Tax policy in recent years has contributed to an inflated used-equipment market, according to the report. Farmers will have a decreased incentive to buy as a result of the new Farm Bill, which will drop from $75,000 to $25,000 the amount of capital expenditures on machinery that can be deducted for tax purposes.
The previous tax policy led to large amounts of low-hours machinery being sold on the used market. Dealers are lowering the prices of high-value, used machinery below their actual worth in order to free up space on dealer lots for new equipment, and some are going so far as to offer free warranties on used equipment, according to the report.
Another factor in the decline is that farms are projected to make less money this year. The USDA's projected net farm income for 2014 is $113.2 billion, down 14 percent from 2013's preliminary farm income figure of $131.3 billion. Forecast net cash income is also down by 6 percent at $123 billion, according to the USDA's 2014 Farm Income Forecast.
The USDA predicts that farm income will continue to decline through 2016 as a result of low crop prices, low export values and low cash receipts. This will partly be offset by the increased direct payments made under the Average Crop Revenue program in 2015-2017, but fixed subsidy payments under the Farm Bill are being replaced with a stronger insurance scheme.
The value of farmland has only been rising slowly, limiting farmers' ability to use their land as collateral on loans, according to the AEM report. The second quarter of 2014 marked six consecutive quarters of decline in loans for farm machinery and equipment.
However, AEM Senior Vice President and Ag Sector Lead Charlie O'Brien is positive about future equipment sales.
"Through close monitoring of the situation, we are optimistic that the Section 179 deduction and bonus depreciation will be reinstated, providing farmers the incentive to purchase new equipment," O'Brien wrote in an Oct. 6 newsletter. "The current surplus of used equipment will be pushed through the distribution channel over the next year, returning dealer inventories to manageable levels and stabilizing the purchase cycle for new and used equipment."
O'Brien said that a continually growing world population and increasing demand for food will require more-productive agricultural techniques. "The only way to increase yields is by increased productivity. Consequently, part of the solution is new, more innovative equipment to continue to push productivity on its persistent upward track." FG
—Summarized by Progressive Forage Grower staff from cited sources
