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Mark Steil, MPR News 90.3 FM, Published July 18 2013

Machinery prices up as farm economy booms

For a good example of what might seem an out-of-control tractor market, one need only look to a chilly, rain-soaked auction last March in southwest Minnesota.

In a video of the auction, a 25-year-old John Deere tractor, a model 4450, is attracting a lot of attention. The tractor sold brand new in 1988 for about $54,000, but the bids climb above that. Many in the crowd smile as the auctioneer announces the final sale price.

“And I have sold it – $70,750,” said the auctioneer, to a buyer from Tennessee.

The sale of the used tractor points to how farm income and land prices aren’t the only signs of a booming agricultural economy. There’s so much demand for old tractors that many sell for more today than what they cost when they rolled off the assembly line.

“The conditions in the used tractor market are just amazing,” said Greg Peterson, who shot the auction video. “I’ve been tracking it 23 and a half years; I’ve never seen anything like it.”

Peterson, better known as ‘Machinery Pete,’ has a business that catalogs actual sale prices of used farm machinery, something he has done for decades. He said the boom started about six years ago after corn prices more than doubled. Farmers suddenly had extra cash to update their machinery.

More good years followed. A survey of Minnesota crop farms found an average profit last year of more than $250,000. But while farmers have lots of buying power, they’re running into limited supplies. Strong profits mean fewer farms are going out of business, so there are fewer pieces of equipment being sold. Peterson can recall when farm publications were loaded with auction notices.

“Tons of sales bills every week,” Peterson said. “And now you look, there’s no sales. So when one does show up, what happens is the buyer interest is magnified like you wouldn’t believe. For good used tractors they will go anywhere and almost pay anything to acquire them.”

Peterson said low-interest loan rates and tax breaks have also helped boost machinery prices. But the high cost of new machinery also plays a role. New tractors are selling well, but some farmers just don’t want to pay $100,000 or more for a new machine. So even though used tractor prices are at record levels, farmers like 72-year-old Dennis Stieg said they’re still the best deals.

“I’ve had such good luck doing that, versus new, that I just don’t see any reason that I would do anything but,” Stieg said.

Stieg, who farms in Hennepin County on the edge of the Twin Cities, said by watching for the best deal, he can still find bargains. He said the last tractor he bought had little wear, and was priced more than 20 percent below a comparable new tractor.

“It was the ideal size, and the price was more than right,” Stieg said. “And it just kind of fell in place.”

But even though this is a great time to sell used farm equipment, the market can reverse in a hurry.

Mike Espenson, who manages a farm dealership in Worthington in southwest Minnesota, remembers hard times on his family’s farm in South Dakota in the 1980s. If grain prices and farm income decline, he said, economically strapped farmers with less money to spend could quickly bring the booming equipment market to an end.

“If it comes to a halt, it doesn’t matter if you’re 10,000 over the market or 10,000 under the market, you won’t sell it,” Espenson said. “I could go tell a guy, ‘I’ll sell you that tractor for a hundred thousand.’ If he doesn’t have the hundred, it may be great deal but he’s not buying it.”

So far sales are still good in the farm equipment market, but there are some signs of trouble. There’s a good chance U.S. farmers will harvest big crops this year. If that happens, the extra supply would further reduce grain prices, cutting farm income and also possibly cooling the hot farm equipment market.