Machinery Pete: Recency Bias Proves Strong

February 6, 2018 11:34 AM
 
John Deere Tractor

Auction sale prices were strong in November and December. Numerous times during that nine-week period, I’d receive auction sale price reports, scan the prices and go, “Whoa, that one seems high,” particularly on tractors.

At other times, strong sale prices appeared in different ways. For example, I received a Facebook message on the evening of Dec. 28.

“Pete: had a friend sell a tractor today (2013 John Deere 8335R with 3,214 hours, IVT, ILS, warranty) at auction for $161,000,” the message stated. “His dealer had offered him $120,000 on trade.”

The wholesale auction sale price of $161,000 was solid given the machine had more than 3,200 hours. In 2017, the average auction price for John Deere 8335R tractors came in at $157,311. The high was $223,000, and the low was $98,000. 

Machinery Pete February

That average price remained basically flat compared to the average auction price of $157,983 from back in 2016. It was down only a smidge from the average auction price of $165,717 in 2015. See the data table of recent auction prices on John Deere 8335R tractors for more details.

Strong Winters. Actually, I guess I wasn’t surprised we saw strong auction sale prices in November and December. Why? Because I’ve seen the exact same thing each year since 2007. We know why this trend became so ingrained, of course: year-end tax avoidance via Section 179.

You might say, “But Pete, that was back when there was money flowing through the agricultural economy. Why are there still stronger year-end sale prices at auction in 2017, when times are tough?”

It’s a great question.

My answer, in part, is recency bias. We humans are interesting creatures. The psychology of why we do what we do is fascinating. The trained group behavior of spending money on iron at the end of the year to minimize taxes has built up over the past decade.

So when corn yields came in surprisingly strong at harvest this past year, even given the myriad of seasonal challenges we experienced, it provided a psychological boost and a more positive outlook heading into 2018 that primed the pump for year-end iron buying.

Any doubts about the universal American urge to minimize tax bills by any means available were put to rest when the GOP tax overhaul became law in late December. With the state and local taxes (SALT) deduction capped at $10,000 in 2018, tons of folks in high-tax states such as Minnesota rushed to pre-pay 2018 property taxes before Dec. 31, 2017. Folks queued up to minimize their 2018 tax bill.

Profitable Sales. Knowing these market truths and patterns opens up actionable and profitable business opportunities. Are you thinking of having a retirement sale soon? Consider holding it at the end of the year.

Note in the table that the highest price of the year ($223,000) for a 8335R was at a December auction. In fact, four of the five 8335Rs sold at auction in November and December were above the year’s average auction price of $157,311.

On flip side, if used values tend to spike higher at year end, when might be the time to get the best buy? Think mid-March through Summer. Let others spend higher amounts as the calendar winds down. You work the “Patience is a Virtue” angle and get it for less.

 

Greg Peterson is the most trusted name in farm equipment. Since 1989, he has worked with a network of 1,000 auction companies to track used equipment prices. His website, MachineryPete.com, features equipment listings from dealers across the country.

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Comments

 
Spell Check

Craig
Kearney, NE
2/6/2018 06:23 PM
 

  I'm with you Pete. Every time I see what machinery and land are selling for after 3 years of break even at best prices I shake my head at our stupidity as Ag producers. We are a low margin business, so I can't fathom why we willingly keep our input prices so high. We could force almost all of our suppliers to their knees if we would just stop buying for a couple of years. Will never happen though.

 
 

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