Time of year, new lease options and surplus inventory change the dynamics of the market
There’s a lot in store for the used equipment market. Here are fi ve trends that are likely to play out in 2016 and how they affect your machinery fleet. Shop around, buy, sell, trade and, above all, crunch the numbers to take advantage of money-saving opportunities.
1. The number of machinery auctions is quickly rising. I began to notice a slight uptick in auction numbers in June 2015, with a 7.5% increase versus June 2014. From there, auction activity snowballed through fall as shown in the table below.
|Auction Numbers Up
Same Month in 2014
The fact is we’re just coming off an extended period of a historically low number of machinery auctions. Think back to pre-2006 and recall the number of sale bills in your newspaper. There were dozens every week. In the past eight years, though, they’ve been few and far between.
According to Machinery Pete data and trend analysis, we could be returning to the auction price pattern that spanned from 1989 to 2006. During the 17-year period, auction prices tended to be strong early in the calendar year, from January into mid-March or so, then soften from early spring to mid-fall. In the past eight years, this Time of year, new lease options and surplus inventory change the dynamics of the market pattern didn’t materialize as used farm equipment in good condition tended to sell well regardless of the time of year.
If you’re shopping, particularly for larger dollar iron, be ready come mid- March for potentially better buys through mid-fall.
2. Thinking of leasing? Farmers became increasingly interested in the leasing route in 2015—and dealers and manufacturers took notice. The opportunity to off-load risk and run equipment under manufacturer warranty is enticing when margins are tight.
If you’ve been hearing about leases and think it’s worth investigating, pay a visit to your local dealer soon. Manufacturers forecast years in advance to gauge whether the ag economy will be better, worse or the same in two or three years when leases expire and those two- and three-year-old tractors and combines head back to their possession. After a robust year of leasing, it’s natural to wonder if the manufacturer’s foot will come off the gas.
Here are a couple tips from a dealer friend in Kansas regarding leasing, particularly if you’re new to the arrangement:
- If you don’t plan to keep the machine for three years, don’t draw up a three-year lease. You’ll be locked in.
- Be conscious and realistic about the number of hours you will put on the machine. Stiff penalties await those who go over on hours.
3. Be on the lookout for opportunities to upgrade to late-model used equipment. Whether it’s a planter, combine, tractor, sprayer or other type of equipment, the coming year will present several opportunities to upgrade to one- to five-year-old, late-model used equipment in nice condition. Dealers are sitting on plenty of late-model used iron, and it will take some time to work through the excess. As mentioned, the number of machinery auctions is rising, which will open doors to additional buying opportunities.
Don’t get caught in the trap of assuming there will always be plenty of late-model used equipment available, leading to more favorable prices. In the first half of 2015, savvy buyers took note of falling used values and, in the second half, prices turned upward, particularly on late-model combines and four-wheel-drive tractors.
At a Nov. 13, 2015, farm auction in southwest North Dakota conducted by the Steffes Group, price strength was strong:
- 2013 Case IH 550 Quad Trac tractor with 601 hours sold for $291,000
- 2010 John Deere 9630 4WD tractor with 808 hours sold for $215,000
- 2013 Case IH 8230 combine with 152 engine hours sold for $256,000
The $215,000 sale price for the John Deere 9630 is the highest auction price I’ve seen since September 2013. The $291,000 price tag for the Case IH 550 Quad Trac is only $14,000 less than a 2013 model with a mere 11 hours that sold in June 28, 2013, at a consignment auction in southwest Illinois.
Throughout 2015, prices for large late-model planters (24-, 36- and 48-row) and self-propelled sprayers continued to be soft. Used inventory remained high on dealers’ lots. Given the planter and sprayer segments have been under pressure for some time, it wouldn’t surprise me if prices go up in 2016 as they did for late-model combines and four-wheel-drive tractors in the second half of 2015.
Check out the more than 80,000 listings at www.machinerypete.com.
4. What’s waiting on the other side of sluggish new equipment sales? New equipment sales have been slow for the past couple years, but what are the long-term implications for the used market and values? Fewer sales of new combines, tractors, planters and tillage tools means in two or three years there will be fewer two- and three-year-old options on the market. Add in an increase in leasing, and the used market is bare.
5. Older and simpler machinery is worth more money. If you follow the Machinery Pete Facebook page or Twitter feed, you know older and simpler machinery is in high demand. I’m talking about 10-plus-year-old equipment in good condition with low hours. For example, a 1988 John Deere 4450 tractor with 1,136 hours sold for $77,500 at an Aug. 27, 2015, auction in southeast South Dakota. A 1997 Case IH 8920 two-wheel-drive with 614 hours sold for $92,000 at a July 11, 2015, farm auction in south-central Minnesota. Both prices set new records, and I could rattle off a dozen other examples. You get the idea: Take care of your equipment—it pays big time.
Keep your eyes wide open, and take a look at your options to upgrade equipment. Right now just might be the perfect time to act.