DEKALB, Illinois, May 9 (Reuters) - Falling crop prices

are leaving agriculture equipment sellers with an excess of

unsold tractors and combines. To cope with the surplus, dealers

are discounting machines, suspending new orders, and even

auctioning off equipment at reduced prices.

The slower equipment sales are a knock-on effect of corn and

soy prices dropping to more than three-year lows as U.S. farm

income plummets and equipment makers and dealers are forced to

pivot quickly after a period of booming business.

Reuters interviewed ten equipment dealers, mostly in the

Midwest, as well as farmers and analysts, who said low crop

prices combined with persistently high interest rates are

deterring farmers from purchasing machinery. As farmers make

fewer purchases, inventories of equipment are swelling, cutting

into profits for dealers and big manufacturers alike.

Manufacturers Deere and CNH Industrial ( CNHI )

struggled to keep up with the strong demand for tractors in 2022

when farm income hit a record high and pandemic assistance

payments gave farmers extra money to upgrade their fleets. Now

both expect slower sales to hit their bottom line this year.

Josh Gruett, dealer principal at Waupun Equipment in Waupun,

Wisconsin, which sells farm, construction and other equipment,

said his inventory has risen 30% to 35% since the end of 2023.

The excess of unsold machinery prompted Gruett to halt new

orders from companies including CNH, AGCO ( AGCO ), and Polaris

in hopes of balancing supply and demand, he said.

In April, inventory levels of high-horsepower tractors (300

and above) in the U.S. surged by almost 107% year-over-year,

with combine inventory experiencing a 17.63% increase, according

to Sandhills Global, a market research firm specializing in

tracking used inventory for industrial manufacturers.

SLASHING PRICES

Chris Tanner, a fourth-generation farmer, said some

dealerships in his town of Norton, Kansas, have slashed prices

up to 30% with an added incentive of zero percent interest to

move machinery off their lots.

"They're heavily discounting combines and tractors -- but

after coming through a drought and experiencing poor prices we

don't have the money to spend," Tanner said.

The pain has also spread to those who sell spare parts.

Guy Robinson, is a parts manager at Dekalb Implement

Company, which sells Deere equipment in Dekalb, Illinois

During the peak years of the pandemic, Robinson said, the

combination of supply chain troubles and rising demand made

getting everything from parts to equipment to farmers "a

nightmare."

And then demand began falling off in late 2022, he said.

About 30 miles south of Robinson's dealership, Aaron Rogers,

retail location manager at AHW, another Deere dealer in

Somonauk, Illinois, said zero or low percentage financing is a

popular way to try to bring in customers.

"If you can get a good interest rate, that's what's driving

the market right now," he said. Offering lower financing rates

to sell inventory can result in a loss for dealers, but carrying

unsold machinery can prove costlier.

Manufacturers give dealers free financing on equipment for a

limited period while they sell it, but once that expires,

dealers have to pay interest on their unsold inventory to

manufacturers.

With fewer sales forecast, equipment dealers are feeling

pressure to auction off equipment "right away" to preserve

margins, said Casey Seymour, a sales consultant for dealers.

"Some of the stuff that is being put to auction is because

dealers can't afford to keep the floor plan," Seymour said.

"They can't have millions of dollars worth of inventory sitting

around at a floor plan [with a] 7.5% interest rate."

Particularly, inventory levels have been a big concern in

the Midwest grain belt, said Ryan Dolezal, the manager of

TractorHouse, a site for selling new and used farm equipment.

"We do not see the inventory levels issues like we do in

Midwest markets," he said.

Used agriculture machinery inventory, the bulk of machinery

sold in the United States, is on a steady increase that is

forcing dealers to auction equipment at a lower price point,

said Mitch Helman, a sales manager at Sandhills Global.

"There's a 70% gap between auction and retail and that's

insane. A spread this high has not been observed since May

2015," he said, referring to a time when grain oversupply was

pummeling farmer income.

Deere reports earnings on May 16. In February, the company

announced plans to cut production and warned shareholders

inflation would make farmers reticent to finance equipment

purchases.

Texas-based farmer, Scott Born said given his tighter

budget, he's forgoing buying new or used equipment for the

remainder of the year.

"We have to try to limp by without major repairs -- it's

tough especially since (equipment and fertilizer) has gone so

much higher in just a few years."