows.’” – Investor Observer, Jul. 7

Despite reports of waning demand for used machinery, the producer price index for farm machinery and equipment manufacturing remains steady at a record high. In other words, the costs for parts and maintenance are not going down anytime soon.

 

In the farmland arena, values vary by region, agricultural use, and quality of the land. According to the National Council of Real Estate Investment Fiduciaries (NCREIF), YoY returns as of 1Q23 were 8.88%. Despite weaker grain markets and high interest rates, farmland is holding strong relative to other asset classes.

 

Farm Real Estate Value Growth 2018-2022

 

Farmland Produces A New Crop Of Investment Opportunities… “Investors now have options in both public and private markets to take stakes in American farmland… ‘It has the potential to produce both appreciation and income, either from rent or revenue from an active agriculture or livestock operation. Farmland has historically beat inflation by a few percentage points, but it has seen outsized value increases in recent years… Despite the rise of investor interest, the primary buyers for farmland are still other farmers.’”  – Wealth Management, May 9

 

Spiking farmland values squeeze young farmers… “Agricultural land values rose more than 14% between 2021 and 2022… High prices benefit some older farmers, as land values give them bigger returns if they sell fertile cropland. But those high prices put a steep barrier in front of young farmers looking for a foothold.” – Successful Farming, May 18

 

Strong farmland prices expected through the summer… “When you ask bankers, they’re not expecting farmland price growth nearly as strong for the rest of 2023 as they did in the same period last year. But as we talk today, it’s still pretty much moving higher…. It’s currently a seller’s market, but that’s becoming less and less true. They’re going to be fewer and fewer buyers as interest rates continue to move higher, particularly in terms of long-term interest rates. Farmers have been acquiring land through cash purchases.” – Brownfield, Jun. 20

There are only two farmland REITs available for retail trading in the U.S. stock market. Gladstone Land Corp. (NASDAQ: $LAND) pays a monthly dividend, but its stock price has been pummeled since mid-2022. Farmland Partners (NYSE: $FPI) is less volatile and pays a quarterly dividend. FPI focuses on high-quality U.S. farmland, is a larger fund than Gladstone, and has capitalized on diversification to capture an increasing global demand for food, feed, fiber, and fuel.

Take note that the crime wave sweeping through certain U.S. metropolitan areas is spreading to life on the farm and distributors that sell farming equipment. City folks won’t care about “flyover country” until food at their local grocery store disappears, becomes too expensive to afford, or WW3 introduces the woke to a Mad Max reality. The mainstream press is reporting that consumers have already resorted to dumpster-diving to save money on the high cost of food.

 

Crime Sprees Target Precision Ag Technology at Farms and Dealerships – Four Ways to Stop Theft… “Theft on the farm is nothing new. Remember the crime spree around anhydrous ammonia just a few years ago? Now, thieves in farm country are targeting precision ag tools, including yield monitors and various navigation systems. ‘It has been prevalent here recently with (thieves) taking spray equipment from retail locations. You are talking $6,000 systems between the satellite globe, monitor and related equipment,’ says Rock Katschnig, who farms near Prophetstown, Ill. ‘There was one retail location here in the area where thieves stole six systems out of their spray equipment… One retailer’s customer out in (Iowa) had over 20 systems stolen’… Once the technology is stolen, it can be difficult to locate. There is speculation that the materials are being sold on the black market and used on equipment overseas or pieced out for parts and microchips.” – AgWeb, Jul. 7

Farmers Tribute: So God Made A Farmer – RIP Paul Harvey

 

Plan Your Trade, Trade Your Plan

TraderStef on Twitter, Gettr / Website: TraderStef.com