Time to Trade?
SAN ANTONIO (DTN) -- The biggest and most technologically advanced equipment attracted farmers at the 2020 Commodity Classic trade show like puppies entice children.
It's an annual ritual for attendees to climb in combine and high-horsepower tractor cabs and chat with specialists about equipment capabilities.
Some producers will spend hundreds of thousands of dollars this year on the latest Lexion harvester by CLAAS or John Deere's 8RX four-track tractor, which were both on display. Others may opt for cheaper, used big-ticket machinery.
A learning session -- "Economic Factors Impacting Your Machinery Purchases: Is Your Equipment an Asset or Liability?" -- at the event provided information to help make equipment decisions. Commodity Classic, held in San Antonio in February, is the largest farmer-led agricultural and education show in the United States.
Cameron Hurnard, director of data services for Iron Solutions, provided recent and historical prices on new and used combines and large tractors, along with depreciation figures. The company, based in Franklin, Tennessee, provides data and insights to help lenders and insurance companies guide their clients' equipment purchasing decisions.
Daryl Theis, head of marketing with CLAAS, mostly talked about how cost of ownership and technology play a role in buying machinery. The German company makes tractors, forage choppers and other equipment, but is best known for its combines.
Hurnard revealed the price spread between new and one-year-old Class 7 combines, 325 to 375 hp, is historically wide at the moment. A new machine averaged about $400,000 in the winter of 2019, while the same one-year-old combine cost $100,000 less at the dealer. From 2006-10, the difference averaged about $20,000 after the first year.
"You get hit very hard on deprecation costs in the first year now," Hurnard said. "It's a pretty significant gap."
The price disparity started to widen during the commodity price boom in the early 2010s. Selling corn for $6 to more than $7 per bushel for a couple of years allowed farmers who typically bought used equipment to buy new, Hurnard surmised.
Combines rolling off the assembly line dramatically increased in price as demand surged. Used prices fell as less desirable trade-ins collected at dealers.
When commodity prices dropped, though, the price gap between new and one-year-old Class 7 combines didn't shrink. Depreciation between a one- and two-year-old machines is far less dramatic at only $25,000. Class 8 combine, 375 to 425 hp, price trends are similar.
The same goes for new and used four-wheel-drive and track tractors. A new one costs about $420,000 and a year later it's worth $100,000 less, Hurnard said. The depreciation from a one- to two-year-old machine is only $10,000.
"It's an unprecedented pattern," Hurnard added. "I don't think it will change going forward. The only way to make money (grain farming) is to be really good and efficient."
The desire to have the latest technology is a primary driver of new combine and tractor sales, especially high-horsepower units, Hurnard believes. Both have remained fairly strong despite the down ag economy. Large grain stocks, weak exports and now COVID-19 continue to put downward pressure on commodity prices.
U.S. farm tractor sales grew 3.6% to 244,637 units in 2019, according to the Association of Equipment Manufacturers (AEM). New self-propelled combine purchases fell 0.7% to 4,807.
February combine purchases fell 21.1% compared to a year earlier, though four-wheel-drive and 100-plus hp tractor sales increased 7.3% and 6.2%, respectively, AEM statistics show.
In October 2019, the opposite occurred. AEM stats indicate new combine sales grew 8.1% compared to the previous year, while two-wheel and four-wheel-drive tractor acquisitions dipped 3.5% and 2.8%, respectively. However, 100-plus hp tractor sales grew 1.9%.
Besides initial cost and depreciation, Theis said farmers need to consider maintenance expenses and technological advances when considering equipment upgrades.
For combines, Theis contends horsepower has increased 6% the past 10 years and productivity has improved 10%.
"When you think about holding onto a combine, you have to consider the cost of the machine not performing as well (as a newer one)," Theis said.
CLAAS collected data on non-warranty parts and maintenance on 384 combines over a five-year period from its dealer network. Both cost $1,500, on average, for one-year-old combines. Year two was $2,500. By year five, the average cost was $7,500.
Machinery, particularly harvesters and high-horsepower tractors, continue to be one of the largest capital expenses for farmers. Understanding the economics and efficiency gains before purchasing is crucial to a producer's bottom line, officials said.
"Maintenance costs increase each year ... and every year you hold on to a machine, you fall %1 behind (in productivity)," Theis said. "You need to think about how long does it make sense before you trade for a new or newer machine."
Matthew Wilde can be reached at email@example.com
Follow him on Twitter @progressivwilde
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