The Only Constant Is Change

March 21, 2014 08:43 PM
 

What’s the one constant we can count on throughout life? Yep, it’s change. You don’t have to like it, and most folks don’t because change is usually hard.

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Change is everywhere, even when it comes to used farm equipment values. At the very least, if you are aware of change, opportunities will spring up around you. 

Assets can and will go up and down in value based on any number of factors. The best way to accurately capture and measure these value gyrations is with "hard cash" price data from the open market. 

That’s why I collect auction prices. In fact, lots of auction prices, from many trusted sources. When I started compiling auction data back in 1989, I was a 23-year-old kid just starting out with a lot to learn. One truth I quickly picked up on, though, was that used farm equipment values change over time—both up and down. 

In my business, the competition was a guidebook that based used equipment values on a mathematical formula: one year older means a 3% reduction in value. Makes sense, right? Well, that was wrong.

The why, the how and the psychology of rising prices are always interesting to wrestle. I’m fascinated by just how responsive auction prices are to any change in the market. 

Put into practice.
To start, let’s look at self-propelled sprayers as an example. Remember the initial Asian Soybean Rust scare in fall 2004? Auction prices immediately spiked higher on used sprayers. 

For example,  a 1999 RoGator 554 sprayer (600-gal., 80' boom) sold for $69,500 at a Dec. 29, 2004, auction in east-central Indiana. Two years later, as the threat of rust weakened, I saw a nice 1997 RoGator 544 sprayer with 3,772 hours sell for only $30,000 at an auction in west-central Illinois.

We don’t have to look too far in the rearview mirror to see these fluctuations. In my March column, I highlighted how auction prices have been shooting through the roof on good used cultimulchers, possibly due to more farmers thinking about switching from corn to soybeans in 2014. 

Small but mighty.
There are also trends that catch folks off-guard. In the past two years, premiums paid for good-condition smaller used equipment are increasing. Six-row planters are a prime example. Check out some of the eye-popping auction prices in the data table on page 72. A White 6100 six-row planter brought $20,500. A 1996 John Deere 7200 six-row unit sold for $23,000 at a Dec. 7, 2013, farm auction in north-central Ohio. Wow!
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Toward the end of 2013, this 1996 John Deere 7200 six-row planter sold for a record price of $23,000 at a north-central Ohio farm auction on Dec. 7. Small-scale equipment has been demanding a higher price at auction. 


This trend surfaced in August 2011, and it hasn’t slowed down since. In fact, it even shows up on four-row used planters. At a March 23, 2013, auction in northeast Pennsylvania, a John Deere 7000 four-row unit sold for $9,000. Two weeks later at an April 5, 2013, sale in east-central Pennsylvania, a Case IH 800 four-row sold for $4,800.

Small older drills are red hot, too. A March 1, 2014, farm auction in southeast Minnesota featured a Case IH 10 12' grain drill that sold for $2,700. Also of note are two John Deere 8300 drills that sold in 2013, one for $8,000 at a March 5 farm auction in north-central Iowa and the other for $8,300 at a Nov. 30 farm sale in southwest Iowa. Of the 427 John Deere 8300 drills I’ve recorded in the past 18 years, those claim the title for the highest auction price.

Used livestock equipment values, stagnant for an extended period, began to spark noticeably higher this January as cattle and hog prices surged. Specifically, there were higher auction prices on good-quality used manure spreaders and skid steers.

The highest auction sale price I’ve ever seen on a John Deere model 54 manure spreader was $3,200 from a March 19, 2011, consignment auction in southeast Wyoming. That record price was topped by the $4,000 paid for a nice John Deere 54 spreader at a Jan. 11, 2014, farm auction in west-central Illinois. 

Likewise, I’ve seen the record auction price set twice in the past three months on Knight 8118 slinger spreaders: $10,500 at a Dec. 19, 2013, sale in south-central New York and then $12,100 at an east-central Iowa auction on Jan. 11, 2014.

Raw materials and price.
Ten years ago, steel prices rose due to China’s amazing growth. In turn, that increase in the value of steel caused used farm equipment values to spike higher in North America. Manufacturers were forced to significantly bump up new list prices on grain carts, grain trailers and other steel-intensive products. Not surprisingly, values on good used gravity wagons, grain carts and grain trailers shot up, as well.

Brent 640 gravity wagons are a good example. In 2003, they sold at auction for an average of $5,440. By 2005, the average auction price was up to $7,639, and it didn’t stop there. In 2006, the average sale price was $8,329, then $9,331 in 2008 and $10,033 in 2011. Just one example that with age came higher values.

Therein lies the beauty of tracking auction sale prices. Farmers use their checkbooks to set prices every day on every type of used equipment. It’s not some math equation—when the gavel falls, now we know what it’s worth. Of course, auction price data can show the opposite effect, too. 

Softer sectors.
I’ve written and blogged frequently about softening auction sale prices on later model large-class combines during the past four years. Since spring 2010, there have been too many stacking up on dealers’ lots. It’s been tougher to find that second buyer; hence, when this excess inventory sells at wholesale auctions, softer prices result. Now I’m watching the same trend emerge on late-model four-wheel-drive tractors. This trend began to show up this past spring, thanks to the big buildup of late-model four-wheel-drive units traded in and sitting on dealer lots around the country. 

Here’s a formula that proves itself time and time again: As the number on the dealer lots increases, the price pressure decreases on the auction market, which leads to falling values. 
 
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