A Lender’s View On Ag Equipment Market

By: Jim Patrico

If you plan on buying farm equipment soon, also plan on an in-depth discussion with your lender. That’s the gist of what Jerry Lehnertz, senior vice president of AgriBank Farm Credit in St. Paul, Minnesota, told DTN/The Progressive Farmer recently. Sure, loans for farm equipment are available at historically low interest rates, and prices on equipment — especially used machines — are at sharp discounts. But before approving a machinery loan, lenders want to hear more from farmers now than they did a few years ago.

Reasons are obvious. With lower commodity prices and lower incomes, farmers will have to convince lenders that a new tractor, combine or planter has good potential for return on investment. That contrasts to the recent boom years when some farmers — and maybe some lenders — let exuberance override caution. Lehnertz said: “It’s human nature. When times were really good, there was a loss of discipline in putting pencil to paper as to what made sense for return on investment for new equipment.”

In describing how we got to this point in the farm equipment buying cycle, Lehnertz recalled the recent past. In the mid-2000s when commodity prices spiked, “Farmers were aggressive in building their equipment lines, particularly tractors, combines sprayers and planters.” Investment in machinery “per acre or contemplated bushels produced went up pretty dramatically, in some cases 20%-30%.”

In other words, some farmers became equipment rich.

The flood of new purchases gave manufacturers and dealers a huge boost in sales and put a lot of iron into the pipeline. When commodity prices dipped, farmers slowed their buying spree; they had already bought the equipment they needed.