Moving Iron: The retail vs. auction market

The retail and auction markets are not separate entities. They are intricately interwoven, each influencing the other in a complex dance of supply and demand. It’s not a simple one-way street but a dynamic relationship that shifts depending on market conditions.

During the last downturn, 2014–2017, this interdependence was particularly evident, as dealers lost high inventory levels, commodity prices fell late, and low-model buyers were in the market to buy.

From 2014–2017, the farm equipment market witnessed a leasing boom, with a record number of leases written for new and used equipment. This period saw the emergence of creative financing options that offered buyers the opportunity for affordable payments, with terms ranging from as little as a year to as long as five. In most cases, at the end of the lease, lessees returned the leased machines to the lessors, which could be manufacturers’ captive finance arms, local banks, or agricultural lenders. 

This detail is important, because as high as inventory was during 2014–2020, manufacturers’ captive lending arms should have listed their equipment on sites for sale. Instead, they sold it back through their respective dealer channels. During this period, the largest owners of used equipment weren’t dealers; they were manufacturing captive lending arms, banks, and ag lenders. Billions of dollars worth of inventory were seen by very few organizations. That was unlike today, where dealers, not lenders, are the largest owners of used equipment. 

When buyers consider auctions

During the last downturn, I found there was a limit to where buyers would not only shop the dealer lots for equipment but also consider auctions. For example, if a dealer were selling a combine for $175,000, and the same machine could be bought at auction for $100,000 or $125,000, most of the time the buyer would purchase the auctioned machine. 

Many factors go into purchasing at an auction outside of price. Trade-in equity positions, whether there is trade at all, and comfort level with auction buying, to name a few, all play a part in the buying decision. 

I found that when the retail price exceeded the auction value by more than 120%, the auction value was the most-sought-out price. When the retail value retreated below 120%, the retail number was taken seriously. From 2017–2020, both markets aligned, with the retail market averaging 115% to 107.5% of auction value. During this time machines were still going to auctions, and the auction markets slowed, but only by a small amount. The biggest reason was simple supply and demand. The number of used machines on the market was still high, and buyers had options.

How the pandemic influenced pricing

The COVID-19 economy from 2020–2023 set unprecedented pricing for new and used equipment. During the height of the pandemic, pricing for auctioned equipment exceeded 120% of the retail price on dealer lots. In many cases, the increase in auctions resulted from dealerships holding back equipment to ensure their local markets were serviced. If a machine were needed for an emergency breakdown, their customers would be cared for. 

During this time the auction market basically became the retail market. Many used equipment owners found it more profitable to sell their trade-in at auction or outright to someone answering a Facebook Marketplace listing or classified ad in the local newspaper. Supply was short, demand was high, and the marketplace reflected that. A phrase I used during COVID-19 was “scarcity premium.” The scarcity premium was the 30%–60% rise in pricing from 2020–2023. 

Current market conditions

Today, several factors are causing current market conditions, namely commodity prices, interest rates, and inflation. Supply has caught up with demand, buyers have options similar to those of the last downturn, and the auction and retail markets are out of whack again. In every case, when it comes to combines, tractors, sprayers, and planters, the retail-to-auction value has exceeded 120%. New equipment prices are higher, and used equipment reflects the retail values. 

Used equipment is a commodity, bought and sold daily to the highest bidder. Instead of losing $50,000–$75,000 on a combine in 2014, today it might be $150,000 at auction. All this affects dealers and end users alike. 

Current used inventory levels are similar to those of 2021–2022 and will continue to grow through 2025. I expect numbers to reach 2019–2020 levels before stabilizing in late 2025 or early 2026, as we head back into the “new normal” phase. The auction market will continue to drive down the retail price and eventually stabilize, but I am not convinced this new normal will look and feel like the past new normal. Used inventory will compete directly with upgrades, affecting the market’s overall health. It could be good, or it could be bad. 

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.