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Buy used iron as a hedge
A few columns back, I touched on the used equipment investment angle. You'd be retired and living on a beach in the South Pacific by now if you had bought every good-condition piece of used equipment you could find back in 1998 through 2003 and then slowly sold them over the last four years.
But buying used equipment as a hedge?
I'm talking about a hedge against the continued rising price of new equipment. The hedge train of thought came from a very smart auctioneer I talked to recently. He gave me a price report on his sale. It included yet another super-high price on a gravity wagon. He said, “I think folks are buying these wagons as a hedge against the future.”
The same sentiment applies to good-condition, used 200-hp. tractors. Look at the data table at the left. Notice all the sale prices in red. Each one represents a new record-high auction sale price.
New prices are driving used bids
The buying-as-a-hedge angle is prevalent everywhere. As I've traveled all over North America, I've noticed one common theme. A good item is up for sale, the bidding inevitably stalls, then all great auctioneers say the same thing, “Boys, what does a new one cost?” More bids ensue, and a high sale price clocks in.
Check out the Case IH 7140 tractor in the table. It is a 1992 model with 3,315 hours that sold for $64,000 on a southeast Minnesota auction on October 6 of this year. That $64,000 is the highest auction price I've ever seen.
I posted a note on my Machinery Pete Facebook page with a picture of that beautiful 7140. Folks chimed in with their comments. Mark C. posted, “High price. But go price a new 200-hp. front-wheel-drive tractor!”
For 22 years now I've been covering the used market. Late summer into early fall 2011 ranks as one of the hottest periods I've seen in the used tractor market.
Case in point is the September 8, 2011, farm auction in south-central Minnesota by my friend and auctioneer, Dan Pike. Pike sold a 1993 Deere Model 4960 in excellent condition with 3,156 hours for $83,500. That's the highest sale price I've ever seen in the U.S.
I look back in my data to 2001 and see an auction on February 24, 2011, in central Michigan where a nice 1992 Deere 4960 with 3,557 hours sold for $42,000. The same tractor was worth half as much 10 years ago.
I'm telling you, if you bought then and sold now, you'd be retired on the beach.
200-hp. Tractors Nearly a 10!
Machinery Pete's new quarterly Used Value Index reports that used values in the 200+-hp. tractor segment are at record-high levels. Pete's current index rating for the third quarter of 2011 is 9.3. A rating of 6.0 represents stable/normal used values.
It's easy to sit back and think folks are simply paying too much for these really nice used tractors. But are they? Think about the alternatives. How many sharp one-owner, low-hour used Case IH Model 7140s or Deere Model 4960s do you see for sale? These tractors have become a needle in a haystack.
So what continues to drive the market? As my auctioneer friends and Mark C. on Facebook say, “What's a new one cost?”
Yes, we're certainly seeing record-high prices these days. But doesn't that sound like a successful hedge against the future? Time will tell.