Machinery Pete: The Limbo Line in Farm MachineryJanuary 05, 2023
The data clearly shows the strategy has been an unmitigated success. What data? What strategy?
The data is our Machinery Pete auction prices. The strategy is buying a new high-horsepower tractor in good times and using it judicially for a decade or so.
How can that be a smart business strategy given the high cost of a new tractor if you buy it and don’t use it fully?
Because around the 10-year-old mark, you have what every farmer wants — a slightly older tractor in great shape with low hours. If you trade it, the dealer will likely have it sold before it hits their lot. If you sell it privately, be ready for your phone to blow up with calls from buyers.
Or maybe you plan to sell it on a retirement auction? Our data has shown for decades, through up and down cycles in the ag economy, buyers will be lined up ready to bid. Why? Even if buyers pay a premium, it is still much cheaper than a new one in same horsepower range.
Even when times were tight (2014 into 2019), low-hour tractors more than 10 years old attracted premium prices. But when times are good, such as in late 2007, early 2013 and the past two years, low-hour tractors more than 10 years old bring double to triple premium prices. Actually, quadruple premiums might be more accurate.
A recent example came from a Nov. 18 farm auction in London, Ohio, where a 2011 Case IH Magnum 245 with 1,808 hours sold for $165,000. That was $27,500 above the prior record.
Two days prior, a 2010 John Deere 7930 with 1,244 hours sold at a record price of $170,000 on a Waverly, Iowa, farm auction.
NEED MORE PROOF?
The four highest auction prices ever on John Deere 8230 tractors have all been since June 2022, including the current record of $212,750 set at a Nov. 3 online farm auction in Herington, Kan. Prior to June, the record price for an 8230 stood at $166,000 for over 10 years.
“I hear you, but Pete, this is all machinery over 10 years old, meaning pre-DEF, pre-Tier IV models — that is what’s driving up prices, right?”
Yes, at the moment, but if you go back through our Machinery Pete data, you find a simple truth. The data I compile and analyze is so striking and consistent that 15 years ago I named it The Limbo Line. The line being the 10-year-old mark.
The absolute flood of record prices on low-hour tractors more than 10 years old the past two years is vibrant proof of concept. The strategy works, and unless our U.S. tax code is significantly changed, it will work long into the future, well past the point of a 10-year-old tractor being pre-DEF, pre-Tier IV.