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Is used equipment a good investment?

GREG PETERSON 08/30/2011 @ 2:33pm Greg Peterson writes "Machinery Pete" column for Successful Farming magazine and appears on the Machinery Show on RFD-TV, talking about trends in the used equipment market

Has used farm equipment been a good investment over the past decade? Without a doubt, yes. If you bought good-condition used equipment from 1998 to 2003, took good care of it since then, and sold it today, in many cases, across most all equipment categories, you'd make money.

I'm looking at over 258,400 auction sale prices from the past 15 years that back up this claim.

Quality = Top dollar

The key to getting top dollar for any piece of used machinery is in the quality of the equipment.

Slowly a trend has developed over the past seven years. Buyers have become increasingly more comfortable and willing to pay growing premiums to acquire used farm equipment in very good condition.

Here are four driving forces for this trend.

1. The price of new equipment continues to skyrocket.

2. Production of new equipment is tightly managed and controlled.

3. There are 46.2% fewer farm auctions now vs. the early part of the last decade.

4. Farm income has risen.

So the bottom line is that the really good used equipment is older but it is worth more.

Take John Deere 8100 tractors. Deere made these 160-hp. tractors from 1995 to 1999. From 1996 to 2007, one of these models sold at auction for $80,000. A 1998 version with only 288 hours sold at an auction in southeast Kansas in April for $82,000.

That compares to only seven John Deere 8100s selling at auction for $80,000 or more since 2008. The hours on these John Deere 8100s ranged from 1,455 to 3,196, with a high sale price of $91,000.

It's the same scenario with John Deere 4440 tractors (made from 1978 to 1982). Over the first half of the last decade, four 4440s sold for $30,000 or more at auction. The last half of the past decade, 24 sold for $30,000 and up, despite the fact that there were basically half as many sales.

And this trend isn't just on green machines. The same thing is happening on other color tractors and other used equipment categories, such as grain carts, grain trailers, and combines.

Fact or fiction?

It's getting harder to find used equipment in exceedingly good condition, and it's only going to get more challenging in the coming two, five, 10, and 20 years if nothing changes. Buyers are becoming conditioned to what they'll have to pay.

When any market – even the used farm equipment market – becomes more about availability, price becomes secondary.

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