Tractors depreciate. Or, tractors did depreciate, reliably, at 10% a year for row-crop tractors.
It’s not a constant, as blips in the market, usually spurred by strong on-farm income, can break the 10% depreciation cycle. But 2021 has proven to be more than just a blip.
Kyle McMahon, founder and CEO of Tractor Zoom, an app that allows farmers to browse auction listings and dealer inventory, said there’s little precedent for what his company is seeing in terms of the price of used agricultural equipment. Row-crop tractors haven’t depreciated 10%, or even depreciated at all. They’ve shot up in value 27%.
“For tractors to be up that high, that’s pretty wild,” McMahon said Tuesday after speaking at the 2021 DTN Ag Summit in Chicago. “That’s quite an astounding number.”
McMahon told a room full of farmers and ranchers that while the price increases in used equipment may level off, he doesn’t foresee them dropping anytime soon.
The market is being driven by high net farm income, low interest rates and strong 2021 yields coupled with strong commodity markets.
That’s all sought to limit supply even before the lingering effects of the global pandemic and its subsequent parts, manufacturing and labor shortages.
“We’ve been in this (deflationary) market where we had $3 corn for the last three-four-five years, so you haven’t seen a lot of updates happen, and now you have this massive demand,” McMahon said. “Even in 2012, we had $7 corn just like we had this year; however, you had supply. There wasn’t a COVID supply chain issue to screw the market up.”
There are quirks to the market. Self-propelled sprayers, for instance, haven’t seen nearly the sharp increase in price. That piece of equipment has long been seen as more of a “want” than a “need” for many farmers, and there was already a healthy stock at dealerships and in the used equipment market awaiting buyers when shortages started to set in elsewhere.
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At the other end, nothing has exploded like used row-crop tractors. Used combine prices are up, albeit more modestly. But tractor supply wasn’t as robust even before the shortages, so they’ve seen the most increase.
The story of the times can be seen in the market.
There’s still plenty of buyers, but fewer sellers.
“What we saw was asset accumulation. Instead of a farmer going into a dealership and trading a machine, many were buying a second machine, which takes further supply off the market,” McMahon said.
Farmers are keeping equipment longer, so what is out there to be purchased might have 650 operating hours instead of 500.
Then, farmers are often opting not to buy new or used and instead fix up or retrofit the equipment they have, or they’re seeking to upgrade new equipment they have been able to buy. That’s driven the price of one common upgrade, the GPS receiver, through the roof, by 46%.
It’s enough that Tractor Zoom recommends anyone who is selling their equipment be sure to separate the GPS receiver and sell it on its own.
“There’s not clear indication that machines will bring $10,000 more for the receiver when you can sell it for $10,000 on the market,” McMahon said.
Heading into 2022, Tractor Zoom expects low dealer inventory to remain a headache, for many planter deliveries to be late and for that used equipment that is available to come even older with more hours.
“We still believe there will be very strong prices paid in December and into 2022 because new supply chain issues haven’t been figured out,” McMahon said. “We’re also starting to see farmers buy more parts to help offset farm income this year.”
Joel Reichenberger can be reached at Joel.Reichenberger@dtn.com
Follow him on Twitter @JReichPF