Is the Tractor Market Turning?
This question of when will the used equipment market turn downward has been at the core of every conversation I've had with OEMs and dealerships over the past few months. Seeing what has happened lately to the stock market, it certainly is a valid question. Especially for those out there who were caught on the wrong side of trades during the market change in 2013 and 2014.
Earlier this week we were talking with a red dealer out east about this exact subject. They deal with quite a few compact and utility tractors, as well as larger horsepower row crop tractors. We broke down the market to look especially at late-model tractors within horsepower segments ranging from under 60, 60 - 99, 100 - 139, and 140+. While they were concerned mostly with the brands they carry, our analysis included all brands so we could increase the sample size and get a better understanding of the whole market’s direction.
Before we even begin diving into valuation trends, an understanding of the new supply paradigm we are living in is an important baseline to set. Supply is scarce. No surprise here as farmers and dealerships alike are on the lookout for quality equipment to round out their fleets. What this means statistically is that any averages you look at are going to have more variability than they used to. Before, when 30 tractors sold in a period, an outlier or two would not significantly affect the average. Now if only three tractors are sold in a period, an outlier is going to define that new average. Ignoring this ‘noise’ can lead someone astray. We’ll focus on that below.
Our Tractor Zoom Indices work to account for some of that noise. The TZ Row Crop Tractor Index for May took a slight downturn in May from a value of 135, to 133. A deviation from the direction of the corn market which it had been following for months, but not a significant change.
It is also not uncommon to see tractor prices slide slightly during spring planting and spraying seasons. What this leveling off could indicate though is that the incredible month over month increases in auction values could be cooling off. For this question, let’s open up a page of that report I mentioned earlier.
While this report dives into small and large compact tractors, and utility tractors, we’ll focus on the larger row crop tractors for this post. If you would like a copy of the whole report, let me know @ ACampbell@TractorZoom.com.
Across the top of this report is the average quarterly price trend as the bar graph and the average hours on those tractors as the line graph. Below that is the volume of those tractors sold at auction. Remember, this data set is very late-model. Only tractors produced in 2018 and later, so the low volume seen in Q4 of 2019 and Q1 of 2020 is to be expected. The growing usage over time is also why you see the average hours (line graph) increasing from left to right. The hours dip in Q2 of 2021 is a weird anomaly that I have no explanation for. If any readers do, I’d love to hear your thoughts. The bottom left of the report has a line-by-line detail of the equipment so we can transparently see the data. To the right of that table is the price vs. hours depreciation chart. The size of the bubble indicates the horsepower and color of the manufacturer. As you’d expect, the larger bubbles float to the top.
Perhaps the most important trend in this value and hours chart is the lack of one. At least no significant change in average values from 2020 to the end of 2021. As usage increases, you’d expect values to decrease. Yet they did not during this inflationary period. 2022 seems to be off to a different start though. Average hours decreased in Q1, but average price did not increase. Keeping in mind this was after a significant end-of-year auction period that was influenced by impending farm taxes. Yet, this valuation slide continues into Q2, the present period.
This is where the ‘noise’ I mentioned earlier comes into play. There have been only two auction sales that fit our criteria so far in our current quarter. Here the filtering and design of Iron Comps is vital. I identified the two tractors as a John Deere 6145M and Case IH Magnum 250. The reason for identifying and isolating these is to learn if they each sold for more, or less, than other sales of the same model. I walk through this exercise in the short video below.
In summary, the most current values are not lower than the most recent comparables. While there are not a lot of comparable sales both because of the newness of the tractors and scarce supply, the older comps we do have are below what we have seen recently. Not proof that the market is still ripping upwards, but certainly doesn’t indicate that it is trending down either.
As I mentioned above, if you are interested in full reports like this, please reach out to me at ACampbell@TractorZoom.com