Machinery Pete: It's All About ConditionMarch 04, 2017
More so than ever, used farm equipment values hinge on the condition of the equipment. Despite the challenging ag economy, in the past eight months large late-model equipment that has been well-cared-for has been holding its value. But if equipment is in disrepair, values decline to reflect the condition.
To illustrate the point let’s focus on 110 hp to 145 hp tractors made in the 1980s. In the data table below, you can see how competitive the bidding becomes in the quest to acquire these nice older-model tractors.
The very first tractor in the table, the 1981 Allis Chalmers 7010 two-wheel drive with 2,500 hours (one owner), sold for $23,000 at a farm auction in northeast Missouri on Feb. 11, 2017. That price set a new record for an Allis Chalmers 7010, just nipping the $20,015 price paid for a 1979 model 7010 with only 3,104 hours at a large Allis Chalmers online collector auction on Aug. 22, 2016, in northwest Wisconsin. Interestingly, the first owner paid $18,000 for the new Allis Chalmers 7010 in 1981.
Along these same lines, but even more extreme, check out the 1989 John Deere 4055 two-wheel drive in the table with just 215 hours. The tractor sold for $93,000 at a Dec. 19, 2016, farm retirement auction in east-central Nebraska.
About a month before the auction, I reached out to the auctioneer, John Temme, to inquire about the 215 hours. I asked John if he could do a video interview with the owner to explain the low hours. (To watch the video, which includes interviews with the seller and buyer as well as the auction, visit the Machinery Pete YouTube channel.) It turns out, the owner bought the tractor new—planning to move snow with it. However, he never quit using his trusty old John Deere 4020 so the John Deere 4055 sat in the shed for 27 years.
I knew this John Deere 4055 would be red hot. The previous high auction price on the same model tractor was $63,750 for a 1992 model two-wheel drive with only 498 hours that sold at a central Michigan auction in March 2014. Frankly, I assumed the $63,750 auction price would never be topped. Silly me.
The buyers, a father and son from South Dakota, bought the tractor to bale hay with it. No more sitting idle for the John Deere 4055—it’s time to work! In their video interview the son mentioned his dad doesn’t like the newer model tractors with all the computer technology. He also mentioned his dad’s favorite tractor has always been the John Deere 4055 and along came one in like-new condition.
And by God they bought it, outbidding numerous other folks, including the runner up bidder, a well-known buyer/seller from Minnesota who only plays on the nicest older tractors.
To illustrate my point that condition matters, let’s look at John Deere 4440 tractors. The five John Deere 4440s listed in the table below are all super nice and sold at auction in 2016 for $30,000 to $36,750.
In reality, John Deere 4440 values have been falling the past couple years. In 2015, the average auction price on John Deere 4440s slipped 7.9% to $19,886. This past year, prices fell another 7.5% to an average auction price of $18,410. That is the lowest average auction price I’ve seen on John Deere 4440s since 2003. In the first two months of 2017, John Deere 4440 values have dipped further yet, down 5.8% to $17,346.
So how can the overall value of John Deere 4440s be down while some specific tractors are obviously in demand? The past couple years, we’ve seen a significant uptick in the number of machinery auctions and the number of John Deere 4440s (and various other types and brands of equipment) sold at auction. In many cases, people are selling an item or two to a regional consignment auction or an online auction to free up operating cash.
These tractors hit the auction block in various states of condition, which separate the very nice tractors from the not-so-nice ones and everything in between. Those who frequent auctions, know there are good late-model tractors out there and are willing to pay for them when they come across one, which means anything less than desirable doesn’t bring near as much.
Now more than ever the price tag reflects the condition of the tractor.
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