DECATUR, Ill. (DTN) -- A few months ago, Joe Nichols took a hard look at his Cadiz, Kentucky, operation known as Seven Springs Farms and decided it could be leaner and more efficient.
What that streamlining also meant was he faced an excess inventory of farm equipment. So, he scheduled an auction and started planning a sale to accommodate on-site buyers.
To say unforeseen circumstances happened next is an understatement. The novel coronavirus, known as COVID-19, has canceled nearly every planned event that includes a public gathering. Fortunately, these days, there's more than one way to have a machinery auction.
Thanks to the option to sell used machinery online, the show will still go on for Nichols. On April 8, 2020, he'll sell an extensive lineup of agricultural implements and tools to the highest bidder -- all over the internet.
Although live farm auctions haven't disappeared from the landscape, online bidding was becoming increasingly popular even before current events, said Luke Sullivan, who works for the family business, Sullivan Auctioneers LLC, based in Hamilton, Illinois.
While Sullivan estimates internet bidding began nearly two decades ago, it was more of a secondary way to add interest to an auction. Only a few years ago, about 5% of the company's sales were internet based.
"Last year, approximately half of the equipment we sold was either purchased by -- or the next-to-the-last bidder was -- someone on the internet. It's been a drastic increase," he said.
That online experience is definitely helping stabilize business in this current crisis, Sullivan noted. "Illinois was one of the first states in the Midwest to issue stay-at-home orders, so we decided it was best to move all our scheduled auctions, regardless of location, to online only sales until we can safely do otherwise," Sullivan explained to DTN.
Auctions tend to be a fairly social event, he noted. Beyond the people mingling and viewing machinery, there are food vendors, auction staff and personnel who help load purchases. "Keeping all these people from grouping together was a no-brainer in this current need to social distance," Sullivan said.
"The decision was also fairly easy since we have a really simple way to still have the auction, and customers are already very familiar with the process of purchasing used equipment this way," he added.
To take some of the sting out of the decision, the auction company removed the fee that typically goes with the internet bidding platform. Those fees pay the company that hosts the technology.
"We've never charged an on-site buyer's premium, and people have always had the option to come to the auction in person. So, when this all happened, the first thing we did was eliminate that online buyer's premium," Sullivan said. "We're just paying it out of pocket, but we didn't want people to feel they are being forced into paying for something that is out of their control."
That discounting move by the auction company made Nichols more comfortable with his own decision to go forward with the sale, rather than reschedule for a later date.
What makes this particular auction unique is that it is an inventory reduction offering and not a dispersal sale, Nichols said.
"In 2019, we farmed 23,871.3 acres of GPSed cropland acres. I stopped the combines to put heads on 97 times in eight counties," he said. "When I started putting a pencil to how much that was costing us, I knew we had to do better."
For 2020, he's cutting acreage back to 18,878 crop acres spread over four counties. Farming in a tighter geographic unit represents huge efficiencies in time and labor -- he figures combine head changes will drop to 39 times, for example. Middle management is going back into the cab of the tractor too.
"I think of what I'm doing as strengthening our core. These are the same kind of decisions big businesses make every day as they assess what enterprises and people are making them money," he said.
Nichols will admit that it is easier to figure out what you need to purchase to grow than it is to calculate what you need to sell. "It's a bit like downsizing from an 8,000-square-foot house to a two-bedroom lake home," he said.
For example, one hiccup is a trade he made in November 2019 for seven new 2020 John Deere S780 combines. His belt tightening means he now only needs five of those combines, but under the manufacturer's multi-unit discount (MUD) program, he can't sell those machines until later this year.
"If we sell before a certain timeframe, our dealer would get charged back the discount and we do not want to put them at risk," Nichols said. "So, unfortunately, they will have to sit in our shed unused until I am in the position to transfer ownership."
VIRTUAL TIRE KICKING
An advantage to the online auction is Nichols no longer has to worry that bad weather will deter attendance since everything is virtual. He has been spending a lot of time on the phone lately, though, describing the equipment in detail to prospective buyers.
There's no denying internet bidding loses some of the social interaction of a live auction, but Sullivan said prices on used machinery have held their own, regardless of sales method.
In fact, he said larger equipment tends to benefit from online sales. However, he's been surprised by the strength of smaller items sold via internet of late. "We've also seen a trend that it is no longer neighbors or local farmers buying equipment. Online sales have really changed the dynamic of where the buyers are located," he stated.
All equipment sales through Sullivan auctions are 100% no reserve. In other words, there is no floor price and everything sells regardless of final bid.
"We feel like that policy adds value to an auction," Sullivan said. "Buyers know they aren't bidding against the owner or the auctioneer. They can do their homework and be confident to bid on sale day."
Other things are changing in these unique days of don't touch or congregate. Sullivan said the importance of phone, email and texting is playing out in real time.
"Probably one of the biggest things we've done is add some new payment options. We've switched over to ACH payments or electronic payments that debit directly from the buyer's checking account at no cost," he said. Wire transfers and credit cards are other payment options. Invoices are all sent out electronically.
"We are doing load-out by appointment, similar to how equipment dealers or car dealers are operating. Folks call ahead and let us know when they will be there, and we have the items ready to load," he said.
Have no fear if the thought of no auctioneer's chant has left you crying. Sullivan said some smaller items are sold through a timed sale where there is not an auctioneer. Instead, there is a timer on each item and bidding continues until the auction closes.
"With the bigger items, and the circumstances we are in today, and the number of people that are still new to doing online-only auctions, we are still having an auctioneer," Sullivan said.
"Even though the auctioneer is in the home office in a back room with a microphone and the computer operator, he is still selling the item as we pull them up on screen. We've gotten a lot of good feedback from people following along for the first time at an online-only auction from this practice.
"It's still comforting to people to be able to hear the auctioneer and hear them talk about each item, and describe it, and convey the notes from the seller about how long they've owned the machine and how they liked it," Sullivan said.
Changes in business practices are part of life for Nichols. Seven Springs Farms was established in 1994 with the proceeds from an equipment repair business that he began after working for Hutson Inc., the local John Deere dealer.
"Leave it to me to make a commitment to a major business decision and then have a pandemic hit," he said. "Unlike so many other things going on in today's world, I have a logical way to proceed with a tactical decision.
"Now, let's start the bidding," he said.
For more information on Nichols auction go to: https://www.sullivanauctioneers.com/….
For an inside look at how livestock auctions are responding to new distancing rules, go to: https://www.dtnpf.com/….
Pamela Smith can be reached at Pamela.firstname.lastname@example.org
Follow her on Twitter @PamSmithDTN
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