An International 544 with 2,558 hours, 2WD sold during the same time period for $4,500. A 1970 Massey-Ferguson 1150, 135 hp, 2WD, with 2,038 hours sold for $8,125 with 80 bids.
And last fall, a 1990 John Deere 4955 with 11,813 hours, 202 hp and 2WD sold for $22,081 in Canada, but another listed elsewhere (with 5,600 hours) has a list price of $47,500, and several other same-model different-option 4955 models were listed upwards of $63,000. Quite a price spread.
As prices in used machinery rise, farmers keep asking, “When will the used machinery bubble pop? It’s gotta drop like a rock, right?” There isn’t an easy answer, but it doesn’t look like prices are dropping. Why?
What impacts used equipment prices?
According to Greg Peterson, who recently presented a seminar on the used equipment market at the National Farm Machinery Show in Louisville, Kentucky, six factors impact used equipment values, but it would take significant changes in two of the six factors to substantially affect market prices. Those six factors are:
- Strong farm income
- High rising dollar value of new equipment sales
- Tightly controlled production of new equipment (based on current inventory)
- A low number of machinery auctions
- Historically low interest rates
- Tax incentives for buyers (i.e., changes to IRS Sec. 179)
There are a few anomalies in the used farm equipment market, Peterson says. Of note, there are only half as many equipment auctions as there were five to 10 years ago, and value of older used equipment in good condition isn’t dropping but is rising instead.
If a tractor, for instance, is 10 years old or older, the value tends to actually go up, and values continued to go up in 2013 even after $7 corn prices dipped.
Buyers like the older equipment for several reasons: They’re familiar with it, it’s easier to work on, and they don’t have to hook up a laptop to diagnose it, which pushes the value up. Peterson claims this trend crosses all colors and brands alike.
Timing is everything
Peterson says whether you’re the buyer or seller, it’s important to be aware of timing and knowing when to buy or sell. Historically, Peterson says, the fourth quarter of any year has seen strong used machinery sales as farmers take advantage of tax credits for machinery purchases.
According to his accumulated data of auction prices over 24 years, sales in November and December have gone up every year (at least in dollar value) for the past 11 years.
Second-quarter prices have typically been softer. The hottest markets have been the smaller horsepower tractor classes, while the softer markets have been the bigger horsepower tractors – over 200 hp.
Peterson admits getting farmers to buy when machinery is typically less expensive during the second-quarter months might be akin to turning the Titanic around – but would definitely benefit the buyer.
Most buyers prefer to buy towards the end of the harvest, when they have a better handle on yield and commodity pricing.
Buying tips
Peterson offers some tips to buyers of used farm equipment; as buyers, it pays to look at the bigger picture – investigate new-model retail pricing and average auction pricing on similar equipment.
Peterson says he’s received feedback from farmers commenting that he only provides the record prices through his media outlets. Peterson says this information is only part of the overall picture.
He says, “This information, it’s always been my hope that it gives you tools – buying, selling and trading – to work to your advantage. And to not be aware of what’s happening is kinda doing business blind.”
Harnessing the emotion of the purchase is also likely to result in wiser decisions. Know what it’s worth and set your limit, then stick to it.
Another buying strategy is to employ the two-way buy, which means to be ready to buy anything (even if it’s not the equipment you came specifically to purchase) as long as you know its value, knowing you can use the equipment a while and then re-sell it for profit, hopefully in fourth-quarter months.
Another buying technique is to bid strong – jumping into the bidding with, for instance, a $60,000 bid when the auctioneer maybe started at $50,000.
Peterson says this is a strategy that some have employed to “suck the oxygen out of the crowd.” It uses the shock factor. It can be effective as long as solid information backs the bid and the bidder knows the number or value of the equipment when slow bidding (for instance) might have taken the implement to $65,000.
Selling tips
As a used equipment seller, one effective technique is to “sell the man” or “sell the maintenance program” behind the equipment. Farmers generally know how other farmers take care of, or don’t take care of, their equipment.
In the case of an estate sale, it can be helpful to take a video of the farmer talking about his equipment and his maintenance system.
Values can rise beyond the “value of the metal and engine” because people will actually pay more for “Butch’s machine” if they know “Butch” took care of his equipment.
These videos or oral histories are becoming increasingly important to the used equipment markets. Peterson advises buyers to have wives or kids video them operating in the field, and hold raw interviews with questions like, “Hey, Dad, tell me about your tractor.” These may become not just good memories but may be useful at future auctions.
Another class of tractor often sold at auctions includes collector tractors. Tractors built in the mid-’60s to mid-’70s, in good condition, roughly constitute the current collector market, and the value of these tractors can be quite high, regardless of color.
Peterson says tractors built in the early ’80s are beginning to enter this market as well, and emphasizes, “It just pays to take great care of your stuff.”
Auction types
Is there a difference between the online auction versus the traditional auction? After following and comparing the pricing, Peterson says the traditional auctions are still bringing the best prices, but the gap is closing.
Online auctions certainly don’t contain the emotional element for buyers that a traditional auction carries, which may explain part of the price difference.
Peterson says he also compares auction pricing to the average dealer ad pricing, and in the case of combines, the average has always been in the 72 to 78 percent range, so an auction price would usually be about 74 percent or so of the dealer ad price for the same model. FG
