The farm industry has been going through a period of ups and downs that has some wondering what the future will hold.
John Deere & Co., one of the most successful and recognized producers of farm equipment in the world, has announced that production of new equipment will be cut in order to maintain profits in the face of a weak global farm economy. Deere has experienced decreasing sales and profits for nine consecutive quarters and some feel that this trend may continue.
Record harvests and falling crop prices have greatly impacted the income of farmers around the world and made them reluctant to make major investments in equipment. Instead, they are maintaining the equipment they have, buying used, or leasing for the time being. These factors have combined to create a large surplus of used farm equipment in the marketplace.
In turn, the prices of used equipment have dropped in recent months. For banking purposes this will affect loans that have been made that are collateralized with farm equipment. Due to the decrease in value of assets that make up these loans, loan to value ratios may be off balance and no longer meet the thresholds necessary to protect your investment. It is likely that the surplus of used farm equipment on the market will not be depleted for 2-3 years.
During this period, loans collateralized with farm equipment could be troublesome and expose banks to increased risk. If you have farm loans on the books, this may be the perfect time to revisit the equipment valuations used for the collateral.
At Brumbaugh Appraisals we have a good understanding of the current market dynamics and can assist you in determining if your loans are properly collateralized. Please give us a call at 919-870-8258 or reach out through our contact form.