Late-Model, Low-Hour Equipment Selling at Decade-Low Prices

Until this summer, I didn’t think agriculture would experience anything like the mid-1980s in terms of plummeting values of used machinery. Then I covered a massive consignment sale in Illinois last spring and saw a long line of 1- and 2-year-old tracked tractors go for 30% – in some cases 40% – less than similar-age tractors sold for just three years ago.

Alerted to this downturn, I tracked the sales of large and late-model equipment this past summer and fall. I discovered similar price trends for a huge fleet of equipment including high-horsepower tractors of all configurations, combines, self-propelled sprayers, 24-row and wider planters, and even large grain carts.

Deals of the decade

With huge inventories of large, late-model, and often low-hour machinery at your disposal, this winter offers an outstanding opportunity to make the deal of the decade.

Extensive research into past auction sales confirms this trend and identifies segments of the market that are particularly hard hit.

To track current values of late-model large machinery, I averaged the final bids on thousands of transactions that have occurred since November 2014. I compared those averages with the sales of similar equipment during 2014. All this number crunching created the price information on a shopping basket of machinery seen on the opposite page.

To put these numbers in perspective, I compared these average auction prices, based on sales from November 2014 to October 2015, with a price index created for a similar 12-month period in 2013-2014. That comparison found these average price declines:

  • Large grain carts: 17.5%
  • Self-propelled sprayers: 13%
  • Large planters: 23%
  • Tracked tractors: 21%
  • Combines: 18%
  • High-hp. tractors: 23%

For good measure, I also turned to a panel of machinery resellers (all featured in this article) to get their take on current market conditions. They concur that the values of large, late-model machinery not only have taken a hit the last two years but also are heading for a price bottom this winter.

Lows not seen in 30 years
“Looking back over the last five years, we haven’t experienced a market for large late-model equipment such as the one we are currently experiencing since 1985,” remembers Scott Steffes of the Steffes Group. “Values on certain pieces of large equipment are 50% of what they were just a couple of years ago.”

Such bargains aren’t restricted to auction lots. Dealers are aggressively marketing their swollen fleets of trade-ins or leased returns by discounting prices while inspiring purchases with special financing offers, which, in some cases, feature interest-free loans. Another option recently introduced by manufacturers has been the opportunity to lease large and late-model iron.

All major manufacturers also now offer certified used programs that include detailed inspections, repair and maintenance work, and extended warranties on a wide variety of late-model iron. These extended warranties, combined with huge inventories of low-hour machinery, present an unheard of opportunity to purchase a piece of machinery with just several hundred hours on its tach with a like-new warranty at less than half the price of a comparable new machine.

Best bargain this winter
Everyone on our reseller panel concurs that the best deal in large iron in the coming year will be found in high-horsepower tractors.

“Last year, it was combines, planters, and sprayers. This coming year, it will be high-horsepower tractors,” says Dan Sullivan of Sullivan Auctioneers.

Particular brands of four-wheel-drive tractors are also susceptible to soft prices this winter, notes Rick Vacha of Ritchie Brothers Auctioneers. “I would also look hard at tracked tractors for deals,” he says. “If you’re not married to color, there are great opportunities to get value-priced horsepower this winter.”

Derek Wieman of Wieman Land & Auction feels the market bottom hasn’t been reached yet for high-horsepower models. “The 200-hp. and larger late-model machines are in abundance out there,” he explains. “By comparison, 150-hp. and smaller tractors are selling strong. Prices on one-owner tractors from the 1990s have actually increased.”

The same phenomena also occurred with combines when prices for 10- to 20-year-old combines went up as farmers sought a cheaper replacement to make ends meet in 2014 and 2015.

“That drove late-model combine values down even further during that same time period,” Vacha says. “Now, I see older series built from 1999 to 2008 combine values softening. At the same time, I’ve seen the supply of certain combine models, like John Deere S680s, that have started to dry up.”

The market trends driving combine values sideways is also affecting large grain carts. Their values are forecast to slip an additional 4% in the coming year.

“This is a highly durable piece of equipment that can last for years,” says Scott Cook of Cook Auction Company. “You can find carts that were trading for $30,000 or more a couple of years ago that will sell for $20,000 or less today.”

Sprayers holding steady
Like combines and grain carts, the prices for large self-propelled sprayers have been sluggish, at best. Additional softening in values is expected this winter.

“A year ago, all late-model sprayers of this size were down,” says Butch Booker of Booker Auction. “Now, particular makes and models are being affected with depressed values. That’s why it’s crucial to do market research to see how prices are currently trending before heading to auction.”

These prices won’t last
However, the resellers warn not to expect current bargain-basement pricing of large iron to continue for long.

“In fact, we have already started seeing the values of certain brands and models of large planters, self-propelled sprayers, and combines rebound,” says Vacha. “The inventory on a great many dealers’ lots has shrunk significantly compared with the previous year.”

Steffes predicts that, “In my opinion we will see late model equipment sold this winter for less money than it will be worth two years from now.  It’s happened before, it will happen again.” 

Low new-iron sales

Dismal new-iron sales are the root cause of Steffes’ prediction. Far less large new machinery has sold the last two years, which will greatly shrink future fleets of used late-model machinery. When commodity prices plunged in 2013, sales of large machinery hit the skids. In 2014, sales of large tractors and combines fell from 14% to 26%; 2015 sales are even worse.

Year-to-date transactions as of September (the latest figure available as of press time) found high-horsepower tractors sales down 22.6%, four-wheel-drive purchases plummeting 44.6%, and combine transactions dropping 36.6% compared with 2014, according to the Association of Equipment Manufacturers.

In the meantime, the glut of large, late-model machinery continues to be liquidated.
“At some point, supply and demand takes over, and the pool of late-model machinery gets short,” says Cook. “That could happen in a couple of years, possibly sooner with some types of equipment.”

Also attitudes are beginning to impact iron values. “A year ago, farmers were uncertain and not looking to capitalize on a deal that presented itself,” remembers Sullivan. “That seemed to change this summer. We were witnessing far more aggressive bidding from the farmers at our sales.”

A potential price push back could return more rapidly than in a couple of years if commodity prices climb and Congress commits to increasing Section 179 depreciation permanently to $500,000.

“When that swing back comes, watch out,” warns Mark Stock of Big Iron Auction Company. “I’m confident we will start seeing a positive momentum on prices as soon as this summer.” 

By Dave Mowitz

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