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Machinery Pete: Today's Machinery Supply and Demand Laws

July 26, 2016 2a81e57beb72451182a2030a4e86e5361

These are interesting days. I’m seeing fascinating farm machinery data, both in terms of sale-price levels as well as the number of machinery auctions happening across North America. The bar chart on this page shows we saw a whopping 162% increase in January and a jump of nearly 53% in April in the number of farm machinery auctions. 

The trend began last summer with nearly an 8% increase in auctions in June and then jumps of between 20% and 45% every month through 2015. 

Lately, though, the rate of increase has greatly slowed. May 2016 actually remained flat compared to a year ago, and June 2016 saw only a 3% increase.

When commodity prices fell hard in spring 2013, I wondered how long it would take to see a noticeable uptick in auctions. From 2006 to 2012 we saw historically low levels of auction activity. I guessed it would take two years until we saw the jump—bingo. 

Commodities Drive Values. The big auction increase is understandable. More older farmers retired and sold their iron. More farm restructuring auctions took place, and more wholesale machinery auctions happened as equipment dealers moved excess late-model, used machinery.

So are sale prices down given the increase in supply? Not necessarily. 

I’ve seen more moderate price-level depreciation on later-model used equipment. This is true despite a farmer pull-back mentality—as in, “I’m good, I don’t need to buy any equipment for now.”

What do we make of large, late-model John Deere S680 combines seeing their average auction price ($195,594) down a mere 4% in 2016? That follows a 12% drop this past year and a larger 18% drop during 2014. This jives with what I’ve seen in auction price data. A large fall-off in values occurred on large, late-model, used equipment in the second half of 2014, and values began to level off through 2015 and even more in 2016. We’re finding footing.

Last year, dealers pushed ton of late model equipment out at auction.This year, much less so. Through June, I’ve seen 22% fewer S680s sold at auction versus 2015 levels. It makes sense prices are down just 4%.

Price Trends. But what about the huge rise in the number of machinery auctions? What is selling? 

Let’s stay with green paint for a good example. More older, used equipment is up for sale—such as John Deere 4430 tractors made from 1973 to 1977. Through 2016, I’ve seen the highest number of 4430s sold at auction in 13 years, and the average auction price ($10,857) is down nearly 12% from 2015. 

But older equipment in nice condition has held its value well this year. Case in point: the quad range 1977 John Deere 4430 with 6,629 hours that sold on a July 2 auction in east-central Indiana for $18,600. 

My Machinery Pete takeaway: It still pays to take great care of your used equipment.

Auction Volumes Soar in First Half of 2016
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Total farm machinery auctions are up across the board relative to 2015 levels, though a noticeable leveling off of auction activity started in May. 

 

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