Farm Industry Market Trends Update – Fall 2021
Recap on Late Spring and Early Summer Auction Sales
Throughout the month of June, we saw a continuation of the now over yearlong trend of appreciation in the value of not only land and the equipment to farm it, but equipment utilized in other industries as well. From farm real estate to machine shop equipment, to farm and construction equipment, we saw a stable but steady increase in the prices realized at auction with sometimes eye-popping demand.
We operate in a cash today world. Its where conjecture meets reality and where “What’s it going to bring?” is answered. The laws of supply and demand can explain a lot of what we have seen this late spring and summer in the auction business. When it comes to the agricultural world that we operate in, the three leading indicators that we look at most closely coupled with supply and demand principles help explain where we are at right now.
- Commodity Prices
- Interest Rates
All three leading indicators continue to be good. Farm income remains strong with the help of the Coronavirus Food Assistance Program (CFAP) and historically high commodity prices. The Paycheck Protection Program has also helped producers and other businesses.
A COVID Recovery Economy
Trillions of dollars have been distributed through Covid-19 related aid programs. This has led to a mind blowing 5 TRILLION dollar increase in money supply since January of 2020 according to the Federal Reserve. Consumer purchasing power is incredibly good right now with the help of very low interest rates and an abundance of available cash on hand. Some of those dollars have no doubt made their way towards equipment and land purchases as many industries attempt to meet the boom in demand for their goods and services with limited resources. It takes equipment to produce those goods and services.
Supply and Demand
Through our conversations with buyers and sellers a phrase we have heard a lot more of lately is “You can’t find them right now!”. From trucks & trailers to construction and agricultural equipment, the availability of new equipment is limited. Month long to year long waits are not at all uncommon according to our bidders and buyers. New is often not available immediately and desirably optioned used equipment is highly sought after right now if you can find it both by end users (farmers/contractors) & dealers. We believe this continues to push the value of used equipment to new highs. Manufacturers of new are discovering buyers are willing to pay at higher prices for new. Older equipment’s utility continues to shine, and prices are historically high but still cheap relative to the replacement cost for the same utility out of a new machine.
Most farms, or tracts of land for that matter, are sold after the crop has been harvest and before it’s been planted. However, June brought with it thousands of acres for sale on our auction sales throughout the Midwest. Many of our sellers chose to take advantage of the strong markets and demand despite the time of the year and were rewarded handsomely at sometimes record setting prices. We witnessed recreational, crop, and pastureland sell very well in a historically undesirable time of the year to sell land.
Again, we point to the three leading indicators, as well as supply and demand. For the short term, there is no reason to believe this run will not continue at least into early 2022. Hopefully, manufacturers will be able to meet demand soon. Because demand currently outpaces supply, we believe equipment isn’t getting any cheaper anytime soon. Expect more of the same during the short term. With the increase in money supply and low rates, we believe there will be continued demand at these new price levels when it comes to both equipment and land. Crop insurance, with the help of high multi-year average yields, keeps the farm income outlook fair to good even in areas where yields will continue to suffer.
For these reasons, we encourage those who are considering major machinery or land purchases this fall to look at our auction sales right now. If commodity prices stay strong and yields are even remotely average, we believe there will be significant tax implications for producers who will be looking for tax deductions through equipment purchases late this year. Stay ahead of that rush if you are a buyer. Start shopping now if you have machinery needs and do not be afraid to jump in at these new price levels.
We look to see more land become available this fall than we have seen for quite some time. The capital gains conversation that continues to go on has pushed landowners to consider an exit. Dilution or family’s ownership of a farm through undivided interests continues to be motivation to sell. Many landowners missed the last run up and elected to hold through the last 8 years of down to flat land prices. They will likely not watch a second runup go by again. We look to see robust and strong demand for any land that does become available.
If you’re in a selling position we can tell you the market is about as good as it has been. It is truly a seller’s market out there! If you are considering selling or making a major change on your operation, now could be about as good of a time as any to discuss your opportunities for a late summer or fall auction sale if you’re ready! “Get while the gettin’ is good” as the old saying goes.
Site Leader | West Fargo, ND
Steffes Group, Inc.