Are Machinery Values Reflecting the Surge in Commodity Prices?2/26/2021
The rise in the grain and oilseed markets these past six months has been just what growers needed after a year like 2020. As this is being typed, the March soybean contract is up 15 cents and that size of move is not even newsworthy amidst this bull market. With current prices at an eight-year high, farmers have had an equally high interest in longer term investments of machinery.
When searching for insights, it is important to 'block out the noise' as much as possible and eliminate variables that might swing your information one way or another. Time of sale is one of those variables that you can filter within Iron Comps. We've filtered down to just look at December sales. With crops out of the field and end-of-year visibility to tax payments, this final month in the calendar year is a reliably high-volume farm auction sales season. Below you will see year-over-year (YOY) average sales price for different categories of motorized equipment with the corresponding average hours. By keeping the time of year consistent to control for seasonal swings, a focused comparison of hours provides insight into the relationship of this influential factor on the values of equipment categories.
When initially pulling these Iron Comps values across the categories of tractors, combines, and self-propelled sprayers, it appeared that the strong commodity prices did not have an appreciable effect of equipment values at auction. Not until the average hours were brought into view that the marketplace dynamics became more transparent and the likely story began to unfold.
(Special note for this analysis, the goal is to discover buyer behavior for field-ready machines, and not scrap or 'fixer-upers'. So with the help of Iron Comps' filtering ability, all the following data for graphs were set to only includes equipment sales greater than $30,000.)
Starting with lower horsepower, 100 – 174 HP, and, on average, older model tractors we see a relatively flat YOY change in value as witnessed by the orange bar graph below. What is not consistent is the average hours of these tractors sold. While the average price rose 6%, the average hours leapt 38%. Farmers are paying slightly more for a tractor with considerably more hours. Another contributing factor to this value increase could be the rise in demand for these older low horsepower tractors because they tend to be easier to maintain.
In the row crop category of tractors with horsepower between 175 and 299, we again see a consistent YOY value accompanied with a strong increase in average hours. With the average value dropping just about 1-2%, the hours are up 15% from last December.
This phenomenon becomes less pronounced as the tractors grow in horsepower and value. For the 300+HP tractors, the average price does drop about 6% YOY, with the average hours increasing 31%. This inverse relationship is what we would expect for normal buyer behavior, but the rise in hours is still not proportional to the drop in price. For tractors, when taking the horsepower into consideration, farmers have been paying a strong premium compared to a year ago.
This trend is not just isolated to tractors as combines have also joined in this rising tide. For less than a 1% drop in combine values YOY, the average separator hours on harvesters grew by almost 13%. You can discover the effect combine values have seen in these market conditions through this link.
Finally, as if this statement has not been driven home enough, self-propelled sprayers offer another data point where machine hours and price both rose. The hours were up 7% YOY, which was not as significant of an increase as tractors or combines saw. Yet, the average sale price of these self-propelled sprayers this year did jump almost 12% over last December.
This type of analysis should be directionally helpful for a lender, dealer, or farmer in understanding how our bull commodity market is lifting used machinery values. As is the case with most research, there may be more questions created than answers delivered. Namely, how does this affect the machinery on your lot or balance sheet? For that, be sure to check out the most recent and relevant comparables in Iron Comps. Check out Iron Comps' new QuickComps feature to help you get to those values in the click of a button!