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Machinery Pete used value index

GREG PETERSON 08/30/2011 @ 3:31pm 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

This topic is long overdue. I've known for many years that I needed to create a new report, a broad-brush synopsis of the used equipment market with monthly updates. The report also needed to provide closer looks at individual segments of the used equipment market such as four-wheel-drive tractors, tillage equipment, or ATVs.

Over the years, I've had an increasing number of phone calls from Wall Street analysts looking for insight into what was really happening in both the new and used farm equipment markets. I've always enjoyed visiting with these folks. They ask insightful questions about finger-on-the-pulse topics. What are implement dealers thinking? What are farmers thinking? What does your data show? Why are values trending up or down?

One particular conversation stands out. The winter of 2010 I was driving to Kansas to cover an auction, and I was on my cell phone talking to a guy from Goldman Sachs. As we were talking about current trends with used values, I hit a patch of ice on I-90. Next thing I know, my pickup is upside down in the snow.

Fortunately I was fine – not a scratch. While upside down, still buckled in, I saw an SUV slide off the road not 200 yards behind me. I think it was at that moment that I decided it was time to stop putting things off.

The result is a new Machinery Pete Used Value Index.

Look at the top chart at left. This is my take on overall used farm equipment values over the past 10 years, quarter by quarter, based on the auction sale price data and dealer advertised price data I have compiled. I'm using a 1-to-10 rating scale to show strength of used equipment values with a rating of 6 as a baseline or normal used values.

Perhaps you're thinking used values have been on the rise for a while now? You're right. The driving forces behind the rise over the past decade include these factors.

● 2003 – Bush tax cuts. Section 179 of the tax code allows for greater immediate write-offs.

● 2004 – Steel prices. Surges are fueled by China's explosive growth, which causes new equipment prices go up.

● Late 2007/2008 – Commodity price spikes. Farm income climbs and farmers have more money to spend.

● 2007-2011 – Fewer auctions. The result is more buyers chasing less available used equipment.

● Late 2010/2011 – More commodity price spikes.

Values are at historic highs

The current overall used value index rating of 8.8 for the second quarter of 2011 is historically very high, up from an 8.3 rating in the second quarter of 2010. But it's slightly down from near all-time high ratings of 9.3 in the fourth quarter of 2010 and first quarter of 2011. There are two reasons for that decline.

The developing softness of values on late-model used combines is one reason. Years of strong new combine sales plus a slowing absorption rate on used late models coming off dealer lots have tilted the supply-and-demand scale. The result is softer values on one-, two-, and three-year-old used combines.

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