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Do Combine Values Really Fluctuate That Much?

1/21/2021

Things were looking pretty good for the American farmer in December of 2020. Whether you needed it or not, there was a healthy injection of government payments. Tighter stocks-to-usage ratios gave commodities a late-year boost assisted by poor growing conditions in South America and rising foreign demand. This increase in farm revenue drove more farmers to seek out equipment purchases in December to offset some of that income. In this analysis we compare December combine sales in 2020 to the two previous years’ final month. The reason why we focus on just December is to limit variability that certainly happens with low volume sales months (spring and fall), and the heightened sales spike that takes place in late summer. As we all know, 2020 finished on a vastly different note than 2018 and 2019 for farmers. This is part of the analysis. Does this upward swing in farmer sentiment have an impact on machinery values?
The quick answer: Yes. The long answer: It’s complicated. The easy answer: I’ve recorded a video of my analysis for you.
This scatter plot above represents the different prices of combines sold (only including those sold over $10K), graphed by the machine hours on the X axis. A bit cluttered, but we can see more of those low hour machines propping up values in 2020 (orange circles). The lines represent the best linear fit line, which right now is hard to make sense of anything. You can surmise with the table below, which include averages of all those data points you see above, that it is hard to make any clear judgment without being able to filter the data further because of the wide variation in hours and price.
What we know from experience, and a bit of those orange circles in the upper left, is that buyers do value low-hour machines differently, up to a point. Hard to exactly distinguish where that point is, but on this graph it appears that around 2,000 - 2,500 hours. Above these hours the values drop and there is more parity. This 2,500 hour mark is where we make our break.
Filtering this Tractor Zoom data down to less than 2,500 hours shows that 2020 is outperforming the two previous years. On average, 2020 is about 5% above 2019 and over 30% above 2018. This 30% premium is especially significant when you consider the average amount of hours on these 2018 combines were greater. In December of 2018 this set of low hour harvesters were only bringing $56 per machine hour. 2019 and 2020 are up around $79 - $80 per hour.
When we shift to the older end of the field, we discover that the same price premium does not carry over in 2020. I elaborate on the potential causes of this in the video, but the effects are clear in the scatter plot below.
2018’s price trendline is, on average, about 7% higher than 2019, and almost 9% above 2020. While the difference is tighter than the lower hour combines, the causes for this flip are perhaps more interesting. I have a few theories that I mention in the video. It is at least a lesson that a simple across-the-board multiplication factor should be avoided when valuing these higher-value machines in bull or bearish markets.