If you want to get a feel for where used farm machinery values are strongest, follow the bin-busters.
The used farm machinery market, like many sectors of the ag economy, has faced challenges as grain prices remain in low territory, with values falling on low demand from farmers in cost-containment mode. But, the market has seen new life in the last year or so, with used values holding firm and starting to rise in late 2016 and the first few months of 2017.
That rise has been anything but consistent; geography has a lot to do with how used machinery values fluctuate. In the past, the rule of thumb has been that used farm machinery historically retains its value better and longer in the Corn Belt and Midwest better than it does in the mid-South and Southeast, according to used farm machinery expert Greg “Machinery Pete” Peterson.
Changes in geographic trends
That's changed over the years as general machinery prices have climbed. Today, auctions and used machinery sales at dealerships show those old geographic lines have been blurred.
“I was at a farm liquidation sale in Texas in March, and prior market data would have indicated prices would be lower than if that sale was happening in Iowa or Minnesota,” Peterson says. “The prices were virtually the same. If used machinery is in good condition today, it will see strong sales.”
That’s not to say there’s no longer geographic variability in used machinery prices. There’s just another variable that’s taken the lead in the pricing equation: Crop yields.
“If you look at a map of where crop yields are the highest, you’ll see the areas where we saw the strongest used machinery prices,” says “The areas where we see softer prices are where they don’t see those bumper yields. In those places, farmer attitudes are more negative.”
Soybean yields support recent value gains
Most recently, the tie between high crop yields and used machinery prices was evident with the 2016 soybean crop. The crop was, in general, “exceptional,” says University of Illinois Extension agricultural economist Gary Schnitkey. “Much of the Corn Belt and Mississippi River basin had above-trend yields. Below-trend yields occurred in New York, Pennsylvania, western North and South Carolina and some counties in Georgia, Tennessee and Alabama,” he says.*
Those areas where soybean yields were best have seen stronger used machinery values, while values have been softer in lower-yielding areas, Peterson says. And though soybean prices have yet to begin a wholesale move higher, higher yields meant improved farmer attitudes, and that’s translated to machinery-buying confidence.
“If you look at prices starting last November where soybean yields were so high, you will see stronger prices on used machinery,” Peterson says. “You get variation in pricing, but it depends on where yields were strongest last year. It’s a reflection of farmers’ attitudes becoming more positive. Commodity prices may not be that much stronger, but the fact that if you had a good year for soybean yields, you’re more likely to feel positive heading into 2017. That’s true for a lot of farmers.”
Your partner in machinery financing
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* From FarmdocDaily “2016 Corn and Soybean Yields in Perspective” by Gary Schnitkey, University of Illinois Agricultural Economist.