The strong used equipment values seen since late 2007 have been driven by six factors, according to Greg Peterson (who reports auction prices with the multimedia brand Machinery Pete). Those six factors have been:
- Years of strong farm income.
- High/rising price son new equipment
- Tightly controlled production of new equipment
- Low number of machinery auctions
- Historically low interest rates
- Tax incentives for buyers…. Section 179
“I’ve said that when two of these six change, there will be a recalibration in used values,” Peterson explains. “I’ve been tracking prices for 25 years, and the past six months have been the most interesting.”
Peterson gave his insights into the equipment market at the 2015 Top Producer Seminar in Chicago:
Every quarter, Machinery Pete publishes an index tracking used values by category.
“We’ve particularly seen high inventories and softening prices for four-wheel-drive tractors, 200 hp tractors, combines, self-propelled sprayers and planters (24 rows and larger). In the third quarter of 2014, I reported that values had dropped 15% to 25% for those categories.”
According to the Machinery Pete Used Values Index, for 11 years in a row, auction prices trended upward in the fourth quarter. However, it was uncertain how 2014 would match that trend.
“My index rating for the fourth quarter was flat, but actually that indicated some stronger-than-expected prices. With the IRS Section 179 passage in mid-December as well as well marketed auction events, values were stronger than many expected,” Peterson says.
Planter values are still 20% softer, and self-propelled sprayers also remain softer. Although livestock equipment maintained strong values alongside a strong livestock market, some machinery values started to soften in the fourth quarter of 2014.
Machinery Pete notes there is an important divergence to watch in the equipment market—some wholesale auctions producing softer prices and farm estate/retirement sales producing stronger values. There’s always been a reality that different types of auctions bring different prices—sometimes that gap is narrower, sometimes it’s bigger.
“The top way to increase the values on farm sales is to personalize the sales. And this will become even more important. I have auction companies from across the country reporting an increase in the number of calls they are getting from farmers inquiring about retirement sales,” Peterson says.
For 2015, Peterson thinks that the market might return to a previous rhythm.
“In the first 18 years I tracked values, from January through mid-March, prices were strong as the Midwest is still addressing what they need for the next year. After St. Patrick’s Day, the values start to soften. And I believe the number of farm auctions will rise by second half of the year, which will increase overall market inventory.”
You can follow Machinery Pete as he tracks auction prices daily at www.MachineryPete.com; www.facebook.com/machinerypete or on Twitter @MachineryPete. Also, catch his YouTube videos with auction recaps and tales from the auction trail: www.YouTube.com/MachineryPete.
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