Key Takeaways for Decision Makers
FINANCE: Given the pricing fluctuation for low and mid-horsepower tractors, market-based residual values for shorter lease terms will prove difficult to predict.
RENTER/SELLER: Be wary of relying on online marketplaces to value larger tractors – when average prices rise, this may simply indicate an influx of newer equipment that is not selling readily.
Following the expansion of EquipmentWatch’s reach into the agricultural equipment industry, we examine pricing for tractors within the past two years to determine how those trends vary by size class. Although the AEM defines four size classes for tractors (three for 2WD models and one for 4WD models), we at EquipmentWatch break equipment out further with seven classes ranging from under 25 PTO hp to 275 PTO hp and over. Using a greater number of categories allows us to pinpoint market activity with greater accuracy and is made possible by the amount of data being considered. Over 300,000 unique sales records were compiled for the following analysis.
Graphing indexed prices rather than average dollar values allows for easy comparison of pricing trends and variability. While all size classes experienced dips and surges in monthly prices, one overarching theme emerged: since July of 2013, prices for high horsepower models remained stagnant while prices for small and mid-range tractors were less predictable but generally increased.
Of all of the size classes considered, tractors with less than 25 PTO hp exhibited the greatest pricing volatility. Prices hit their lowest levels in January of 2014 but quickly rebounded, reflecting greater consumer confidence and demand among property owners and small farmers. One year later, average prices were 50% higher than initial levels. Given the low price point of these models, however, the differences are not as extreme as they appear. To put the figures into perspective, the 27.8% increase seen from July 2013 to July 2015 represents a difference of about $3,200.
An upward trend was also observed for tractors in the 25–74 hp and 75–124 hp categories. With one exception, prices for 25¬¬¬–74 hp tractors were consistently higher than in July 2013. May of 2014 marked a dip for most size classes, with prices tending to level out in June and July. Since that time, prices for these two categories have risen 38% and 20%, respectively.
Compared to other size classes, high horsepower tractors exhibited little variation in average pricing. After some swings in late 2013 and early 2014, prices for 175–224 hp models were fairly stable. For the most part, prices for the 225–274 hp range hovered around 97% of their indexed values, although prices did fall as low as 87% of the initial value in June of 2015. Year over year, prices in July 2014 fell 8% but rose 5% for July of 2015 However, they are still 3% lower than in July 2013. The pattern was similar for tractors with over 275 hp. Prices remained within 84% to 110% of initial values and were up 2% year over year.
Strong prices for small and mid-range tractors come as no surprise given the estate of the livestock, hay, and forage sectors, but stable prices for the more powerful tractors seem at odds with the downturn in industries requiring high horsepower equipment. However, this does not take into account the average age, usage, and condition of used tractors on the market. Looking at age specifically reveals that the majority of the most powerful tractors on the market were manufactured within the last five years – the most common model year is 2012 or 2013 depending on the size class. During the 2-year window our data covers, average unit age for tractors in these size classes fell 12%, indicating a greater proportion of late-model tractors on the market. Despite the increase in newer tractors available, average prices held firm, and this is further evidence that sellers are having trouble reducing their inventories of newer tractors.