Flattening the Combine Curve4/27/2022
Early this spring our team at Tractor Zoom had the pleasure of sitting down with Casey Seymour of 21st Century Equipment and Moving Iron to learn more about the dealership industry and management of used equipment. Among many insightful topics, Casey discussed the 'Washout Cycle'. If you are unfamiliar with this concept, there are numerous quality articles and videos out there to catch you up to speed.
At the risk of over-simplification, the Washout Cycle is a process-orientated model to manage the volume of used equipment on a dealer's lot. Using this model, a dealer can continue to sell new and used equipment profitably while not getting weighed down with excess holding costs from mounting used equipment on their lot.
Well, "mounting used equipment on their lot" is not a phrase you will hear much of this year. Not that the model is ineffective. It just needs adjustments to this new paradigm, and ready to reimplement when the market flips back. This Iron Comps analysis takes a page from a recent webinar we hosted to look at the changing values of combines from a few different phases of this Washout Cycle.
We first take a look at the supply of these different cycles or segments. For this analysis we have diced the data into segments by every 500 separator hours. Not how every dealership will segment their cycles, but a close approximation that allows for a like-to-like comparison of the market.
Figure 1. Supply of Combines at Auction, Grouped by Separator Hours
Figure 1 above depicts the decline in available combines, grouped by every 500 sep hours. 2019 is put in there as reference to what a typical cycles' 'shape' looks like, but the volume of sales in our Tractor Zoom database was still growing at that time. One big takeaway is that the overall supply of all groups of hours are down. This squashing of the curve creates the empty space on dealers' lots that we've all witnessed. Thanks to Tractor Zoom's filtering functionality we can witness the more nuanced second takeaway. The first two groups, combines with less than 1,000 sep hours, declined in supply at auction by a combined 46% from 2020 to 2021. The supply of 1,500 to 2,000 sep hour combines only declined by 25% year over year. 2,500 - 3,000 sep hours dropped by 11%. The supply of earlier cycles which comprise first and second-time trade-ins are being depleted at a faster rate than later cycles. You can believe this is having an effect on values.
Figure 2. Value of Combines at Auction Sold in the First Quarter, Grouped by Separator Hours
The values have responded in kind. Those combines with fewer separator hours have increased in value at a faster rate than combines with more hours. Looking just at first quarter sales from the past four years, there is an acceleration of annual price increase. Used combines with less than 500 hours rose 14% from 2020 to 2021, but 28% from 2021 to 2022. Compare this with a more consistent annual price increase for combines having more than 1000 separator hours.
Keep in mind these are still broad market trends. In order to value equipment effectively, it always is a good practice to understand the source of data, and look at as close of comparable variables as possible. If you do not yet have access to Iron Comps Search Results or Dealer Trends to transparently see how individual models, or equipment within your area of responsibility are trading, follow this link, or button below.