Machinery Pete: Inflation + Market Forces = Inflation+

March 29, 2022

Inflation+. No, that is not a sad new streaming service to rival Disney+, but it could well have been the name of my Machinery Pete blog in the past 15 months. 

I’ve never agreed with the folks who routinely use the catch-all reason of inflation to explain rising used equipment values. I understand monetary forces, but because I focus on actual sale prices for used equipment, I’ve seen significant periods of time when used equipment values tanked. 

The top two that come to mind are:

• 1998 to 2003
• Late 2013 to 2015

Where was inflation when used equipment values dropped 15% to 25% year over year in 2014 and dropped more in 2015? If inflation erodes the value of money constantly, what happened back then to cause used values to fall like a rock? Simply, it was market forces.

TIGHT INVENTORY, FEW OPTIONS

Are we facing inflation now? Of course, but there are also unique market forces at play, namely the unprecedented tightness with used farm equipment inventories on farm equipment dealer lots. 

Now let’s factor in the horrid supply chain issues severely pinching the availability of new farm equipment. This is why I contend farmers need to think way more long term and more aggressively than ever before. 

If you sit back and wait, you will have fewer, less appealing and more expensive machinery options.

In all the past inflationary periods (when sales of new equipment took off and used values rose), there was a valid fallback strategy. The thinking was when commodity markets cool, then used values will drop and you can find better buys. That was assuming you had money ready to deploy.

That strategy worked because dealers always had way too much used inventory stuck on their lots. Today, there are fewer farm equipment dealers thanks to the seismic consolidation in the past decade. 

Consider 2016 to 2019, when low numbers of new equipment sold due to tight farm profits. Also, consider how the current supply chain mess has resulted in a higher percentage of 2022 new equipment being presold out. The same scenario likely awaits in 2023.

 

AVALANCHE OF RECORD PRICES

This is why I said last February to get whatever iron you needed — don’t worry about price. It’s also why I think we’ve been seeing the absolute avalanche of record auction prices on all types of used farm equipment since the calendar flipped to 2022.

Every direction I look across the auction front, I see aggressive buyers, particularly on older pre-DEF, pre-Tier IV equipment, which you can fix more easily and keep rolling. 

For example, let’s talk John Deere 6420 tractors. The loader tractors were made by John Deere 15 to 20 years ago. On March 3, at a farm auction in Poteau, Okla., one with 2,941 hours and a loader sold for $70,500, earning the fourth-highest price ever.

The two highest selling 6420s at auction both came in 2021:

• A 2003 model with 1,142 hours and loader sold for a then record price of $75,000 on a March 6 farm auction in Swanville, Minn.
• That was blown away by a 2003 model with only 156 original hours and loader from Mitchell, S.D., that sold for $91,500 on our Machinery Pete Monthly Online Auction Aug. 17. 

Dealers have been jumping into the auction market hard the past six months. Why? Because they don’t have enough used inventory to sell.

On March 3, a Case IH 3394 tractor with 3,660 hours sold in Strawberry Point, Iowa for $52,000. That’s $14,500 over the previous record, which stood for 22 years. A John Deere 4760 tractor with 5,700 hours sold at the same auction for $91,500 — the second-highest price ever. 

On Feb. 22, in Beason, Ill., a 2012 Case IH Steiger 500 HD 4WD tractor with 1,659 hours sold for $267,000 (a record by $36,750). 

At the same Illinois auction:

• A 2014 Case IH Magnum 370 with 1,983 hours sold for arecord  $217,000.
• A 1996 Case IH 5240 2WD with 4,474 hours went for a record $45,000.
• A 2020 Case IH 7250 combine with 652 engine hours brought in a record $347,000.

Despite inflation over the years, record auction prices used to stand for a long time and when finally broken, were eclipsed by just a smidge. Not now — not in the days of inflation+.  

Back to All